Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
Bear Stearns Mortgage Securities Inc.
(Depositor)
(Exact name of Registrant as Specified in its Charter
Delaware 13-3633241
(State of incorporation) (I.R.S. Employer Identification Number)
245 Park Avenue
New York, NewYork 10167
(212) 272-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
William J. Montgoris
Treasurer and Secretary
Bear Stearns Mortgage Securities Inc.
245 Park Avenue
New York, New York 10167
(212) 272-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies to:
Lois L. Weinroth, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
-------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
-------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Proposed
Amount to be maximum maximum Amount of
Title of each class of securities to be registered (1) offering aggregate registration
registered price per unit (1) offering fee
price (1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-Backed Certificates and Mortgage- $1,000,000 100% $1,000,000 $295.00
Backed Notes
==================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus Supplement and the Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED $_________
__________, 199_) (APPROXIMATE)
BEAR STEARNS MORTGAGE SECURITIES INC.
SELLER
[CORPORATION 1]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
The Mortgage Pass-Through Certificates, Series 199_-_ (collectively, the
"Certificates"), consist of all Classes identified in the chart below (the
"Offered Certificates") as well as certain additional Classes of Other
Certificates (as hereinafter defined) which are not being offered for sale
hereunder. The original principal amount of one or more Classes of Certificates
may be increased or decreased by up to __% prior to their issuance, depending on
the Mortgage Loans actually delivered to the Trustee named herein, and may be
adjusted as necessary to obtain the required ratings on the Offered
Certificates. It is a condition to their issuance that each Class of
Certificates receive the respective ratings (set forth under "Summary of
Terms--Rating") of _______________________ and ____________________.
(COVER CONTINUED ON NEXT PAGE)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTERESTS IN BSMSI, THE
TRUSTEE, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL ENTITY, BSMSI, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES, OR
ANY OTHER PERSON. DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM
THE ASSETS TRANSFERRED OR PLEDGED TO THE TRUST FOR THE BENEFIT OF
CERTIFICATEHOLDERS.
------------
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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
<TABLE>
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<S> <C> <C> <C> <C> <C>
$ __________ ____% Class A-I-1 Certificates $ __________ ____ Class A-I-11 Certificates
$ __________ ____% Class A-I-2 Certificates $ __________ ____ Class A-II Certificates
$ __________ ____% Class A-I-3 Certificates $ __________ (3) Class PO Certificates
$ __________ ____% Class A-I-4 Certificates $ (4) (4) Class X Certificates
$ __________ ____% Class A-I-5 Certificates $ __________ ____ Class B-1 Certificates
$ __________ ____% Class A-I-6 Certificates $ __________ ____ Class B-2 Certificates
$ __________ (1) Class A-I-7 Certificates $ __________ ____ Class B-3 Certificates
(2) (2) Class A-I-8 Certificates $ __________ ____ Class R-1 Certificates
$ __________ ____% Class A-I-9 Certificates $ __________ (5) Class R-2 Certificates
$ __________ ____% Class A-I-10 Certificates
</TABLE>
- --------------------------
(1) The Class A-I-7 Certificates will bear interest at _____% per annum during
the first Interest Accrual Period (as defined herein). During each Interest
Accrual Period thereafter, the Class A-I-7 Certificates will bear interest,
subject to a maximum rate of _____% per annum and a minimum rate of _____%
per annum, at a rate per annum equal to _____% in excess of the London
interbank offered rate for one-month U.S. dollar deposits ("LIBOR"), as
more fully described herein.
(2) The Class A-I-8 Certificates will have a notional principal amount (the
"Class A-I-8 Notional Amount") equal to the Current Principal Amount of the
Class A-I-7 Certificates. The Class A-I-8 Certificates will bear interest
at _____% per annum during the first Interest Accrual Period. During each
Interest Accrual Period thereafter, the Class A-I-8 Certificates will bear
interest, subject to a maximum rate of _____% per annum and a minimum rate
of _____% per annum, at a rate per annum equal to _____% - LIBOR.
(3) The Class PO Certificates will be principal only Certificates and will not
bear interest.
(4) The Class X Certificates will have a notional principal amount (the "Class
X Notional Amount") equal to the aggregate Scheduled Principal Balances (as
defined herein) of all of the Mortgage Loans and will bear interest on the
Class X Notional Amount at a variable Pass-Through Rate equal to the excess
of (a) the weighted average of the Net Rates of all of the Mortgage Loans
over (b) the weighted average of the Pass-Through Rates of all of the
Certificates (other than the Class X Certificates). The Pass-Through Rate
for the Class X Certificates for the first Interest Accrual Period is
expected to be approximately _____% per annum.
(5) The Class R-2 Certificates will bear interest on their Current Principal
Amount at a variable Pass-Through Rate equal to the weighted average of the
Net Rates of the Group I Mortgage Loans (as defined herein).
----------------------------
Each Class of Offered Certificates (other than the Class PO Certificates)
will be purchased by Bear, Stearns & Co. Inc. (the "Underwriter") from Bear
Stearns Mortgage Securities Inc. ("BSMSI" or the "Seller") and will be offered
by the Underwriter from time to time in negotiated transactions at varying
prices to be determined at the time of sale. Proceeds to the Seller are expected
to be approximately _____% of the aggregate principal balance of such Offered
Certificates plus accrued interest thereon, but before deducting expenses
payable by the Seller in connection with the Offered Certificates, estimated to
be $__________.
The Offered Certificates (other than the Class PO Certificates) are offered
by the Underwriter when, as and if issued, delivered to and accepted by the
Underwriter and subject to certain other conditions. It is expected that
delivery of the Class R-1 and Class R-2 Certificates will be made against
payment therefor at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167 and that delivery of the other Offered Certificates
will be made in book entry form only, through the Same Day Funds Settlement
System of The Depository Trust Company, in each case on or about _____________,
199_.
BEAR, STEARNS & CO. INC.
The date of this Prospectus Supplement is ____________, 199_
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
The Offered Certificates and the Other Certificates will represent, in the
aggregate, the entire beneficial ownership interest in a trust (the "Trust")
consisting primarily of two groups ("Mortgage Loan Group I" and "Mortgage Loan
Group II" and each, a "Mortgage Loan Group") of conventional one- to
four-family, fully amortizing, fixed rate, first lien residential mortgage loans
with original terms to maturity (based on the date of origination or any later
modification) of up to 30 years ("Group I Mortgage Loans" and "Group II Mortgage
Loans," respectively, and collectively, the "Mortgage Loans"). All Mortgage
Loans in Mortgage Loan Group I have Net Rates lower than or equal to _____% per
annum and all Mortgage Loans in Mortgage Loan Group II have Net Rates greater
than _____% per annum. The characteristics of the Mortgage Loans comprising each
Mortgage Loan Group are described herein under "Description of the Mortgage
Loans" and in Annex A hereto. All the Mortgage Loans will be acquired by Bear
Stearns Mortgage Securities Inc.("BSMSI" or the "Seller") on the date of
issuance of the Certificates from [CORPORATION 1].
Distributions of interest and principal on the Class A-I Certificates and
principal on the Class PO Certificates, on the one hand, and distributions of
interest and principal on the Class A-II Certificates, on the other, will be
equal to an amount based on interest and principal received or advanced with
respect to the Group I Mortgage Loans (the Group I Discount Loans in the case of
the Class PO Certificates) and the Group II Mortgage Loans, respectively, except
under the limited circumstances described herein. The right of the holders of
the Class X and Class B Certificates (as defined herein) to receive
distributions with respect to the Mortgage Loans will be based upon interest and
principal received or advanced with respect to both Mortgage Loan Groups. Such
right in the case of the Class B Certificates will be subordinate to the rights
of the holders of the Senior Certificates (as defined herein). The rights of
holders of each Class of Class B Certificates will be subordinate to the rights
of any Class of Class B Certificates with a lower numerical designation.
Principal and interest on the Certificates are payable as described herein
on the ____ day of each month or, if such day is not a Business Day, then on the
next succeeding Business Day, beginning in ___________, 199_ (each, a
"Distribution Date"). Interest will accrue on the Certificates (other than the
Class PO Certificates) at the applicable Pass-Through Rates described above and
will be distributed in the amounts as described under "Description of the
Certificates--Distributions on the Certificates--Interest" herein. Distributions
of principal among the Certificates will be made as described under "Description
of the Certificates--Distributions on the Certificates--Principal" herein.
Realized Losses (as defined under "Description of the Certificates--Allocation
of Losses; Subordination") on the Mortgage Loans will be allocated to the
Certificates as described under "Description of the Certificates--Allocation of
Losses; Subordination" herein.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that one will develop. The Underwriter intends to
establish a market in the Offered Certificates being underwritten by it, but is
not obligated to do so. There is no assurance that any such market, if
established, will continue.
THE YIELD TO MATURITY OF EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS GENERALLY IN THE RELATED MORTGAGE
LOAN GROUP IN THE CASE OF THE CLASS A CERTIFICATES (AS DEFINED HEREIN), THE
GROUP I DISCOUNT MORTGAGE LOANS IN THE CASE OF THE CLASS PO CERTIFICATES, AND
THE MORTGAGE LOANS IN BOTH MORTGAGE LOAN GROUPS IN THE CASE OF THE CLASS X
CERTIFICATES AND THE CLASS B CERTIFICATES. THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO MATURITY OF
A CLASS OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE
SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED
CERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT
A DISCOUNT, AND INCLUDING THE CLASS PO CERTIFICATES IN THE CASE OF THE GROUP I
DISCOUNT MORTGAGE LOANS, THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS ON THE APPLICABLE MORTGAGE LOANS COULD RESULT IN AN ACTUAL
YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF ANY OFFERED
CERTIFICATES PURCHASED AT A PREMIUM, AND INCLUDING THE CLASS A-I-8 AND CLASS X
CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
ON THE APPLICABLE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN THE ANTICIPATED YIELD. HOLDERS OF THE CLASS A-I-8 AND CLASS X
<PAGE>
CERTIFICATES SHOULD CAREFULLY CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH HOLDERS TO
RECOVER FULLY THEIR INITIAL INVESTMENTS. THE YIELD ON THE CLASS A-I-7
CERTIFICATES WILL BE SENSITIVE, AND THE YIELD ON THE CLASS A-I-8 CERTIFICATES
WILL BE HIGHLY SENSITIVE, TO THE LEVEL OF LIBOR. THE YIELD TO INVESTORS IN THE
OFFERED CERTIFICATES (PARTICULARLY THE CLASS B-1, CLASS B-2 AND CLASS B-3
CERTIFICATES) ALSO WILL BE ADVERSELY AFFECTED BY REALIZED LOSSES AND NET
INTEREST SHORTFALLS (EACH AS DEFINED HEREIN) ON ALL OF THE MORTGAGE LOANS. NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON ANY MORTGAGE
LOANS, THE AMOUNT AND TIMING OF REALIZED LOSSES OR INTEREST SHORTFALLS (AS
DEFINED HEREIN) OR AS TO THE RESULTING YIELD TO MATURITY OF ANY CLASS OF OFFERED
CERTIFICATES. SEE "SUMMARY OF TERMS--YIELD AND PREPAYMENT CONSIDERATIONS" AND
"YIELD AND PREPAYMENT CONSIDERATIONS" HEREIN.
As described herein, two separate real estate mortgage investment conduit
("REMIC") elections will be made in connection with the Trust for federal income
tax purposes. As described more fully herein and in the Prospectus, all of the
Certificates (other than the Class R-1, Class R-2 and Class X Certificates), as
well as each of the Separate Components (as defined herein) comprising the Class
X Certificates, will be designated as "regular interests" in a REMIC and the
Class R-1 and Class R-2 Certificates will represent the "residual interests" in
such REMICs. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus. The Class R-1 and Class R-2 Certificates will be subject to certain
restrictions on transfer and may have tax liabilities during the early years of
the REMICs that substantially exceed the principal and interest paid thereon
during such period. See "Restrictions on Purchase and Transfer of the Residual
Certificates" herein.
[CORPORATION 1] (the "Master Servicer") will act as master servicer of the
Mortgage Loans and will make certain limited representations and warranties
concerning the Mortgage Loans. The obligations of [CORPORATION 1] (and any
successor Master Servicer) to repurchase or substitute for a Mortgage Loan as to
which a breach has occurred and is continuing will constitute the sole remedies
available to Certificateholders with respect to a breach of any representations
or warranties concerning the Mortgage Loans. BSMSI will not make any
representations or warranties for the benefit of the Certificateholders and will
not have any liability to the Certificateholders.
To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended. Actual results could differ materially from those contained in such
statements as a result of the matters set forth above, under "Summary of
Terms--Yield and Prepayment Considerations" and "Yield and Prepayment
Considerations" and elsewhere in this Prospectus Supplement.
The Offered Certificates offered by this Prospectus Supplement constitute a
portion of a separate series of Certificates being offered by the Seller
pursuant to its Prospectus dated ____________, 199_, which this Prospectus
Supplement is a part of 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.
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS
SUMMARY SHALL HAVE THE MEANING ASSIGNED ELSEWHERE IN THE PROSPECTUS SUPPLEMENT.
SEE "INDEX OF PRINCIPAL DEFINITIONS" HEREIN.
Title of Series........................ Mortgage Pass-Through Certificates,
Series 199_-_ (the "Certificates").
The Offered Certificates and the
Other Certificates will represent in
the aggregate the entire beneficial
ownership interest in a trust (the
"Trust") consisting primarily of
Group I Mortgage Loans and Group II
Mortgage Loans having aggregate
principal balances as of the Cut-off
Date of approximately $___________
and $___________, respectively. The
Certificates will be issued pursuant
to a Pooling and Servicing Agreement
to be dated as of the Cut-off Date
(the "Pooling and Servicing
Agreement") among Bear Stearns
Mortgage Securities Inc.), as seller
(the "Seller"), [CORPORATION
----------- 1], as master servicer
(the "Master Servicer"), and -
____________________, as trustee (the
"Trustee").
Offered Certificates.................... Class A-I-1 _____% ______
Class A-I-2 _____% $ _____
Class A-I-3 _____% $ _____
Class A-I-4 _____% $ _____
Class A-I-5 _____% $ _____
Class A-I-6 _____% $ _____
Class A-I-7 (1) $ _____
Class A-1-8 (2) (2)
Class A-I-9 _____% $ ____
Class A-I-10 _____% $ ____
Class A-I-11 _____% $ ____
Class A-II _____% $ ____
Class PO (3) $ ____
Class X Variable Rate $ 4)
Class B-1 _____% $ ____
Class B-2 _____% $ ____
Class B-3 _____% $ ____
Class R-1 _____% $ ____
Class R-2 Variable Rate $ ____
--------------------
(1) The Class A-I-7 Certificates will
bear interest at _____% per annum
during the first Interest Accrual
Period (as defined herein). During
each Interest Accrual Period
thereafter, the Class A-I-7
Certificates will bear interest,
subject to a maximum rate of _____%
per annum and a minimum rate of
_____% per annum, at a rate per
annum equal to _____% in excess of
the London interbank offered rate
for one-month U.S. dollar deposits
("LIBOR"), as more fully described
herein. .......
<PAGE>
(2) The Class A-I-8 Certificates will
have a notional principal amount
(the "Class A-I-8 Notional Amount")
equal to the Current Principal
Amount of the Class A-I-7
Certificates. The Class A-I-8
Certificates will bear interest at
_____% per annum during the first
Interest Accrual Period. During
each Interest Accrual Period
thereafter, the Class A-I-8
Certificates will bear interest,
subject to a maximum rate of _____%
per annum and a minimum rate of
_____% per annum, at a rate per
annum equal to _____% - LIBOR.
(3) The Class PO Certificates are
principal only Certificates and
will receive no interest.
(4) The Class X Certificates will have
a Class X Notional Amount equal to
the aggregate Scheduled Principal
Balances of all of the Mortgage
Loans. For certain purposes as
described herein, the Class X
Certificates are composed of
Separate Components which are not
separately transferable.
The original principal amount of one or
more Classes of Certificates may be
increased or decreased by the
Seller by up to __%, depending upon
the Mortgage Loans actually
acquired by the Seller and
delivered to the Trustee. In
addition, the original principal
amount of any Class of Certificates
may be adjusted, as necessary, to
obtain the required ratings on the
Certificates from the Rating
Agencies. Accordingly, any
investor's commitments with respect
to the Certificates may be
correspondingly decreased or
increased.
Other Certificates.................... In addition to the Offered Certificates,
the Trust will issue Class B-4, Class
B-5 and Class B-6 Certificates
(collectively, the "Other
Certificates") in aggregate original
principal amounts of approximately
$_________, $_________ and
$_________, respectively. Each of the
Class B-4, Class B-5 and Class B-6
Certificates will bear interest at
the rate of ____% per annum.
Any information contained herein with
respect to the Other Certificates is
provided only to permit a better
understanding of the Offered
Certificates.
Designations
CERTIFICATES........................ Offered Certificates and Other
Certificates.
OFFERED CERTIFICATES................ Class A-I-1, Class A-I-2, Class A-I-3,
Class A-I-4, Class A-I-5, Class
A-I-6, Class A-I-7, Class A-I-8,
Class A-I-9, Class A-I-10, Class
A-I-11, Class A-II, Class PO, Class
X, Class B-1, Class B-2, Class B-3,
Class R-1 and Class R-2 Certificates.
OTHER CERTIFICATES.................. Class B-4, Class B-5 and Class B-6
Certificates (not offered hereby).
CLASS A CERTIFICATES................ Class A-I and Class A-II Certificates.
<PAGE>
CLASS A-I CERTIFICATES.............. Class A-I-1, Class A-I-2, Class
A-I-3, Class A-I-4, Class A-I-5,
Class A-I-6, Class A-I-7, Class
A-I-8, Class A-I-9, Class A-I-10 and
A- I-11 Certificates
CLASS A-II CERTIFICATES............. Class A-II Certificates.
CLASS B CERTIFICATES................ Class B-1, Class B-2, Class B-3,
Class B-4, Class B-5 and Class B-6
Certificates.
FLOATING RATE CERTIFICATES.......... Class A-I-7 Certificates.
INVERSE FLOATING RATE CERTIFICATES.. Class A-I-8 Certificates.
SENIOR CERTIFICATES................. Class A, Class PO, Class X and Class R-1
and Class R-2 Certificates.
SUBORDINATE CERTIFICATES............ Class B Certificates.
REGULAR CERTIFICATES................ All Classes of Certificates other than
the Class R-1 and Class R-2
Certificates.
RESIDUAL CERTIFICATES............... Class R-1 and Class R-2 Certificates.
PHYSICAL CERTIFICATES............... Class R-1 and Class R-2 Certificates.
BOOK-ENTRY CERTIFICATES............. All Offered Certificates other than the
Physical Certificates.
Denominations......................... Each Class of Book-Entry Certificates
will be registered as a single
Certificate held by Cede & Co., a
nominee of The Depository Trust
Company ("DTC"), and beneficial
interests will be held by investors
through the book-entry facilities of
DTC in the United States, or Cedel
Bank, societe anonyme ("Cedel"), or
the Euroclear System ("Euroclear") in
Europe, as described herein, in
minimum denominations of $25,000,
except for the Class A-I-8 and Class
X Certificates which shall be in
minimum notional denominations of
$500,000 and $1,000,000,
respectively, and in each case
increments of $1 in excess thereof.
One Certificate of each Class of
Book-Entry Certificates may be issued
in a different principal amount to
accommodate the remainder of the
initial principal amount of the
Certificates of such Class.
The Physical Certificates will be issued
in certificated fully-registered
form. The Class R-1 and Class R-2
Certificates will be issued in a
single certificate of $100 each.
Seller................................ Bear Stearns Mortgage Securities Inc.
(the "Seller"). See "The Seller" in
the Prospectus.
Master Servicer....................... [CORPORATION 1] will act as master
servicer with respect to the Mortgage
Loans and is sometimes referred to
herein as the "Master Servicer" or
"[CORPORATION 1]." See "Description
of the Mortgage Loans--The Master
Servicer" herein.
Trustee............................... ________________.
<PAGE>
Cut-off Date.......................... ______________, 199_.
Closing Date......................... On or about ______________, 199_.
The Mortgage Loans................... The Mortgage Loans will consist of
conventional, one-to-four family,
fully amortizing, fixed rate Mortgage
Loans secured by first liens on
residential real properties (the
"Mortgaged Properties") and having an
aggregate principal balance as of the
Cut-off Date of approximately
$____________ (the "Cut-off Date
Scheduled Principal Balance"). The
Mortgage Loans are divided into two
groups (Mortgage Loan Group I and
Mortgage Loan Group II) designated as
the Group I Mortgage Loans and the
Group II Mortgage Loans, having
aggregate Cut-off Date Scheduled
Principal Balances of $___________
and $___________, respectively. All
of the Mortgage Loans in Mortgage
Loan Group I have Net Rates lower
than or equal to _____% per annum and
all of the Mortgage Loans in Mortgage
Loan Group II have Net Rates greater
than _____% per annum. All of the
Mortgage Loans will be acquired by
the Seller on the date of issuance of
the Certificates from the Master
Servicer.
GROUP I MORTGAGE LOANS. Approximately
$___________ aggregate principal
balance of the Group I Mortgage Loans
have original terms to stated
maturity of up to __ years and
approximately $___________ aggregate
principal balance of the Group I
Mortgage Loans have original terms to
stated maturity of greater than __
but not more than __ years, in each
case based on the date of origination
or any later modification. As of the
Cut-off Date, the weighted average
calculated remaining term to maturity
of the Group I Mortgage Loans was
approximately _____ months. The
original principal balances of the
Group I Mortgage Loans ranged from
approximately $___________ to
approximately $___________ and the
average principal balance at
origination was approximately
$___________. As of the Cutoff Date,
the outstanding principal balances of
the Group I Mortgage Loans ranged
from approximately $___________ to
approximately $____________, and the
average outstanding principal balance
as of the Cut-off Date was
approximately $-----------.
The Mortgage Rates on the Group I
Mortgage Loans are fixed rates
ranging from _____% per annum to
_____% per annum, with a weighted
average Mortgage Rate as of the
Cut-off Date of approximately _____%
per annum. The weighted average Net
Rate on the Group I Mortgage Loans as
of the Cut-off Date is approximately
_____% per annum.
Approximately _____%, _____%, _____% and
_____% of the Group I Mortgage Loans
(measured by Cut-off Date Scheduled
Principal Balance) are secured by
Mortgaged Properties located in
___________, ___________, ___________
and ___________, respectively.
<PAGE>
GROUP II MORTGAGE LOANS. Approximately
$___________ aggregate principal
balance of the Group II Mortgage
Loans have original terms to stated
maturity of up to __ years and
approximately $___________ aggregate
principal balance of the Group II
Mortgage Loans have original terms to
stated maturity of greater than __
but not more than __ years, in each
case based on the date of origination
or any later modification. As of the
Cut-off Date, the weighted average
calculated remaining term to maturity
of the Group II Mortgage Loans was
approximately _____ months. The
original principal balances of the
Group II Mortgage Loans ranged from
approximately $___________ to
approximately $___________ and the
average principal balance at
origination was approximately
$___________. As of the Cutoff Date,
the outstanding principal balances of
the Group II Mortgage Loans ranged
from approximately $___________ to
approximately $___________, and the
average outstanding principal balance
as of the Cut-off Date was
approximately $-----------.
The Mortgage Rates on the Group II
Mortgage Loans are fixed rates
ranging from _____% per annum to
_____% per annum, with a weighted
average Mortgage Rate as of the
Cut-off Date of approximately _____%
per annum. The weighted average Net
Rate on the Group II Mortgage Loans
as of the Cut-off Date is
approximately _____% per annum.
Approximately _____%, _____%, _____% and
_____% of the Group II Mortgage Loans
(measured by Cut-off Date Scheduled
Principal Balance) are secured by
Mortgaged Properties located in
___________, ___________, ___________
and ___________, respectively.
For a further description of the
Mortgage Loans, see "Description of
the Mortgage Loans" herein and Annex
A attached hereto.
Net Rate.............................. The "Net Rate" for each Mortgage Loan is
the interest rate borne by such
Mortgage Loan (the "Mortgage Rate"),
less the sum of the Master Servicing
Fee and the Trustee's Fee
attributable thereto (in each case
expressed as a per annum rate) (the
"Aggregate Expense Rate"). It is
expected that with respect to each
Distribution Date, the Master
Servicing Fee (which includes the fee
payable to any sub-servicer ) for the
Mortgage Loans will be _____% per
annum, and the Trustee's Fee will be
_____% per annum, of the Scheduled
Principal Balance of each Mortgage
Loan as of the Due Date in the month
preceding the month in which such
Distribution Date occurs. For any
Distribution Date, the "Due Date"
will be the _______ day of the month
in which such Distribution Date
occurs.
The "Scheduled Principal Balance" of
a Mortgage Loan with respect to a
Distribution Date is (i) the unpaid
principal balance of such Mortgage
Loan as of the close of business on
the Due Date in the month preceding
the month of the Distribution Date
(i.e., taking account of the
principal payment to be made on such
Due Date
<PAGE>
and irrespective of any delinquency
in its payment), as specified in the
amortization schedule at the time
relating thereto (before any
adjustment to such amortization
schedule by reason of any bankruptcy
or similar proceeding occurring after
the Cut-off Date (other than a
Deficient Valuation, as defined under
"Description of the
Certificates--Allocation of Losses;
Subordination" herein) or any
moratorium or similar waiver or grace
period) less (ii) any Principal
Prepayments and the principal portion
of any Net Liquidation Proceeds (as
defined herein) received during or
prior to the related Prepayment
Period (as defined herein); provided
that the Scheduled Principal Balance
of any Liquidated Mortgage Loan (as
defined herein) is zero.
Distribution Dates................... The ____ day of each month, or if such day
is not a Business Day, then the next
succeeding Business Day, beginning in
________, 199_ (each, a "Distribution
Date").
Record Date.......................... The "Record Date" for each Distribution
Date will be the close of business on
the last business day of the month
preceding the month in which such
Distribution Date occurs.
Due Period........................... With respect to each Distribution Date,
the period commencing on the second
day of the month preceding the month
in which the Distribution Date occurs
and ending at the close of business
on the first day of the month in
which the Distribution Date occurs
(each, a "Due Period").
Prepayment Period.................... With respect to each Distribution Date,
the period from the first day through
the last day of the month preceding
the month of such Distribution Date
(each, a "Prepayment Period").
Distributions on the
Certificates........................ GENERAL. On each Distribution Date, (i)
the Senior Certificates will be
entitled to receive all amounts
distributable to them for such
Distribution Date before any
distributions are made to the Classes
of Subordinate Certificates on such
date and (ii) the Subordinate
Certificates of each Class will be
entitled to receive all amounts
distributable to them for such
Distribution Date before any
distributions are made on such date
on any Class of Subordinate
Certificates with a higher numerical
Class designation. In general, an
amount equal to the Group I Available
Funds (as defined herein) for such
Distribution Date will be allocated
FIRST, to pay interest due the
holders of the Class A-I Certificates
and the Residual Certificates and
Class X Component I Accrued
Certificate Interest (as defined
herein) and then to reduce the
Current Principal Amounts of the
Senior Certificates (other than the
Class A-II Certificates); SECOND,
subject to the limitations described
herein, to pay the Class PO Deferred
Amount for such Distribution Date to
the Class PO Certificates; and THIRD,
to pay interest on and then principal
of each Class of Subordinate
Certificates in the order of their
numerical Class designations. In
general, an amount equal to the Group
II Available Funds (as defined
herein) for such Distribution Date
will be allocated FIRST, to pay
interest due on the Class A-II
Certificates and Class X
Component II Accrued Certificate
Interest (as defined herein) and then
to reduce the Current Principal
Amount of the Class A-II
Certificates; and SECOND, to pay
interest on and then principal of
each Class of Subordinate
Certificates in the order of their
numerical Class designations. The
Group I Available Funds and the Group
II Available Funds in the aggregate
(the "Available Funds") will be
allocated among the Classes of
Certificates in the manner set forth
in "Description of the Certificates--
Distributions on the
Certificates--Allocation of Available
Funds" herein. No distribution of
interest or principal from Group I
Available Funds or from Group II
Available Funds will be made on any
Class of Subordinate Certificates on
any Distribution Date until all
distributions of interest and
principal have been made on such date
on each Class of Certificates having
a higher priority with respect to the
same Available Funds.
INTEREST. Interest will accrue during
the preceding Interest Accrual Period
for each interest-bearing Class of
Certificates at the related rate
described below (each, a
"Pass-Through Rate") on the Current
Principal Amount (as defined below),
Class A-I-8 Notional Amount or Class
X Notional Amount of such Class
immediately preceding such
Distribution Date. The Class PO
Certificates are principal only
Certificates and will not bear
interest. With respect to each
Distribution Date, the "Interest
Accrual Period" for each Class of
interest-bearing Certificates (other
than the Class A-I-7 and Class A-I-8
Certificates) will be the calendar
month preceding the month in which
the Distribution Date occurs,
commencing in ___________, 199_. The
Interest Accrual Period for the Class
A-I-7 and Class A-I-8 Certificates
for each Distribution Date will
commence on the _____ day of the
calendar month preceding the calendar
month in which such Distribution Date
occurs and will end on the _____ day
of the calendar month in which such
Distribution Date occurs. Interest
will be calculated on the basis of a
360-day year comprised of twelve
30-day months.
Each interest-bearing Class of
Certificates (other than the Floating
Rate, Inverse Floating Rate, Class X
and Class R-2 Certificates) will bear
interest at the fixed Pass-Through
Rates set forth on the cover page
hereof.
The Class A-I-7 Certificates will bear
interest at _____% per annum during
the first Interest Accrual Period.
During each Interest Accrual Period
thereafter, the Class A-I-7
Certificates will bear interest
subject to maximum rate of _____% per
annum and a minimum rate of _____%
per annum, at a rate per annum equal
to _____% in excess of LIBOR, as more
fully described herein.
The Class A-I-8 Certificates will bear
interest on the Class A-I-8 Notional
Amount at _____% per annum during the
first Interest Accrual Period. During
each Interest Accrual Period
thereafter, the Class A-I-8
Certificates will bear interest on
the Class A-I-8 Notional Amount
subject to a maximum rate of _____%
per
<PAGE>
annum and a minimum rate of _____%
per annum, at a rate equal to _____%
- LIBOR, as more fully described
herein.
The Class X Certificates will bear
interest on the Class X Notional
Amount at a variable Pass-Through
Rate equal to the excess of (a) the
weighted average of the Net Rates of
all of the Mortgage Loans over (b)
the weighted average of the
Pass-Through Rates of all of the
Certificates (other than the Class X
Certificates). The Pass-Through Rate
for the Class X Certificates for the
first Interest Accrual Period is
expected to be approximately _____%
per annum.
In order to calculate the source of
interest due on the Class X
Certificates and for REMIC purposes,
the Class X Certificates are deemed
to consist of separate components
(each, a "Separate Component"),
certain of which correspond to the
Class A-I Certificates, the Class R-1
Certificates and a principal amount
of the Class B Certificates which
derives its distributions from the
Group I Mortgage Loans (collectively,
"Component I") and one which
corresponds to the Class A-II
Certificates and the principal amount
of the Class B Certificates which
derives its distributions from the
Group II Mortgage Loans ("Component
II").
Since interest on the Class X
Certificates is based on amounts paid
on both the Group I Mortgage Loans
and the Group II Mortgage Loans, the
Accrued Certificate Interest for the
Class X Certificates may also be
expressed as the sum of the Class X
Component I Accrued Certificate
Interest and the Class X Component II
Accrued Certificate Interest (each as
defined herein.)
The Class R-2 Certificates will bear
interest on their Current Principal
Amount at a variable Pass-Through
Rate equal to the weighted average of
the Net Rates of the Group I Mortgage
Loans.
On each Distribution Date, interest will
be distributable on each
interest-bearing Class of
Certificates from the Group I
Available Funds and/or Group II
Available Funds, as described above,
for such Distribution Date in an
aggregate amount equal to the Accrued
Certificate Interest for such Class
on such Distribution Date, plus any
Accrued Certificate Interest thereon
remaining undistributed from previous
Distribution Dates.
The "Accrued Certificate Interest" for
any interest-bearing Certificate for
any Distribution Date will equal the
interest accrued during the related
Interest Accrual Period at the
applicable Pass-Through Rate on the
Current Principal Amount (or, in the
case of the Class A-I-8 Certificates,
the Class A-I-8 Notional Amount and
in the case of the Class X
Certificates, the Class X Notional
Amount) of such Certificate
immediately prior to such
Distribution Date less (i) in the
case of an interest-bearing Senior
Certificate, such Certificate's share
of any Net Interest Shortfall and the
interest portion of any Excess Losses
(each as defined herein) and, after
<PAGE>
the Distribution Date on which the
Current Principal Amounts of the
Subordinate Certificates are reduced
to zero (the "Cross-Over Date"), the
interest portion of any Realized
Losses and (ii) in the case of a
Subordinate Certificate, such
Certificate's share of any Net
Interest Shortfall and the interest
portion of any Realized Losses.
Such shortfalls and losses will be
allocated among the Senior
Certificates in proportion to the
amount of Accrued Certificate
Interest that would have been
allocated thereto in the absence of
such shortfalls or losses. See
"Description of the Certificates--
Distributions on the
Certificates--Interest" and
"--Allocation of Losses;
Subordination" herein.
Any Interest Shortfalls resulting from
prepayments from the first through
the last day of such month will be
offset by the Master Servicer to the
extent such Interest Shortfalls do
not exceed the lesser of (i) the
Master Servicing Fee in connection
with such Distribution Date or (ii)
1/12 of _____% of the Scheduled
Principal Balances of the Mortgage
Loans with respect to such
Distribution Date (the amount of such
fee so used, a "Compensating Interest
Payment"). No assurance can be given
that the servicing compensation
available to cover Interest
Shortfalls will be sufficient
therefor. See "The Pooling and
Servicing Agreement--Servicing
Compensation and Payment of Expenses"
herein.
The "Current Principal Amount" of any
Certificate (other than a Class A-I-8
Certificate or a Class X Certificate)
as of any Distribution Date will
equal such Certificate's initial
principal amount on the Closing Date
as reduced by (i) all amounts
distributed on previous Distribution
Dates on such Certificate on account
of principal (and the Class PO Cash
Shortfall with respect to a Class PO
Certificate), (ii) the principal
portion of all Realized Losses
previously allocated to such
Certificate and (iii) in the case of
a Subordinate Certificate, such
Certificate's share, if any, of the
Subordinate Certificate Writedown
Amount and the Class PO Deferred
Payment Writedown Amount (each, as
defined herein) for previous
Distribution Dates.
The Class A-I-8 Certificates will have a
notional principal balance equal to
the Current Principal Amount of the
Class A-I-7 Certificates.
The Class X Certificates will have a
notional principal balance equal to
the aggregate Scheduled Principal
Balances of all of the Mortgage
Loans.
PRINCIPAL. Principal will be
distributable monthly on the Senior
Certificates (other than the Class
A-I-8 and Class X Certificates) on
each Distribution Date in an
aggregate amount equal to the sum of
the Group I Senior Optimal Principal
Amount, the Class PO Principal
Distribution Amount and the Group II
Senior Optimal Principal Amount (each
as defined herein) for such
<PAGE>
Distribution Date to the extent of the
Group I Available Funds or Group II
Available Funds, as applicable,
subject to certain limited
exceptions, for such Distribution
Date, remaining after distributions
of interest are made on the related
interest-bearing Senior Certificates
on such date. Subject to such
limitation, the Group I Senior
Optimal Principal Amount, the Class
PO Principal Distribution Amount and
the Group II Senior Optimal Principal
Amount will be allocated among the
Senior Certificates in the manner
described herein.
Principal will be distributed monthly on
each Class of Subordinate
Certificates on each Distribution
Date in an aggregate amount equal to
such Class's Allocable Share (as
defined herein) for such Distribution
Date to the extent of the sum of the
Group I Available Funds and the Group
II Available Funds remaining after
(i) distributions of interest and
principal have been made on each
Senior Certificate entitled thereto
as described herein, (ii) subject to
the limitations described herein, the
Class PO Deferred Amount for such
Distribution Date has been
distributed in respect of the Class
PO Certificates, (iii) distributions
of interest and principal have been
made on each Class of Subordinate
Certificates, if any, with a lower
numerical Class designation than such
Class and (iv) distributions of
interest have been made on such Class
of Subordinate Certificates.
Distributions of principal on a Class of
Certificates will be made on a PRO
RATA basis among all outstanding
Certificates of such Class. See
"Description of the
Certificates--Distributions on the
Certificates" herein.
CLASS PO DEFERRED AMOUNT. On each
Distribution Date, the PO Percentage
(as defined herein) of the principal
portion of any Realized Loss in
respect of a Group I Discount
Mortgage Loan (as defined herein)
will be allocated to the Class PO
Certificates. See "Description of the
Certificates--Allocation of Losses;
Subordination" herein. On each
Distribution Date through the
Cross-Over Date, the Class PO
Certificates will be entitled to
receive, to the extent of Group I
Available Funds remaining after
distributions of interest and
principal on the Senior Certificates
(other than the Class A-II
Certificates and the Class X
Component II Accrued Certificate
Interest on the Class X Certificates)
have been made from such funds on
such Distribution Date, any Class PO
Deferred Amount for such Distribution
Date; provided, that distributions in
respect of the Class PO Deferred
Amount on any Distribution Date will
not exceed the excess, if any, of (x)
the Available Funds (as defined
herein) remaining after giving effect
to the distributions pursuant to
priorities (A) FIRST through THIRD
and (B) FIRST through THIRD under
"Description of the
Certificates--Distributions on the
Certificates" herein over (y) the
amount of Accrued Certificate
Interest for such Distribution Date
and Accrued Certificate Interest
remaining undistributed from previous
Distribution Dates on all Classes of
Subordinate Certificates.
Distributions in respect of the Class
PO Deferred Amount shall not reduce
the
<PAGE>
Current Principal Amount of the Class
PO Certificates. The "Class PO
Deferred Amount" means, as to each
Distribution Date through the
Cross-Over Date, the aggregate of all
amounts allocable on such date to the
Class PO Certificates in respect of
the principal portion of Realized
Losses (other than Excess Losses) and
Class PO Cash Shortfall and all
amounts previously allocated in
respect of such losses (other than
Excess Losses) and Class PO Cash
Shortfall to the Class PO
Certificates and not distributed on
prior Distribution Dates.
Additional Rights of the
Residual Certificates...............In addition to distributions of principal
and interest, the holders of the
Residual Certificates will be
entitled to receive (i) the amount,
if any, of Available Funds remaining
on any Distribution Date after
distributions of interest and
principal are made on the
Certificates on such date and (ii)
the proceeds, if any, of the assets
of the Trust remaining after the
Current Principal Amount of each
Class of Certificates has been
reduced to zero. It is not
anticipated that any material assets
will be remaining for such
distributions at any such time.
Credit Enhancement--
General.............................. Credit enhancement for the Senior
Certificates will be provided by the
Subordinate Certificates. Credit
enhancement for each Class of
Subordinate Certificates will be
provided by the Class or Classes of
Subordinate Certificates with higher
numerical Class designations.
Credit Enhancement--
Subordination......................... The rights of the holders of each Class
of Subordinate Certificates to
receive distributions with respect to
the Mortgage Loans will be
subordinated to such rights of the
holders of the related Senior
Certificates and of each Class of
Subordinate Certificates having a
lower numerical Class designation
than such Class. The subordination of
the Subordinate Certificates to
Senior Certificates, and the further
subordination among the Subordinate
Certificates, are each intended to
increase the likelihood of timely
receipt by the holders of
Certificates with higher relative
payment priority of the maximum
amount to which they are entitled on
any Distribution Date and to provide
such holders protection against
losses resulting from defaults on
Mortgage Loans to the extent
described herein. The Subordinate
Certificates also provide protection
to a lesser extent against Special
Hazard Losses, Fraud Losses and
Bankruptcy Losses (each as defined
herein) to the extent described
herein. However, in certain
circumstances, the amount of
available subordination (including
the limited subordination provided
for certain types of losses) may be
exhausted and shortfalls in
distributions on the Offered
Certificates could result. Except
with respect to the Class PO
Certificates as described below,
holders of Senior Certificates will
bear their PRO RATA share of any
Realized Losses with respect to
Mortgage Loans in both Mortgage Loan
Groups in excess of the available
total subordination amount. See
"Description of the
<PAGE>
Certificates--Distributions on the
Certificates," "--Allocation of
Losses; Subordination" and
"--Subordination" herein.
Since the Subordinate Certificates will
absorb Realized Losses on Mortgage
Loans in both Mortgage Loan Groups, a
disproportionate amount of Realized
Losses with respect to Mortgage Loans
in either Mortgage Loan Group will
adversely impact the availability of
subordination to the Certificates
related to the other Mortgage Loan
Group.
As of the Closing Date, the aggregate
Current Principal Amounts of all
classes of Subordinate Certificates
and of the Other Certificates will
equal approximately _____% and
_____%, respectively, of the
aggregate Current Principal Amounts
of all Classes of Certificates.
In addition, to extend the period during
which the Subordinate Certificates
remain available as credit
enhancement for the Senior
Certificates, the entire amount of
any prepayments and certain other
unscheduled recoveries of principal
with respect to the Mortgage Loans
will be allocated to the related
Senior Certificates to the extent
described herein during the first
five years after the Cut-off Date
(with such allocation being subject
to reduction thereafter as described
herein). This allocation has the
effect of accelerating the
amortization of the related Senior
Certificates as a whole while, in the
absence of losses in respect of the
Mortgage Loans, increasing the
percentage interest in the principal
balance of the Mortgage Loans in both
Mortgage Loan Groups evidenced by the
Subordinate Certificates. See
"Description of the
Certificates--Distributions on the
Certificates" and "--Subordination"
herein.
In certain other instances as described
in paragraph (D) under "Description
of the Certificates--Distributions on
the Certificates--Allocation of
Available Funds," Principal
Prepayments otherwise distributable
to the Class B Certificates will in
lieu thereof be distributed to Senior
Certificates.
Monthly Advances...................... The Master Servicer will be obligated to
advance delinquent scheduled payments
of principal and interest on the
Mortgage Loans under certain
circumstances (each such advance, a
"Monthly Advance"). See "The Pooling
and Servicing Agreement--Monthly
Advances" herein.
Allocation of Losses................. Subject to the limitations set forth
below, Realized Losses on the
Mortgage Loans will be allocated as
follows: first, among the Subordinate
Certificates in the inverse order of
their numerical Class designations
beginning with the Class B-6
Certificates and second, PRO RATA to
the Classes of Senior Certificates as
described herein, until, in each
case, the Current Principal Amount of
each such Class of Certificates is
reduced to zero. The aggregate
amounts of Realized Losses which may
be allocated by means of
Subordination to cover Special Hazard
Losses, Fraud Losses and Bankruptcy
Losses are initially limited to
$___________,
<PAGE>
$___________ and $___________,
respectively. All of the foregoing
amounts are subject to periodic
reduction as described herein.
Any Special Hazard Losses, Fraud Losses
and Bankruptcy Losses in excess of
the respective amounts of coverage
therefor ("Excess Special Hazard
Losses," "Excess Fraud Losses" and
"Excess Bankruptcy Losses,"
respectively, and collectively,
"Excess Losses") on Non-Discount
Mortgage Loans in Mortgage Loan Group
I will be allocated on a PRO RATA
basis among the Senior Certificates
(other than the Class PO
Certificates) and Subordinate
Certificates (any such Realized
Losses so allocated to such Senior
Certificates will be allocated PRO
RATA without priority among the
various Classes thereof). The
principal portion of such losses on
Group I Discount Mortgage Loans will
be allocated to the Class PO
Certificates in an amount equal to
the related PO Percentage thereof,
and the remainder of such losses on
Discount Mortgage Loans will be
allocated among the remaining Senior
Certificates on a PRO RATA basis as
described above. After the Cross-Over
Date, all Realized Losses (including,
without limitation, all Special
Hazard Losses, Fraud Losses and
Bankruptcy Losses) on Group I
Mortgage Loans will be allocated
among the Senior Certificates as
described above. The amount of any
Realized Loss (other than an Excess
Loss) allocated to the Class PO
Certificates on or prior to the
CrossOver Date will be treated as
Class PO Deferred Amount. Prior to
the Cross-Over Date, Excess Losses on
Group II Mortgage Loans, and after
the Cross-Over Date, all Realized
Losses on Group II Mortgage Loans
will be allocated on a PRO RATA basis
among the Senior Certificates (other
than the Class PO Certificates). See
"Description of the
Certificates--Allocation of Losses;
Subordination" herein.
Neither the Offered Certificates nor the
Mortgage Loans are insured or
guaranteed by any governmental agency
or instrumentality or by the Seller,
the Trustee, the Master Servicer or
any affiliate thereof or any other
person.
Yield and Prepayment
Considerations....................... GENERAL CONSIDERATIONS. The yield to
maturity of each Class of Offered
Certificates will be affected by the
amount and timing of principal
payments on the related Mortgage
Loans, the allocation of Group I
Available Funds and/or Group II
Available Funds, as applicable, to
such Class of Certificates, the
applicable Pass-Through Rate for
such Class of Certificates and the
purchase price paid for such
Certificates. In addition, the yields
to investors in the Certificates will
be adversely affected by Realized
Losses and Net Interest Shortfalls
allocated thereto. Furthermore, the
yield to investors in the Floating
Rate Certificates and Inverse
Floating Rate Certificates will be
affected by the future levels of
LIBOR. The interaction of the
foregoing factors may have different
effects on the various Classes of
Certificates and the effects on any
Class may vary at different times
during the life of such Class. No
representation is made as to the
<PAGE>
anticipated rate of prepayments on
any Mortgage Loans, the amount or
timing of Realized Losses or Net
Interest Shortfalls, future levels of
LIBOR or the anticipated yield to
maturity of any Certificates.
Prospective investors are urged to
consider their own estimates as to
the anticipated rate of future
prepayments on the Mortgage Loans and
the suitability of the Certificates
to their investment objectives. In
addition to the discussion below,
prospective investors should review
the discussion under "Yield and
Prepayment Considerations" herein and
in the Prospectus.
MORTGAGE LOAN PAYMENTS. If prevailing
mortgage rates fall significantly
below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans
are likely to be subject to higher
prepayment rates than if prevailing
rates remain at or above the Mortgage
Rates on the Mortgage Loans. Other
factors affecting prepayments of
Mortgage Loans include changes in
Mortgagors' housing needs, job
transfers, unemployment, net equity
in the Mortgaged Properties and
servicing decisions. Amounts received
by virtue of liquidations of Mortgage
Loans, repurchases of Mortgage Loans
upon breach of representations or
warranties and optional termination
of the Trust also affect the receipt
of principal on the Mortgage Loans.
In general, the Mortgage Loans may be
prepaid at any time without penalty.
In addition, the rate of prepayments
will be affected by the rate and
timing of the sale of the Mortgaged
Properties because all of the
Mortgage Loans contain due-on-sale
clauses.
TIMING OF PAYMENTS AND DISTRIBUTIONS.
Unlike certain corporate bonds, the
timing and amount of principal
payments on the Certificates are not
fixed because they are generally
determined by the timing and amount
of principal payments on the
applicable Mortgage Loans. The timing
of payments on the applicable
Mortgage Loans may significantly
affect an investor's yield. In
general, the earlier a prepayment of
principal on the applicable Mortgage
Loans, the greater will be the effect
on an investor's yield to maturity.
As a result, the effect on an
investor's yield of principal
prepayments occurring at a rate
higher (or lower) than the rate
anticipated by the investor during
the period immediately following the
issuance of the Certificates will not
be offset by a subsequent like
reduction (or increase) in the rate
of principal prepayments.
Furthermore, the effective yield to
holders of interest-bearing
Certificates (other than the Class
A-I-7 and Class A-I-8 Certificates)
will be slightly lower than the yield
otherwise produced by the applicable
Pass-Through Rate and purchase price
because, while interest generally
will accrue on each such Certificate
from the first day of the month, the
distribution of such interest will
not be made earlier than the 25th day
of the month following the month of
accrual. Moreover, to the extent any
Net Interest Shortfall or the
interest portion of any Realized Loss
is allocated to a Class of
Certificates the yield to investors
in such Class will be reduced.
<PAGE>
DISCOUNTS AND PREMIUMS. In the case of
any Class PO Certificates or any
other Certificates purchased at a
discount, a slower than anticipated
rate of principal payments on the
applicable Mortgage Loans could
result in an actual yield that is
lower than the anticipated yield. In
the case of any Class A-I-8 or Class
X Certificates or any other
Certificates purchased at a premium,
a faster than anticipated rate of
principal payments on the applicable
Mortgage Loans could result in an
actual yield that is lower than the
anticipated yield. Under certain
circumstances, investors in the Class
A-I-8 and Class X Certificates could
fail to recover fully their initial
investments. A discount or premium
would be determined in relation to
the price at which a Certificate will
yield its Pass-Through Rate, after
giving effect to any payment delay.
REINVESTMENT RISK. Because the Mortgage
Loans may be prepaid at any time, it
is not possible to predict the rate
at which distributions on the
Certificates will be received. Since
prevailing interest rates are subject
to fluctuation, there can be no
assurance that investors in the
Certificates will be able to reinvest
the distributions thereon at yields
equaling or exceeding the yields on
the Certificates. Yields on any such
reinvestments may be lower, and may
even be significantly lower, than
yields on the Certificates.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a reduced rate of return
of principal to investors at a time
when reinvestment at such higher
prevailing rates would be desirable.
Conversely, when prevailing interest
rates decline, prepayment rates on
mortgage loans tend to increase,
resulting in a greater rate of return
of principal to investors at a time
when reinvestment at comparable
yields may not be possible.
Prospective investors in the
Certificates should consider
carefully the related reinvestment
risks in light of other investments
that may be available to such
investors.
SUBORDINATION OF CERTAIN CLASSES OF
CERTIFICATES. The rights of the
holders of the Subordinate
Certificates to receive distributions
with respect to each Mortgage Loan
will be subordinated to such rights
of the holders of the applicable
Senior Certificates, and to the
rights of the holders of the
Subordinate Certificates having a
lower numerical Class designation, in
each case, to the extent described
herein. The level of subordination
available as support to the Senior
Certificates will be directly
affected by the rate and timing of
prepayments and the occurrence of
Realized Losses.
Between Senior Certificates, on the one
hand, and Subordinate Certificates,
on the other, prepayments on each
Mortgage Loan will be allocated
solely to the related Senior
Certificates during at least the
first five years after the Closing
Date, and then such allocation will
decrease subject to meeting certain
loss and delinquency tests during the
next four years until Senior
Certificates and Subordinate
Certificates share PRO RATA in such
allocations. Consequently, during not
less than the first nine years after
the Closing Date, prepayments will
have the effect of accelerating the
<PAGE>
amortization of the applicable Senior
Certificates while increasing the
percentage interest in the related
Mortgage Loans evidenced by
Subordinate Certificates.
To the extent that Realized Losses are
incurred, the allocation of such
Realized Losses to the Subordinate
Certificates will have the effect of
increasing the percentage interest in
the Mortgage Loans, evidenced by the
Senior Certificates in the aggregate.
See "Description of the
Certificates--Distributions on the
Certificates" and "--Allocation of
Losses; Subordination" herein.
SEQUENTIAL PAY SENIOR CERTIFICATES. The
Class A-I Certificates (other than
the Class A-I-8 Certificates) are
subject to various priorities for
payment of principal as described
herein. Distributions on Classes
currently entitled to receive
principal payments will be
immediately affected by the
prepayment rate of the related
Mortgage Loans at such time.
Distributions on Classes with a later
priority of payment will not be
directly affected by the prepayment
rate until such time as principal is
distributable on such Classes.
However, the timing of commencement
of principal distributions and the
weighted average lives of such
Classes will be affected by the
prepayment rate on the related
Mortgage Loans experienced both
before and after the commencement of
principal distributions on such
Classes. In addition, because
principal distributions are paid to
certain Classes of Class A-I
Certificates (other than the Class
A-I-8 Certificates) before other
Classes of Class A-I Certificates,
holders of Class A-I Certificates
that receive principal later bear a
greater risk of being allocated
Realized Losses than holders of such
Classes that receive principal
earlier.
CLASS PO CERTIFICATES. The amounts
payable with respect to the Class PO
Certificates generally will be equal
only to the amount of certain
principal payments on the Group I
Discount Mortgage Loans. As a result,
the yield on the Class PO
Certificates will be adversely
affected by slower than expected
payments of principal (including
prepayments, defaults and
liquidations) on the Group I Discount
Mortgage Loans. Because the Group I
Discount Mortgage Loans have lower
Net Rates than the Non-Discount
Mortgage Loans in Mortgage Loan Group
I, and because the Mortgage Loans
with lower Net Rates are likely to
have lower Mortgage Rates, the Group
I Discount Mortgage Loans are
generally likely to prepay at a
slower rate than the Non-Discount
Mortgage Loans. See "Yield and
Prepayment Considerations,"
especially "--Yield on Class PO
Certificates" herein.
CLASS X CERTIFICATES. Because the
Notional Amount of the Class X
Certificates will equal the aggregate
Scheduled Principal Balances of all
of the Mortgage Loans, the yield on
the Class X Certificates will be
sensitive to the rate and timing of
principal prepayments on all of the
Mortgage Loans. A rapid rate of
principal prepayments on the Mortgage
Loans will have a materially negative
effect on the yield to investors in
the Class X Certificates Investors
should fully consider the associated
risks, including the risk that
<PAGE>
a rapid rate of principal prepayments
could result in the failure of
investors in the Class X Certificates
to recover fully their initial
investments. See "Yield and
Prepayment Considerations--Yield on
Class X Certificates" herein.
Since the Pass-Through Rate applicable
to the Class X Certificates will be
based upon the weighted average of
the Net Rates of the Mortgage Loans,
disproportionate prepayments of
Mortgage Loans with higher Net Rates
will adversely affect the yield on
the Class X Certificates.
CLASS A-I-8 CERTIFICATES. The yield to
investors in the Class A-I-8
Certificates will be highly sensitive
to the level of LIBOR. A high rate of
principal payments (including
prepayments) on the Mortgage Loans
and/or a high level of LIBOR will
have a materially negative effect on
the yield to investors in the Class
A-I-8 Certificates. Investors should
fully consider the associated risks,
including the risk that, under
certain circumstances, investors in
the Class A-I-8 Certificates could
fail to recover fully their initial
investments. See "Yield and
Prepayment Considerations--Yield on
Class A-I-8 Certificates" herein.
RESIDUAL CERTIFICATES. Holders of the
Residual Certificates are entitled to
receive distributions of principal
and interest as described herein.
However, holders of such Certificates
may have tax liabilities with respect
to their Certificates during the
early years of the related REMIC that
substantially exceed the principal
and interest payable thereon during
such periods.
[In addition to the disclosure with
respect to the Classes described in
this illustrative form of Prospectus
Supplement, the following discussion
sets forth examples of disclosure for
other types of Classes:]
[TARGETED AMORTIZATION CLASSES ("TACs").
The Certificates have been structured
to provide for relatively stable
distributions of principal on the
Class [I-1], Class [I-2] and Class
[I-3] Certificates (in accordance
with their respective "Targeted
Principal Percentages" as set forth
on page S-__ ) assuming that
prepayments on the Mortgage Loans
occur at a constant level of ___%
SPA. To the extent that prepayments
on the Mortgage Loans occur at a
constant level lower than ___% SPA,
the Available Funds allocable as
payments of principal on the Class
[I-1], Class [I-2], Class [I-3],
Class [I-4], Class [I-5], Class [I-6]
and Class [I-7] Certificates
(collectively, the "First Tier
Certificates") on each Distribution
Date may be insufficient to make
distributions of principal on the
Class [I-1], Class [I-2] and Class
[I-3] Certificates in amounts
sufficient to reduce their principal
balances in accordance with their
respective Targeted Principal
Percentages for such Distribution
Date, and, as a result, the weighted
average lives of such Certificates
may be extended. To the extent that
prepayments occur at a constant level
higher than __% SPA, the weighted
average lives of the Class [I-1],
<PAGE>
Class [I-2] and Class [I-3]
Certificates may be reduced. The
ability to pay amounts sufficient to
reduce the principal balances of the
Class [I-1], Class [I-2] and Class
[I-3] Certificates in accordance with
their respective Targeted Principal
Percentages for a Distribution Date
will not be enhanced by the averaging
of high and low principal prepayments
because any excess over such amounts
will be distributed on each
Distribution Date. In addition,
because of the diverse remaining
terms to maturity of the Mortgage
Loans (which will include recently
originated Mortgage Loans), the Class
[I-1], Class [I-2] and Class [I-3]
Certificates may not be reduced to
their Targeted Principal [Balances],
even if prepayments occur at a
constant level of __% SPA.]
[COMPANION CLASSES TO TACS.
Distributions of principal on the
Class [I-4], Class [I-5], Class [I-6]
and [I-7] Certificates will be very
sensitive to the rate of prepayments
of the Mortgage Loans because their
monthly principal distributions will
be limited to the excess, if any, of
the Available Funds allocable as
payments of principal on the First
Tier Certificates over the sum of the
principal payments distributed to the
Class [I-1], Class [1-2] and Class
[I-3]Certificates. In particular, to
the extent that prepayments result in
Available Funds allocable as payments
of principal on the First Tier
Certificates equal to or less than
the sum of the amounts sufficient to
reduce the principal balances of the
Class [I-1], Class [I-2] and Class
[I-3] Certificates to their Targeted
Principal Percentages specified for
any Distribution Date, the Class
[I-4], Class [I-5], Class [I-6] and
[I-7] Certificates will receive no
principal distribution on such
Distribution Date. To the extent that
prepayments result in Available Funds
allocable as payments of principal on
the First Tier Certificates in excess
of such sum on any Distribution Date,
such excess will be applied to the
Class [I-4], Class [I-5], Class [I-6]
and Class [I-7] Certificates as
described herein.]
[FLOATING AND INVERSE FLOATING RATE
CERTIFICATES. Interest on the Class
[I] Certificates fluctuates in
response to changes in [an Index],
and, accordingly, the yield on the
Class [I] Certificates will be
sensitive to the level of the Index.
Interest on the Class [II]
Certificates fluctuates inversely as
a multiple of the Index, and,
accordingly, the yield on the Class
[II] Certificates will be very
sensitive to the level of the Index.
A high level of the Index will have a
material negative effect on the
yields to investors in the Class [II]
Certificates. The timing of changes
in the level of the Index may
significantly affect the actual yield
to investors in the Class [I] and
Class [II] Certificates, even if the
average level of the Index is
consistent with the expectations of
investors. In general, the earlier
the change in the level of the Index,
the greater the effect on an
investor's yield. As a result, the
effect on an investor's yield of the
Index occurring at a level higher (or
lower) than the level anticipated by
the investor during the period
immediately following the issuance of
the Certificates will not be offset
by a subsequent like reduction (or
increase) in the level of the Index.
Changes in the Index may not
correlate with changes
<PAGE>
in prevailing mortgage interest
rates. Lower prevailing mortgage
interest rates, which might be
expected to result in faster
prepayments, could occur concurrently
with an increased level of the
Index.]
[WEIGHTED-AVERAGE PASS-THROUGH RATE
CERTIFICATES. Interest on the Class
[III] Certificates is based on the
weighted average of the Net Rates on
the Mortgage Loans. Interest on such
Certificates may be paid in the
future at a rate lower than the
initial interest rate to the extent
that Mortgage Loans bearing higher
rates of interest are prepaid more
quickly than Mortgage Loans bearing
lower rates of interest.]
[INTEREST-WEIGHTED CERTIFICATES. The
yield to investors in the Class [IV]
Certificates, which will be offered
at substantial premiums over their
stated principal amounts, will be
extremely sensitive to the rate and
timing of principal payments of the
[________] Mortgage Loans. A rapid
rate of principal payments on such
Mortgage Loans will have a materially
negative effect on the yield to
investors in the Class [IV]
Certificates. Investors should fully
consider the associated risks,
including the risk that a rapid rate
of principal payments could result in
the failure of investors in the Class
[IV] Certificates to recover fully
their initial investments.]
[PLANNED AMORTIZATION CLASSES. The
Certificates have been structured to
provide for relatively stable
distributions of principal on the
Class [VI-1], Class [VI-2] and Class
[VI-3] Certificates (in accordance
with their respective PAC Principal
Percentages) assuming that
prepayments on the Mortgage Loans
occur at a constant level of ___% to
___% SPA. To the extent that
prepayments on the Mortgage Loans
occur at a constant level lower than
[lower percentage of range]% SPA, the
Available Funds allocable as payments
of principal on the First Tier
Certificates on each Distribution
Date may be insufficient to make
distributions of principal on the
Class [VI-1], Class [VI-2] and Class
[VI-3] Certificates in amounts
sufficient to reduce their principal
balances in accordance with their
respective PAC Principal Percentages
for such Distribution Date, and, as a
result, the weighted average lives of
such Certificates may be extended. To
the extent that prepayments occur at
a constant higher level than [higher
percentage of range]% SPA, the
weighted average lives of the Class
[VI-1], Class [VI-2] and Class [VI-3]
Certificates may be reduced. The
amounts available for principal
payments may be insufficient to
reduce the Class [VI-1], Class [VI-2]
and Class [VI-3] Certificates to
their respective PAC Principal
Percentages for the related
Distribution Date, or conversely, the
weighted average lives of the Class
[VI-1], Class [VI-2] and Class [VI-3]
Certificates may be reduced, if
prepayments on the Mortgage Loans do
not occur at a constant rate, even if
such prepayments remain within the
range of ___% to ___% SPA. For
example, the PAC Principal
Percentages may not be attained if
payments of principal initially occur
<PAGE>
at a relatively fast rate within the
range and subsequently occur at a
significantly slower rate within the
range.]
[COMPANION CLASSES TO PACS.
Distributions of principal on the
Class [VI-4], Class [VI-5], Class
[VI-6] and Class [VI-7] Certificates
will be very sensitive to the rate of
prepayments of the Mortgage Loans
because their monthly principal
distributions will be limited to the
excess, if any, of the Available
Funds allocable as payments of
principal on the First Tier
Certificates over the sum of the
principal payments distributed to the
Class [VI-1], Class [VI-2] and Class
[VI-3] Certificates. In particular,
to the extent that prepayments result
in Available Funds allocable as
payments of principal on the First
Tier Certificates equal to or less
than the sum of the amounts
sufficient to reduce the principal
balances of the Class [VI-1], Class
[VI-2] and Class [VI-3] Certificates
to their PAC Principal Percentages
specified for any Distribution Date,
the Class [VI-4], Class [VI-5], Class
[VI-6] and Class [VI-7] Certificates
will receive no principal
distribution on such Distribution
Date. To the extent that prepayments
result in Available Funds allocable
as payments of principal on the First
Tier Certificates in excess of such
sum on any Distribution Date, such
excess will be applied to the Class
[VI-4], Class [VI-5], Class [VI-6]
and Class [VI-7] Certificates as
described herein.]
Liquidity............................. There is currently no secondary market
for the Certificates, and there can
be no assurance that one will
develop. The Underwriter intends to
establish a market in the Classes of
Offered Certificates, but it is not
obligated to do so. There is no
assurance that any such market, if
established, will continue. Each
Certificateholder will receive
monthly reports pertaining to the
Certificates as described under "The
Pooling and Servicing
Agreement--Reports to
Certificateholders" in the
Prospectus. There are a limited
number of sources which provide
certain information about mortgage
pass-through certificates in the
secondary market, and there can be no
assurance that any of these sources
will provide information about the
Certificates. Investors should
consider the effect of limited
information on the liquidity of the
Certificates.
Optional Termination................... On any Distribution Date on which the
aggregate unpaid principal balance of
the Mortgage Loans is less than 10%
of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of
the Cut-off Date, the Master Servicer
or its designee may repurchase from
the Trust all Mortgage Loans
remaining outstanding and any REO
Property remaining in the Trust at
the purchase price set forth in the
Pooling and Servicing Agreement. The
Trust may also be terminated and the
Certificates retired on any
Distribution Date upon the Master
Servicer's determination, based upon
an opinion of counsel, that the REMIC
status of REMIC I or REMIC II (as
defined below) has been lost or that
a substantial risk exists that such
status will be lost for the then
current taxable year. Upon
termination, the holders of
Certificates (other than the Class
A-I-8 and Class X Certificates) will
receive the Current Principal Amount
of their Certificates and any accrued
<PAGE>
but unpaid interest and the holders
of the Class A-I-8 and Class X
Certificates will receive accrued but
unpaid interest on their
Certificates. See "The Pooling and
Servicing Agreement--Termination"
herein.
Certain Federal Income
Tax Consequences..................... An election will be made to treat the
Mortgage Loans, the Certificate
Account and certain other assets
owned by the Trust as a real estate
mortgage investment conduit ("REMIC
II") for federal income tax purposes.
REMIC II will issue "regular
interests" and one "residual
interest." An election will be made
to treat the "regular interests" in
REMIC II and certain other assets
owned by the Trust as a REMIC ("REMIC
I"). The Certificates (other than the
Class R-1, Class R-2 and Class X
Certificates), as well as each of the
Separate Components comprising the
Class X Certificates, will be
designated as regular interests in
REMIC I. The Certificates (other than
the Class R-1 and Class R-2
Certificates) and, where the context
so requires, each of the separate
components of the Class X
Certificates (in lieu of the Class X
Certificates) are herein referred to
as the "Regular Certificates" or the
"REMIC Regular Certificates." The
Class R-2 Certificates will be
designated as the residual interest
in REMIC II, and the Class R-1
Certificates will be designated as
the residual interest in REMIC I
(collectively, the "Residual
Certificates" or the "REMIC Residual
Certificates"). See "Certain Federal
Income Tax Consequences" herein and
in the Prospectus and "Restrictions
on Purchase and Transfer of the
Residual Certificates" herein.]
[ERISA Considerations................. Fiduciaries of employee benefit plans
subject to Title I of the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), should
consider the ERISA fiduciary
investment standards before
authorizing an investment by a plan
in the Certificates. In addition,
fiduciaries of employee benefit plans
or other retirement arrangements
(such as individual retirement
accounts or certain Keogh plans)
which are subject to Title I of
ERISA, and/or Section 4975 of the
Internal Revenue Code of 1986, as
amended (the "Code"), as well as any
entity, including an insurance
company general account, whose
underlying assets include plan assets
by reason of a plan or account
investing in such entity
(collectively, "Plan(s)"), should
consult with their legal counsel to
determine whether an investment in
the Certificates will cause the
assets of the Trust ("Trust Assets")
to be considered plan assets pursuant
to the plan asset regulations set
forth in 29 C.F.R. ' 2510.3-101,
thereby subjecting the Plan to the
prohibited transaction rules with
respect to the Trust Assets and the
Trustee or the Master Servicer to the
fiduciary investment standards of
ERISA, or cause the excise tax
provisions of Section 4975 of the
Code to apply to the Trust Assets,
unless some exemption granted by the
Department of Labor applies to the
acquisition, holding or transfer of
the Certificates.
Subject to the considerations set forth
under "ERISA Considerations" herein
and in the Prospectus, the
<PAGE>
purchase or holding of the Senior
Certificates (other than the Class PO
Certificates) by, on behalf of, or
with plan assets of, a Plan may
qualify for exemptive relief under
Prohibited Transaction Exemption
90-30 (the "Exemption").
The Class PO and Class B Certificates
generally may be purchased by, on
behalf of, or with plan assets of, a
Plan, if the proposed transferee
provides the Trustee with a
satisfactory "Benefit Plan Opinion"
to the effect that a prohibited
transaction class exemption based on
the identity of the fiduciary making
the decision to acquire such
Certificates on behalf of the Plan is
applicable to the acquisition,
holding and transfer of the Class PO
and Class B Certificates as further
described in "ERISA Considerations"
herein.
Restrictions on Purchase and
Transfer of the Residual
Certificates......................... The Residual Certificates are not
offered for sale to certain tax
exempt organizations that are
"disqualified organizations" as
defined in "Certain Federal Income
Tax Consequences--Transfers of REMIC
Residual Securities--Tax on
Disposition of REMIC Residual
Securities" and "--Restrictions on
Transfer; Holding by Pass-Through
Entities" in the Prospectus. Such
"disqualified organizations" are
prohibited from acquiring or holding
any beneficial interest in the
Residual Certificates. Further,
neither the Residual Certificates nor
any beneficial interest therein may
be sold or otherwise transferred
without the express written consent
of _______________, acting as the
"Tax Matters Person" (as defined in
the Code), which may be withheld to
avoid a risk of REMIC
disqualification or REMIC-level tax.
See "Certain Federal Income Tax
Consequences--Transfers of REMIC
Residual Securities--Tax on
Disposition of REMIC Residual
Securities" and "--Restrictions on
Transfer; Holding by Pass-Through
Entities" in the Prospectus and
"Restrictions on Purchase and
Transfer of the Residual
Certificates" herein. Finally, unless
the Tax Matters Person consents in
writing (which consent may be
withheld in the Tax Matters Person's
sole discretion), the Residual
Certificates (including a beneficial
interest therein) may not be
purchased by or transferred to any
person who is not a "United States
person," as such term is defined in
Section 7701(a)(30) of the Code. For
certain additional tax-related
restrictions on the transfer of
Residual Certificates, see "Certain
Federal Income Tax Consequences--
Transfers of REMIC Residual
Certificates" and "Certain Federal
Income Tax Consequences--Foreign
Investors--REMIC Residual
Certificates" in the Prospectus.
Rating................................. It is a condition to their issuance that
each Class of Offered Certificates
receives the ratings set forth below
from ______________ ("____") and
______________ ("____")
(collectively, the "Rating
Agencies").
<PAGE>
CLASS RATING
----- -------
______ _______
Class A-I-1 ___ ___
Class A-I-2 ___ ___
Class A-I-3 ___ ___
Class A-I-4 ___ ___
Class A-I-5 ___ ___
Class A-I-6 ___ ___
Class A-I-7 ___ ___
Class A-I-8 ___ ___
Class A-I-9 ___ ___
Class A-I-10 ___ ___
Class A-I-11 ___ ___
Class A-II ___ ___
Class PO ___ ___
Class X ___ ___
Class B-1 ___ ___
Class B-2 ___ ___
Class B-3 ___ ___
Class R-1 ___ ___
Class R-2 ___ ___
The ratings of the Offered Certificates
of any Class should be evaluated
independently from similar ratings on
other types of securities. A rating
is not a recommendation to buy, sell
or hold securities and may be subject
to revision or withdrawal at any time
by the Rating Agencies. See "Ratings"
herein.
The Seller has not requested a rating of
the Offered Certificates by any
rating agency other than the Rating
Agencies. However, there can be no
assurance as to whether any other
rating agency will rate the Offered
Certificates or, if it does, what
rating would be assigned by such
other rating agency. The rating
assigned by such other rating agency
to the Offered Certificates could be
lower than the respective ratings
assigned by the Rating Agencies.
Legal Investment....................... The Senior Certificates and the Class
B-1 Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA") for so long as they are
rated in one of the two highest
rating categories by at least one
nationally recognized statistical
rating organization, and, as such,
will be legal investments for certain
entities to the extent provided in
SMMEA, subject to state laws
overriding SMMEA. Certain states have
enacted legislation overriding the
legal investment provisions of SMMEA.
The remaining Classes of Certificates
will NOT constitute "mortgage related
securities" under SMMEA (the
"Non-SMMEA Certificates"). The
appropriate characterization of the
Non-SMMEA Certificates under various
legal investment restrictions, and
thus the ability of investors subject
to these restrictions to purchase
<PAGE>
Non-SMMEA Certificates, may be
subject to significant interpretive
uncertainties.
All investors whose investment
activities are subject to legal
investment laws and regulations or to
review by certain regulatory
authorities may be subject to
restrictions on investment in the
Certificates. Any such institution
should consult its own legal advisors
in determining whether and to what
extent there may be restrictions on
its ability to invest in the
Certificates. See "Legal Investment"
herein and in the Prospectus.
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All of the Mortgage Loans are conventional (neither insured by the Federal
Housing Administration ("FHA") nor guaranteed by the Veterans' Administration
("VA")) fully amortizing, fixed-rate Mortgage Loans secured by first liens on
one- to four-family residential Mortgaged Properties. The aggregate principal
balance of the Mortgage Loans as of the Cut-off Date is referred to as the
"Cut-off Date Scheduled Principal Balance." The Cut-off Date Scheduled Principal
Balance set forth below is subject to a permitted variance of up to ___%. The
following paragraphs and tables contained in Annex A set forth certain
additional information with respect to the Mortgage Loans.*
All of the Mortgage Loans will have been sold to the Seller by
[CORPORATION1] ("[CORPORATION 1]") or the "Master Servicer"), pursuant to a
mortgage loan purchase agreement among the Seller, as purchaser, CORPORATION 1,
as seller[, and CORPORATION 1's parent, ________________________, as guarantor].
The Mortgage Loans will have been acquired by CORPORATION 1 in accordance with
the underwriting criteria described herein. All of the Mortgage Loans have
monthly payments due on the first day of each month. Each Mortgage Rate will be
fixed for the life of the related Mortgage Loan.
[CORPORATION 1], a _____________ corporation, is a mortgage banking conduit
that acquires conventional one- to four-family residential mortgage loans
nationwide. [CORPORATION 1] is a subsidiary of ________________, a
___________________. [CORPORATION 1] primarily acquires mortgage loans from
approved correspondents. At ___________, 199_, [CORPORATION 1] had approximately
___ employees. [CORPORATION 1]'s executive offices are located at
__________________, and its telephone number is (___) ___-____.
The Cut-off Date Scheduled Principal Balance of all of the Mortgage Loans
is approximately $___________. The Mortgage Loans are divided into Mortgage Loan
Group I and Mortgage Loan Group II, with the Group I Mortgage Loans and Group II
Mortgage Loans having Cut-off Date Scheduled Principal Balances of $___________
and $___________, respectively. All of the Group I Mortgage Loans have Net Rates
lower than or equal to _____% per annum and all of the Group II Mortgage Loans
have Net Rates greater than _____% per annum. Group I Mortgage Loans with
Cut-off Date Scheduled Principal Balances of approximately $___________ and
$___________ have original terms to stated maturity of up to ___ years, or
greater than ___ but not more than ___ years, respectively, and Group II
Mortgage Loans with Cut-off Date Scheduled Principal Balances of approximately
$___________ and $___________ have original terms to stated maturity of up to
___ years, or greater than ___ but not more than ___ years, respectively, in
each case based upon the date of origination or any later modification.
Each Mortgage Loan with a Loan-to-Value Ratio at origination in excess
of ___% (except for _____ Group I Mortgage Loans with a Cut-off Date Scheduled
Principal Balance of approximately $___________ and _____
- --------
* The description herein of the Mortgage Loans is based upon estimates of the
composition of the Mortgage Loans as of the Cut-off Date, as adjusted for
all scheduled principal payments due on or before the Cut-off Date. Prior
to the issuance of the Certificates, Mortgage Loans may be removed as a
result of (i) Principal Prepayments thereof in full prior to _____________,
199__, (ii) requirements of the Rating Agencies or (iii) delinquencies or
otherwise. In any such event, other mortgage loans may be included in the
Trust. The Seller believes that the estimated information set forth herein
with respect to the Mortgage Loans as presently constituted is
representative of the characteristics of the Mortgage Loans at the time the
Certificates are issued, although certain characteristics of the Mortgage
Loans may vary.
<PAGE>
Group II Mortgage Loans with a Cut-off Date Scheduled Principal Balance of
approximately $___________) is insured by a primary mortgage insurance policy
("Primary Insurance Policy"). Each such Primary Insurance Policy provides
coverage in an amount equal at least to the excess of the original principal
balance of the Mortgage Loan covered thereby, plus accrued interest thereon and
related foreclosure expenses over ____% of the value of the related Mortgaged
Property as determined at the time of origination of the related Mortgage Loan.
For these purposes Loan-to-Value Ratio means the ratio, expressed as a
percentage, of the principal balance of the Mortgage Loan at origination to the
original value of the Mortgaged Property (i.e., the value at origination based
upon an appraisal or the selling price, whichever is less, or in the case of
certain refinancings, the value set forth in an appraisal). There can be no
assurance that the Loan-to-Value Ratio of any Mortgage Loan determined at any
time after origination is less than or equal to its original Loan-to-Value
Ratio.
As of the Cut-off Date, it is expected that two of the Mortgage Loans
representing approximately ____% of the aggregate Cut-off Date Scheduled
Principal Balances of all of the Mortgage Loans are Buydown Loans . "Buydown
Loans" are subject to temporary buydown plans pursuant to which the monthly
payments made by the mortgagor in the early years of a Buydown Loan will be less
than the scheduled monthly payments thereon after the expiration of the buydown
period, the resulting difference to be made-up from an amount contributed by the
mortgagor, the seller of the related Mortgaged Property, a lender or another
party and placed in a custodial account.
None of the Mortgage Loans will be assumable. None of the Mortgage Loans
will be 30 or more days delinquent in payment as of the Closing Date, or will
have been 30 or more days delinquent more than once during the 12 months
preceding the Closing Date.
Pursuant to its terms, each Mortgage Loan is required to be covered by a
standard hazard insurance policy in an amount equal to the lower of the original
principal loan amount or the replacement value of the improvements on the
Mortgaged Property. See "The Agreements--Hazard Insurance" in the Prospectus.
No assurance can be given that the values of the Mortgaged Properties have
remained or will remain at the levels in effect on the date of origination of
the related Mortgage Loan. Approximately _____% and _____% of the Group I
Mortgage Loans and Group II Mortgage Loans, respectively, (by Cut-off Date
Scheduled Principal Balance) are secured by Mortgaged Properties located in the
State of California. Property values of residential real estate in California
have declined in recent years. If the California residential real estate market
should continue to experience an overall decline in property values after the
dates of origination of the Mortgage Loans, the rates of delinquencies,
foreclosures, bankruptcies and losses on the Mortgage Loans may be expected to
increase substantially.
CHARACTERISTICS OF THE MORTGAGE LOANS
Certain additional expected characteristics (as of the Cut-off Date) of the
Mortgage Loans by Mortgage Loan Group are set forth in the tables appearing as
Annex A to this Prospectus Supplement.
UNDERWRITING STANDARDS
All of the Mortgage Loans were acquired by [CORPORATION 1] and
substantially all were underwritten pursuant to, or in accordance with, the
standards of [CORPORATION 1]'s __________ Series Program, which is described
below.
GENERAL. The underwriting guidelines utilized in the ____________ Series
Program, as developed by [CORPORATION 1], are intended to assess the borrower's
ability and willingness to repay the mortgage loan obligation and to assess the
adequacy of the mortgaged property as collateral for the mortgage loan.
<PAGE>
The _______________ Series Program is designed to meet the needs of borrowers
with excellent credit, as well as those whose credit has been adversely
affected. The _______________ Series Program consists of six mortgage loan
programs. Each program has different credit criteria, reserve requirements,
qualifying ratios and Loan-to-Value Ratio restrictions. Series 1 is designed for
credit history and income requirements typical of "A" credit borrowers. In the
event a borrower does not fit the Series I criteria, the borrower's mortgage
loan is placed into either Series II, III, III+, IV or V, depending on which
series' mortgage loan parameters meets the borrower's unique credit profile.
Series II, III, III+, IV and V allow for less restrictive standards because of
certain compensating or offsetting factors such as a lower Loan-to-Value Ratio,
verified liquid assets, job stability, pride of ownership and, in the case of
refinance mortgage loans, length of time owning the mortgaged property. The
philosophy of the _______________ Series Program is that no single borrower
characteristic should automatically determine whether an application for a
mortgage loan should be approved or disapproved. Lending decisions are based on
a risk analysis assessment after the review of the entire mortgage loan file.
Each mortgage loan is individually underwritten with emphasis placed on the
overall quality of the mortgage loan. The _______________ Series I Program
utilizes an average annual salary to calculate the debt service-to-income ratio.
Salaried borrowers are evaluated based on a ___ month salary history, and
self-employed and commission borrowers are evaluated on a ___ month basis. The
debt service-to-income ratio for Series I borrowers is required to be within the
range of ___% to ___%. The ________________ Series II, III, III+, IV and V
Program borrowers are required to have debt service-to-income ratios within the
range of _____% to _____% calculated on the basis of monthly income and
depending on the Loan-to-Value Ratio of the Mortgage Loan.
Under the _______________ Series Program, [CORPORATION1] underwrites one-
to four-family mortgage loans with Loan-to-Value Ratios at origination of up to
_____%, depending on, among other things, a borrower's credit history, repayment
ability and debt service-to-income ratio, as well as the type and use of the
mortgaged property. Second lien financing of the mortgaged properties may be
provided by lenders other than [CORPORATION1] at origination; however, the
combined Loan-to-Value Ratio ("CLTV") generally may not exceed ___% for mortgage
loan amounts up to $__________ and _____% for mortgage loan amounts above
$__________. In certain circumstances, [CORPORATION 1] may allow second lien
financing with CLTVs of up to _____%. The mortgage loans in the ______________
Series Program generally bear rates of interest that are greater than those
which are originated in accordance with Freddie Mac and Fannie Mae standards. In
general, the maximum amount for mortgage loans originated under the
______________ Series Program is $________; however, [CORPORATION 1] may approve
mortgage loans in excess of such amount on a case-by-case basis.
All of the mortgage loans originated under the ______________ Series I
Program are underwritten either by employees of [CORPORATION 1] or by contracted
mortgage insurance companies or delegated conduit sellers. All mortgage loans
originated under the Series II and III Programs are underwritten by employees of
[Corporation 1] and/or ___________________. Substantially all of the mortgage
loans originated under the Series III+, IV and V Programs are underwritten by
employees of [CORPORATION 1]. Substantially all of the Series I Program mortgage
loans and all of the Series II and III Program mortgage loans with Loan-to-Value
Ratios at origination in excess of ___% are insured by a Primary Insurance
Policy. None of the Series III+ Program Mortgage Loans with Loan-to-Value
Ratios at origination in excess of ___% will be insured by a Primary Insurance
Policy. In general, all Series IV and Series V Program Mortgage Loans have
Loan-to-Value Ratios at origination which are less than or equal to ___% and do
not require a Primary Insurance Policy. [CORPORATION 1] receives verbal
verification from [CORPORATION 1]'s conduit seller of employment prior to
funding or acquiring each ______________ Series Program mortgage loan.
FULL/ALTERNATIVE DOCUMENTATION AND REDUCED DOCUMENTATION ______________
SERIES PROGRAMS. Each prospective borrower completes a mortgage loan application
which includes information with respect to the applicant's liabilities, income,
credit history, employment history and personal information. [CORPORATION 1]
requires a credit report on each applicant from a credit reporting company. The
<PAGE>
report typically contains information relating to credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions or judgments.
The ______________ Series Program allows for approval of an application
pursuant to the (a) Full/Alternative Documentation Program, or (b) the Limited
Documentation Program, the Lite Documentation Program, the "No Ratio" Program or
the "No Income, No Assets" Program (any of the foregoing, a "Reduced
Documentation Program"). The Full/Alternative Documentation Program requires the
following documents: (i) Uniform Residential Loan Application (Fannie Mae Form
1003 or Freddie Mac Form 65), (ii) Statement of Assets and Liabilities (Fannie
Mae Form 1003A or Freddie Mac 65A), (iii) Residential Mortgage Credit Report
with records obtained from at least two separate repositories, (iv) Verification
of Employment Form providing a complete two year employment history, (v)
Verification of Deposit Form for all liquid assets, verifying minimum cash
reserves as required based upon the Loan-to-Value Ratio and borrower's income,
and (vi) a Uniform Residential Appraisal Report (Fannie Mae Form 1004 or Freddie
Mac Form 70). The Full/Alternative Documentation Program allows for the use of
certain alternative documents in lieu of the Verification of Deposit Form and
Verification of Employment Form. These include W-2 Statements, tax returns and
one pay check from the most recent full month for verification of income and the
most recent _______ months personal bank statements for verification of liquid
assets. In addition, self-employed borrowers must provide federal tax returns
for the previous __________ years, including K-1's, federal business tax returns
for ________ years, year-to-date financial statements, a business credit report
(for corporations) and a signed IRS Form 4506 (Request for Copy of Tax Returns).
Under the Limited Documentation Program, which is available to borrowers in
every ___________ Series Program, [CORPORATION 1] obtains from prospective
borrowers either a verification of deposits or bank statements for the most
recent two-month period preceding the mortgage loan application. In addition,
the Lite Documentation Program is available to Series III+, Series IV and Series
V self-employed borrowers where the previous 12 months bank statements are
utilized in lieu of tax returns. Under these programs the borrower provides
income information on the mortgage loan application, and the debt
service-to-income ratio is calculated. However, income is not verified.
Permitted maximum Loan-to-Value Ratios (including secondary financing) under the
Limited Documentation Program and Lite Documentation Program generally are
limited.
The _____________ Series Program also allows for approval of applications
pursuant to the "No Ratio" Program and "No Income, No Assets" Program. The "No
Ratio" Program, available to borrowers in the Series I and Series II Programs,
is designed for a mortgage loan which requires a minimum _____% down payment
from the borrower with employment information, but no income information, stated
on the application (and, therefore, the debt service-to-income ratio is not
calculated). The verification of assets is confirmed by written verification of
deposits and supported by bank statements. With respect to the "No Ratio"
Program, a mortgage loan with a Loan-to-Value Ratio at origination in excess of
_____% is not eligible.
The "No Income, No Assets" Program, available to borrowers in the Series I
Program, requires a much larger down payment than under the "No Ratio" Program.
Under this program, the borrower provides no income information, but provides
employment and unverified asset information on the mortgage loan application.
With respect to the "No Income, No Assets" Program, a mortgage loan with a
Loan-to-Value Ratio at origination in excess of _____% is generally not
eligible.
Under all _______________ Series Programs, [CORPORATION 1]'s conduit seller
verbally verifies the borrower's employment prior to closing. Credit history,
collateral quality and the amount of the down payment are important factors in
evaluating a mortgage loan submitted under one of the Reduced Documentation
Programs. In addition, in order to qualify for a Reduced Documentation Program,
a mortgage loan must conform to certain criteria regarding maximum loan amount,
property type and occupancy status. Mortgage loans having a Loan-to-Value Ratio
at origination in excess of _____% for Series I, II and III and mortgage loans
<PAGE>
on mortgaged property used as a second or vacation home by the prospective
borrowers are not eligible for a Reduced Documentation Program. In general, the
maximum loan amount for mortgage loans underwritten in accordance with Series I,
II and III Reduced Documentation Program is $____________ for purchase
transactions and rate-term transactions and a maximum loan amount of $__________
for cash out refinance transactions. The maximum loan amount for mortgage loans
underwritten in accordance with Series III+, IV and V Reduced Documentation
Program is $_________. Secondary financing is allowed in the origination of the
Limited Documentation Program but must meet the CLTV requirements described
above and certain other requirements for subordinate financing. Secondary
financing is not allowed in the case of the "No Ratio" or the "No Income, No
Assets" Programs. In all cases, liquid assets must support the level of income
of the borrower as stated in proportion to the type of employment of the
borrower. Full Documentation is requested by the underwriter if it is the
judgment of the underwriter that the compensating factors are insufficient for
loan approval.
CREDIT HISTORY. The ________________ Series Program defines an acceptable
credit history in each of the Series I, II and III Programs. The Series I
Program defines an acceptable credit history as a borrower who has "A" credit,
meaning a minimum of _______ trade accounts, with ___ months credit history, no
___-day delinquent mortgage payments in the last ___ months, and a maximum of
_______ ___-day delinquent payments on any installment credit account within the
past ___ months. No bankruptcies or foreclosures are allowed in the past ____
months. No judgments, suits, liens, collections or charge-offs are allowed
within the past ___ months.
With respect to the Series II Program, a borrower must have a minimum of
_______trade accounts with no late mortgage payments for the past ___ months and
may have one ___-day delinquent mortgage payment within the past _____through
_____months. A borrower may not have more than _____ ___-day delinquent payments
on any revolving credit account and a maximum of _______ ___-day delinquent
payments within the past ___months on any installment credit account. All
bankruptcies must be at least ___ months old, fully discharged and the borrower
must have re-established a satisfactory credit history. Foreclosures are not
allowed in the past ___ months.
With respect to the Series III Program, a borrower may not have more than
_____ ___-day delinquent mortgage payments within the past ___ months. The
borrower may not have more than _____ ___-day delinquent payments and ______
__-day delinquent payment on revolving debt in the last ___ months and may not
have more than _______ __-day delinquent and _____ __-day delinquent payment on
any installment credit account in the past ___ months. Any open judgment, suit,
lien, collection or charge-off must be paid prior to closing. Bankruptcies must
be at least ___ months old, fully discharged and the borrower must have
re-established a satisfactory credit history. No late mortgage payments are
permitted on equity take-out refinances under the Limited Documentation Program
offered under the _________________ Series Program.
With respect to the Series III+ Program, a borrower may not have more than
_____ ___-day delinquent mortgage payments within the past ___ months. The
borrower may not have more than _____ ___-day delinquent payments and _____
__-day delinquent payment on revolving debt in the last ___ months and may not
have more than _____ __-day delinquent payments and ____ ___-day delinquent
payment on any installment credit account in the past ___ months. Any open
judgments, suits, liens, collections, charge-offs not to exceed $_______ must be
paid in full at closing. Bankruptcies must be at least ___ months old, fully
discharged and the borrower must have re-established a satisfactory credit
history. Foreclosures are not allowed in the past ___ months.
With respect to the Series IV Program, a borrower may not have more than
_______ ___-day delinquent mortgage payments or ______ ___-day delinquent
mortgage payments and _____ ___-day delinquent mortgage payment within the past
___ months. The borrower may not have more than _____ __-day delinquent payments
or _____ ___-day delinquent payments or _____ ___-day delinquent payment on
revolving debt in the last ___ months and may not have more than ______ ___-day
delinquent payments or _____ ___-day delinquent payments or ______ ___-day
delinquent payment on any installment credit account in the past ___ months. Any
<PAGE>
open judgments, suits, liens, collections, charge-offs not to exceed $_________
must be paid in full at closing. Bankruptcies must be at least ____ months old,
fully discharged and the borrower must have re-established a satisfactory credit
history. Foreclosures are not allowed in the past ___ months.
With respect to the Series V Program, a borrower may not have more than
_____ __-day delinquent mortgage payments or _____ ___-day delinquent mortgage
payments and _____ ___-day delinquent mortgage payment within the past ___
months. The borrower may not have more than _____ __-day delinquent payments or
_____ ___-day delinquent payments or _____ __-day delinquent payments on
revolving debt in the last ___ months and may not have more than _____ __-day
delinquent payments or _____ ___-day delinquent payments or _____ ___-day
delinquent payments on any installment credit account in the past ___ months.
Any open judgments, suits, liens, collections or charge-offs not to exceed
$________ must be paid in full at closing. Bankruptcies must be at least ___
months old, fully discharged and the borrower must have re-established a
satisfactory credit history. Foreclosures are not allowed in the past ___
months.
QUALITY CONTROL. [CORPORATION 1] generally performs a pre-funding audit on
each ________________ Series Program mortgage loan. This audit includes a review
for compliance with ______________ Program parameters and accuracy of the legal
documents. [CORPORATION 1] performs a quality control review on a minimum of
___% of the mortgage loans originated or acquired under the ________________
Series Program for complete re-verification of employment, income and liquid
assets used to qualify for such mortgage loan. Such review also includes
procedures intended to detect evidence of fraudulent documentation and/or
imprudent activity during the processing, funding, servicing or selling of the
mortgage loan. Verification of occupancy and applicable information is made by
regular mail.
APPRAISALS. One- to four-family residential properties that are to secure
_______________ Series Program mortgage loans are appraised by qualified
independent appraisers who are approved by [CORPORATION 1]'s correspondents.
Such appraisers inspect and appraise the subject property and verify that such
property is in acceptable condition. Following each appraisal, the appraiser
prepares a report which includes a market value analysis based on recent sales
of comparable homes in the area and, when deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home. All
appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal
Foundation and must be on forms acceptable to Fannie Mae and Freddie Mac. As
part of [CORPORATION 1]'s quality control procedures, either field or desk
appraisal reviews are obtained on ____% of all mortgage loans originated under
the Progressive Series Program. Selected mortgage loans will also be reviewed
for compliance and document accuracy. Desk and/or field appraisal reviews are
required on all mortgage loans originated under the Progressive Series Program
with Loan-to-Value Ratios in excess of ___% on mortgaged properties located in
the State of California, Loan-to-Value Ratios in excess of ___% on any
properties in all other states, loan amounts in excess of $___________,
non-owner occupied properties, second home properties, cash-out refinance
mortgage loans and whenever in the underwriter's judgment it is necessary to
reverify the appraised value of the property.
VARIATIONS. [CORPORATION 1] uses the foregoing parameters as guidelines
only. On a case-by-case basis, [CORPORATION 1] may determine that the
prospective mortgagor warrants an exception outside the standard
_________________ Series Program guidelines. An exception may be allowed if the
loan application reflects certain compensating factors, including (i) the
prospective mortgagor has demonstrated an ability to save and devote a greater
portion of income to basic housing needs; (ii) the prospective mortgagor may
have a potential for increased earnings and advancement because of education or
special job training, even if the prospective mortgagor has just entered the job
market; (iii) the prospective mortgagor has demonstrated an ability to maintain
a debt free position; (iv) the prospective mortgagor may have short term income
that is verifiable but could not be counted as stable income because it does not
meet the remaining term requirements; and (v) the prospective mortgagor's net
worth is substantial enough to suggest that repayment of the loan is within the
prospective mortgagor's ability.
<PAGE>
[CORPORATION 1] commenced acquiring mortgage loans underwritten pursuant to
the ____________ Series Program in ___________, 19__ . Accordingly, [CORPORATION
1] does not have any historical delinquency or default experience that may be
referred to for purposes of estimating the future delinquency and loss
experience of the Mortgage Loans underwritten pursuant to the _______________
Series Program. There can be no assurance that the delinquency experience of the
servicing portfolio of [CORPORATION 1] as described herein will correspond to
the delinquency experience of the Mortgage Loans underwritten pursuant to the
______________ Series Program. It is contemplated that all of the ______________
Series Program mortgage loans acquired by [CORPORATION 1] will also be
underwritten with a view toward the resale thereof in the secondary mortgage
market.
<PAGE>
THE MASTER SERVICER
[CORPORATION 1] (in its capacity as master servicer, the "Master Servicer")
will act as master servicer for the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
The following table sets forth certain delinquency experience including
pending foreclosures on residential mortgage loans included in [CORPORATION 1]'s
servicing portfolio at the dates indicated. As of _____________, 199_, 199_ ,
199_ and ______, 199_, the total principal balance of loans being serviced by
[CORPORATION 1] was (in millions) $___________, $________, $________, $________
and $________, respectively.
<TABLE>
<CAPTION>
AT
--------------,---------------------------------
199- 199- 199- AT_________31, 199-
------------------------- --------------------- -------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING
OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO
------- --------- -------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % % %
======== ======== ======== ======== ======== ======== ======== ========
Period of Delinquency:
30-59 days....... % % % %
60-89 days......... % % % %
90 days or more.... % % % 2 %2
------- ------- -------- ------- ------- -------- ------- --------
Total Delinquencies
(excluding Foreclosures) % % % 2 %2
======== ======== ======== ======== ======== ========= ======== ========
Foreclosures Pending % % % N/A N/A
</TABLE>
- --------------------
There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans will correspond to the delinquency and foreclosure
experience of the servicing portfolio of [CORPORATION 1] set forth in the
foregoing table. The statistics shown above represent the respective delinquency
and foreclosure experiences only at the dates presented, whereas the aggregate
delinquency and foreclosure experience on the Mortgage Loans will depend on the
results obtained over the life of the Trust. The servicing portfolio includes
mortgage loans with a variety of payment and other characteristics (including
geographic location) which are not necessarily representative of the payment and
other characteristics of the Mortgage Loans. The servicing portfolio includes
mortgage loans underwritten pursuant to guidelines not necessarily
representative of those applicable to the Mortgage Loans. It should be noted
that if the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by [CORPORATION 1]. In addition,
adverse economic conditions may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies and foreclosures with respect to
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Prospectus and the provisions of the Pooling and
Servicing Agreement relating to the Certificates offered hereby.
<PAGE>
GENERAL
The Mortgage Pass-Through Certificates, Series 1996-9 (the "Certificates"),
will consist of the classes of Certificates offered hereby (the "Offered
Certificates") in addition to the Class B-4, Class B-5 and Class B-6
Certificates (the "Other Certificates"), which are not being offered hereby.
The Certificates will evidence in the aggregate the entire beneficial
ownership interest in the Trust. The Trust will consist of (i) the Mortgage
Loans, (ii) such assets as from time to time are identified as deposited in
respect of the Mortgage Loans in the account (the "Protected Account")
established by the Master Servicer for the collection of payments on the
Mortgage Loans and in the Certificate Account and belonging to the Trust, (iii)
property acquired by foreclosure of such Mortgage Loans or by deed in lieu of
foreclosure; (iv) any applicable Primary Insurance Policies and standard hazard
insurance policies; and (v) all proceeds of the foregoing.
Each Class of Book-Entry Certificates will be represented initially by one
or more certificates which equal in the aggregate the initial Current Principal
Amount of such Class registered in the name of Cede & Co. as the nominee of The
Depository Trust Company ("DTC"), and beneficial interests will be held by
investors through the book-entry facilities of DTC in the United States or Cedel
Bank, societe anonyme ("Cedel"), or the Euroclear System ("Euroclear") in
Europe, in minimum denominations of $25,000 (except $500,000 and $1,000,000 for
the Class A-I-8 and Class X Certificates, respectively) and in each case
increments of $1 in excess thereof. One Certificate of each such Class may be
issued in a different principal amount to accommodate the remainder of the
initial principal amount of the Certificates of such Class.
The Class R-1 and Class R-2 Certificates will be issued in certificated
fully-registered form in a single certificate in a denomination of $100 each.
Distributions of principal and interest as set forth below initially will
be made by the Trustee to Cede & Co., as the registered holder of the Book-Entry
Certificates, and to the holders of the Physical Certificates. Upon the issuance
of Definitive Certificates (as defined in "Description of the
Securities--Book-Entry Registration" in the Prospectus) to persons other than
Cede & Co., distributions will be made by the Trustee to the persons in whose
names such Certificates are registered at the close of business on each Record
Date, which will be the last Business Day (as defined below) of the month
preceding the month in which the related Distribution Date occurs. Such
distributions will be made (i) by check mailed to each Certificateholder
entitled thereto at the address appearing in the Certificate Register to be
maintained in accordance with the provisions of the Pooling and Servicing
Agreement or (ii) upon timely receipt by the Trustee of written instructions
from a Certificateholder holding Certificates representing an initial aggregate
Current Principal Amount or Notional Amount of not less than $_________, by wire
transfer to a United States dollar account maintained by the payee at any United
States depository institution with appropriate facilities for receiving such a
wire transfer, PROVIDED, HOWEVER, that the final payment in respect of each
Class of Certificates will be made only upon presentation and surrender of such
respective Certificates at the office or agency of the Trustee specified in the
notice to Certificateholders of such final payment.
A "Business Day" is generally any day other than a Saturday, a Sunday or a
day on which the New York Stock Exchange is closed or on which banking
institutions in New York City or California are authorized or obligated by law
or executive order to be closed.
BOOK-ENTRY REGISTRATION
The Book-Entry Certificates will be issued in one or more certificates
which equal the initial Current Principal Amount of the Certificates (other than
the Physical Certificates) and will initially be registered in the name of Cede
& Co. Cedel and Euroclear will hold omnibus positions on behalf of their
Participants through customers' securities accounts in Cedel'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. Investors may hold beneficial interests in the Book-Entry
Certificates in minimum denominations representing Certificate Principal
<PAGE>
Balances of $25,000 (except $500,000 and $1,000,000 for the Class A-I-8 and
Class X Certificates, respectively) and in each case in increments of $1 in
excess thereof.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be Cede & Co.
Beneficial owners of the Book-Entry Certificates will not be Certificateholders,
as that term is used in the Pooling and Servicing Agreement. Beneficial owners
are only permitted to exercise the rights of Certificateholders indirectly
through Participants. Monthly and annual reports to the Trust provided to Cede &
Co., as nominee of DTC, may be made available to beneficial owners upon request,
in accordance with the rules, regulations and procedures creating and affecting
DTC and to Participants to whose DTC accounts the Book-Entry Certificates are
credited. For a description of the features of the book-entry registration
system, see "Description of the Securities--Book-Entry Registration" in the
Prospectus.
Physical Certificates and Definitive Certificates will be transferable and
exchangeable on a "Certificate Register" to be maintained by the Trustee at the
office or agency of the Trustee maintained for that purpose in ___________.
Physical Certificates and Definitive Certificates surrendered to the Trustee for
registration or transfer or exchange must be accompanied by a written instrument
or transfer in form satisfactory to the Trustee. No service charge may be made
for any registration of transfer or exchange of Physical Certificates and
Definitive Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency of the Trustee
is currently located at ________________. Certain representations regarding
________________ will be required in connection with the transfer of REMIC
Residual Certificates. See "Restrictions on Purchase and Transfer of the
Residual Certificates."
AVAILABLE FUNDS
Available funds for any Distribution Date will be determined separately
with respect to each Mortgage Loan Group ("Group I Available Funds" and "Group
II Available Funds," respectively,) and in each case will be an amount equal to
the aggregate of the following with respect to the related Mortgage Loans: (a)
all previously undistributed payments on account of principal (including the
principal portion of Monthly Payments, Principal Prepayments and the principal
amount of Liquidation Proceeds) and all previously undistributed payments on
account of interest received after the Cut-off Date and on or prior to the
related Determination Date, (b) any Monthly Advances (including Certificate
Account Advances, as defined under "The Pooling and Servicing Agreement--Monthly
Advances" herein) and Compensating Interest Payments (as defined under "The
Pooling and Servicing Agreement--Servicing Compensation and Payment of Expenses"
herein) by the Master Servicer and (c) any amount reimbursed by the Master
Servicer in connection with losses on certain eligible investments, except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all Principal Prepayments and Liquidation Proceeds received after the
applicable Prepayment Period and all related payments of interest;
(iii) all payments, other than Principal Prepayments, that represent early
receipt of scheduled payments due on a date or dates subsequent to the Due
Date in the month in which such Distribution Date occurs;
(iv) amounts received on particular Mortgage Loans as late payments of
principal or interest and respecting which, and to the extent that, there are
any unreimbursed Monthly Advances or Certificate Account Advances;
(v) amounts of Monthly Advances or Certificate Account Advances determined
to be nonrecoverable;
(vi) amounts of Trustee's Fees for such Distribution Date; and
<PAGE>
(vii) amounts permitted to be withdrawn from the Certificate Account
pursuant to clauses (i) through (xi) described under the caption "The Pooling
and Servicing Agreement--Certificate Account" herein.
"Available Funds" for any Distribution Date will equal the sum of the Group I
Available Funds and the Group II Available Funds.
DISTRIBUTIONS ON THE CERTIFICATES
ALLOCATION OF AVAILABLE FUNDS. Interest and principal on the Certificates
will be distributed monthly on each Distribution Date, commencing in
____________, 199_, in an aggregate amount equal to the Available Funds for such
Distribution Date.
(A) On each Distribution Date on or prior to the Distribution Date on which
the Current Principal Amounts of the Subordinate Certificates are reduced to
zero (the "Cross-Over Date"), an amount equal to the Group I Available Funds
will be distributed in the following order of priority among the Certificates:
FIRST, to the interest-bearing Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates, the Accrued
Certificate Interest on each such Class and the Class X Component I Accrued
Certificate Interest on such Component for such Distribution Date;
SECOND, to the interest-bearing Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates, any Accrued
Certificate Interest and Class X Component I Accrued Certificate Interest
thereon remaining undistributed from previous Distribution Dates, to the
extent of remaining Group I Available Funds, any shortfall in available
amounts being allocated among such Classes and Component in proportion to
the amount of such Accrued Certificate Interest and Class X Component I
Accrued Certificate Interest remaining undistributed for each such Class or
Component for such Distribution Date;
THIRD, to the Class A-I Certificates (other than the Class A-I-8
Certificates), the Residual Certificates and the Class PO Certificates in
reduction of the Current Principal Amounts thereof:
(a) the Group I Senior Optimal Principal Amount (as defined herein), in the
following order of priority:
(i) to the Class A-I-11 Certificates, up to the Class A-I-11 Optimal
Principal Amount (as defined herein) for such Distribution Date, until the
Current Principal Amount thereof has been reduced to zero;
(ii) concurrently, to the Class R-1 and Class R-2 Certificates, PRO
RATA, based upon their Current Principal Amounts, until the respective
Current Principal Amounts thereof have been reduced to zero;
(iii) ______%, ______% and ______% concurrently to the Class A-I-1
Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-1 Certificates has been
reduced to zero;
(iv) ______%, ______% and ______% concurrently to the Class A-I-3
Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-3 Certificates has been
reduced to zero;
(v) ______%, ______% and ______% concurrently to the Class A-I-4
Certificates, the Class A-I-7 Certificates and the Class A-I-2
Certificates, until the respective Current Principal Amounts of the Class
A-I-4 Certificates and the Class A-I-2 Certificates have been reduced to
zero;
<PAGE>
(vi) ______% and ______% concurrently to the Class A-I-5 Certificates
and the Class A-I-7 Certificates, until the Current Principal Amount of the
Class A-I-5 Certificates has been reduced to zero;
(vii) ______% and ______% concurrently to the Class A-I-6 Certificates
and Class A-I-7 Certificates, until the Current Principal Amount of the
Class A-I-6 Certificates has been reduced to zero;
(viii) concurrently to the Class A-I-9 Certificates and the Class
A-I-7 Certificates, PRO RATA, based on their Current Principal Amounts,
until the Current Principal Amounts thereof have been reduced to zero;
(ix) to the Class A-I-10 Certificates, until the Current Principal
Amount thereof has been reduced to zero; and
(B) the Class PO Principal Distribution Amount (as defined herein) for
such Distribution Date, to the Class PO Certificates, until the Current
Principal Amount thereof has been reduced to zero; and
FOURTH, the Class PO Deferred Amount for such Distribution Date to the
Class PO Certificates; provided, that (i) on any Distribution Date,
distributions pursuant to this priority (A) FOURTH, shall not exceed the
excess, if any, of (x) the Available Funds remaining after giving effect to
distributions pursuant to priorities (A) FIRST through THIRD above and (B)
FIRST through THIRD below over (y) the amount of Accrued Certificate
Interest for such Distribution Date and Accrued Certificate Interest
remaining undistributed from previous Distribution Dates on all Classes of
Subordinate Certificates then outstanding, (ii) such distributions shall not
reduce the Current Principal Amount of the Class PO Certificates and (iii)
no distribution will be made in respect of the Class PO Deferred Amount
after the Cross-Over Date.
The "Class A-I-11 Optimal Principal Amount" for any Distribution Date
occurring prior to the Distribution Date in ________, 200__ will equal zero. The
Class A-I-11 Optimal Principal Amount for any Distribution Date occurring after
the first five years following the Closing Date will be as follows: for any
Distribution Date during the sixth year after the Closing Date, _____% of the
Class A-I-11 Pro Rata Optimal Principal Amount (as defined below) for such
Distribution Date; for any Distribution Date during the seventh year after the
Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount for
such Distribution Date; for any Distribution Date during the eighth year after
the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount
for such Distribution Date; for any Distribution Date during the ninth year
after the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal
Amount for such Distribution Date; and for any Distribution Date during and
after the tenth year after the Closing Date, _____% of the Class A-I-11 Pro Rata
Optimal Principal Amount. Notwithstanding the foregoing, if on any Distribution
Date the Current Principal Amount of each Class of Class A-I Certificates (other
than the Class A-I-8 and Class A-I-11 Certificates) has been reduced to zero,
the Class A-I-11 Optimal Principal Amount shall equal the Group I Senior Optimal
Principal Amount to the extent not distributed on such Distribution Date to
other Classes of Class A-I Certificates or Residual Certificates.
For any Distribution Date, the "Class A-I-11 Pro Rata Optimal Principal
Amount" shall be an amount equal to the product of (x) the Group I Senior
Optimal Principal Amount for such Distribution Date multiplied by (y) a
fraction, the numerator of which is the Current Principal Amount of the Class
A-I-11 Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Current Principal Amounts of all Classes
of Class A-I Certificates and Residual Certificates immediately prior to such
Distribution Date.
"Pro rata" distributions among Classes of Certificates will be made in
proportion to the then Current Principal Amounts of such Classes.
If, after distributions have been made pursuant to priorities (A) FIRST and
SECOND above on any Distribution Date, remaining Group I Available Funds are
less than the sum of the Group I Senior Optimal Principal Amount and the Class
PO Principal Distribution Amount for such Distribution Date, such amounts shall
<PAGE>
be proportionately reduced, and such remaining Group I Available Funds will be
distributed on the Class A-I Certificates (other than the Class A-I-8
Certificates), Residual Certificates and Class PO Certificates in accordance
with clauses (a) and (b) of priority (A) THIRD above on the basis of such
reduced amounts. Notwithstanding any reduction in principal distributable to the
Class PO Certificates pursuant to this paragraph, the principal balance of the
Class PO Certificates shall be reduced not only by principal so distributed but
also by the difference between (i) principal distributable to the Class PO
Certificates in accordance with clause (b) of priority (A) THIRD above and (ii)
principal actually distributed to the Class PO Certificates after giving effect
to this paragraph (the "Class PO Cash Shortfall"). The Class PO Cash Shortfall
with respect to any Distribution Date will be added to the Class PO Deferred
Amount.
(B) On each Distribution Date on or prior to the Cross-Over Date, an
amount equal to the Group II Available Funds will be distributed in the
following order of priority among the Certificates:
FIRST, to the Class A-II Certificates and Component II of the Class X
Certificates, the Accrued Certificate Interest on such Class and Class X
Component II Accrued Certificate Interest on such Component for such
Distribution Date;
SECOND, to the Class A-II Certificates and Component II of the Class X
Certificates, any Accrued Certificate Interest and Class X Component II
Accrued Certificate Interest thereon remaining undistributed from previous
Distribution Dates, to the extent of the remaining Group II Available
Funds, any shortfall in available amounts being allocated between such
Class and Component in proportion to the amount of such Accrued Certificate
Interest and Class X Component II Accrued Certificate Interest remaining
undistributed for such Class or Component for such Distribution Date; and
THIRD, the Group II Senior Optimal Principal Amount to the Class A-II
Certificates until their Current Principal Amount has been reduced to zero.
(C) On each Distribution Date on or prior to the Cross-Over Date, an
amount equal to any remaining Group I Available Funds and Group II Available
Funds following the distributions in (A) and (B) above will be distributed
sequentially, in the following order, to the Class B-1, Class B-2, Class B-3,
Class B-4, Class B-5 and Class B-6 Certificates, in each case up to an amount
equal to and in the following order: (a) the Accrued Certificate Interest
thereon for such Distribution Date, (b) any Accrued Certificate Interest thereon
remaining undistributed from previous Distribution Dates and (c) such Class's
Allocable Share (as defined herein) for such Distribution Date.
(D) On each Distribution Date prior to the occurrence of the
Cross-Over Date but after the reduction of the Current Principal Amounts of the
Class A-I Certificates (other than the Class A-I-8 Certificates) or Class A-II
Certificates to zero, the remaining Class or Classes of Class A Certificates
(other than the Class A-I-8 Certificates) will be entitled to receive, in
addition to any Principal Prepayments related to such Class A Certificates'
respective Mortgage Loan Group, 100% of the Principal Prepayments on the
Mortgage Loans in the other Mortgage Loan Group (in the case of Mortgage Loan
Group I in accordance with the priorities set forth in priority (A) THIRD above,
and in reduction of the Current Principal Amounts). In addition, if on any
Distribution Date on which the aggregate Current Principal Amount of the Class
A-I Certificates (other than the Class A-I-8 Certificates) or Class A-II
Certificates would be greater than the aggregate Scheduled Principal Balance of
the Mortgage Loans in the related Mortgage Loan Group (other than the related PO
Percentage (as defined herein) of the Group I Discount Mortgage Loans in
Mortgage Loan Group I) and Class B Certificates are still outstanding, in each
case after giving effect to distributions to be made on such Distribution Date,
100% of the Principal Prepayments otherwise allocable to the Class B
Certificates on the Mortgage Loans in the other Mortgage Loan Group will be
distributed to such Class or Classes of Class A Certificates (other than the
Class A-I-8 Certificates) (in the case of the Class A-I Certificates, in
accordance with the priorities set forth in priority (A) THIRD above) in
reduction of the Current Principal Amounts thereof, until the aggregate Current
Principal Amount of the Class A-I Certificates (other than the Class A-I-8
Certificates) or Class A-II Certificates, as applicable, is an amount equal to
the aggregate Scheduled Principal Balance of the Mortgage Loans in the related
Mortgage Loan Group (other than the related PO Percentage of the Group I
Discount Mortgage Loans in Mortgage Loan Group I).
<PAGE>
(E) On each Distribution Date after the Cross-Over Date, distributions
of principal on the outstanding Class A-I Certificates (other than the Class
A-I-8 Certificates) and Residual Certificates will be made PRO RATA among all
such Certificates, regardless of the allocation, or sequential nature, of
principal payments described in priority (A) THIRD above, based upon the then
Current Principal Amounts of such Certificates, and interest will be distributed
as described above with respect to Distribution Dates on or prior to the
Cross-Over Date.
(F) On each Distribution Date, any Group I Available Funds and Group
II Available Funds remaining after payment of interest and principal as
described above will be distributed to the Class R-1 and Class R-2 Certificates;
provided that if on any Distribution Date there are any Group I Available Funds
remaining after payment of interest and principal as described in the preceding
paragraphs, such Group I Available Funds will be distributed to the Class A-II
Certificates in accordance with the priorities in paragraph (B) above until all
amounts due to such Certificates have been paid in full before any amounts are
distributed to the Residual Certificates. Similarly, if on any Distribution Date
there are any Group II Available Funds remaining after payment of interest and
principal as described in the preceding paragraphs, such Group II Available
Funds will be distributed to the Senior Certificates (other than the Class A-II
Certificates and Component II of the Class X Certificates) in accordance with
the priorities in priority (A) THIRD above or paragraph (E) above, as
applicable, until all amounts due to such Senior Certificates have been paid in
full before any amounts are distributed to the Residual Certificates. It is not
anticipated that there will be any significant amounts remaining for such
distribution.
INTEREST. Interest will accrue during the preceding Interest Accrual Period
for each interest-bearing Class of Certificates at its Pass-Through Rate on the
Current Principal Amount or Notional Amount of such Class immediately preceding
such Distribution Date. The effective yield to the holders of Certificates
(other than the Class A-I-7 and Class A-I-8 Certificates) will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and purchase
price, because interest will not be distributed to such Certificateholders until
the _____ day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on the
Mortgage Loans. See "Yield and Prepayment Considerations" herein.
All interest-bearing Offered Certificates (other than the Class A-I-7,
Class A-I-8, Class X and Class R-2 Certificates) will bear interest at the fixed
Pass-Through Rates set forth on the cover page hereof.
The Class A-I-7 Certificates will bear interest at _____% per annum during
the first Interest Accrual Period. During each Interest Accrual Period
thereafter, the Class A-I-7 Certificates will bear interest subject to a maximum
rate of _____% per annum and a minimum rate of _____% per annum, at a rate per
annum equal to _____% in excess of LIBOR, as more fully described below.
The Class A-I-8 Certificates will bear interest on the Class A-I-8
Notional Amount at _____% per annum during the first Interest Accrual Period.
During each Interest Accrual Period thereafter, the Class A-I-8 Certificates
will bear interest on the Class A-I-8 Notional Amount subject to a maximum rate
of _____% per annum and a minimum rate of __% per annum, at a rate equal to
_____% - LIBOR, as more fully described below.
The Class X Certificates will bear interest on the Class X Notional Amount
at a variable Pass-Through Rate equal to the excess of (a) the weighted average
of the Net Rates of all of the Mortgage Loans over (b) the weighted average of
the Pass-Through Rates of all the Certificates (other than the Class X
Certificates). The Pass-Through Rate for the Class X Certificates for the first
Interest Accrual Period is expected to be approximately _____% per annum.
In order to calculate the source of interest due on the Class X
Certificates and for REMIC purposes, the Class X Certificates are deemed to
consist of separate components (each, a "Separate Component"), certain of which
correspond to the Class A-I Certificates, the Class R-1 Certificates and a
principal amount of the Class B Certificates which derives its distributions
from the Group I Mortgage Loans (collectively, "Component I") and one which
<PAGE>
corresponds to the Class A-II Certificates and the principal amount of the Class
B Certificates which derives its distributions from the Group II Mortgage Loans
("Component II").
Since interest on the Class X Certificates is based on amounts paid on both
the Group I Mortgage Loans and the Group II Mortgage Loans, the Accrued
Certificate Interest for the Class X Certificates may also be expressed as the
sum of the Class X Component I Accrued Certificate Interest and the Class X
Component II Accrued Certificate Interest (each as defined below.)
"Class X Component I Accrued Certificate Interest" for any Distribution
Date is equal to the excess of the interest accrued on the Group I Mortgage
Loans at the weighted average of the Net Rates of such Mortgage Loans for such
Distribution Date over the sum of (x) all Accrued Certificate Interest on the
Class A-I Certificates and the Residual Certificates for such Distribution Date,
(y) the portion of the Accrued Certificate Interest on the Class B Certificates
for such Distribution Date that the Class B Group I Current Principal Amount as
of such Distribution Date bears to the aggregate Current Principal Amounts of
the Class B Certificates as of such Distribution Date, and (z) the portion of
(i) any Net Interest Shortfall and (ii) the interest portion of any Excess
Losses, and after the CrossOver Date, (iii) the interest portion of any Realized
Losses, allocated to the Class X Certificates that the Class X Component I
Accrued Certificate Interest (determined without regard to this clause (z))
bears to the total Accrued Certificate Interest on the Class X Certificates
(determined without regard to such Net Interest Shortfall, or the interest
portion of Excess Losses or Realized Losses, as applicable). For this purpose,
the "Class B Group I Current Principal Amount" as of any Distribution Date
equals the aggregate Current Principal Amounts of the Class B Certificates as of
such Distribution Date less the Class B Group II Current Principal Amount (as
defined below) as of such Distribution Date. However, if on any Distribution
Date, the interest on the Group II Mortgage Loans at their Net Rates is less
than the Accrued Certificate Interest on the Class A-II Certificates, the Class
X Component I Accrued Certificate Interest for such Distribution Date shall
equal the Accrued Certificate Interest for the Class X Certificates.
"Class X Component II Accrued Certificate Interest" for any Distribution
Date is equal to the excess of the interest accrued on the Group II Mortgage
Loans at the weighted average of the Net Rates of such Mortgage Loans for such
Distribution Date over the sum of (x) all Accrued Certificate Interest on the
Class A-II Certificates for such Distribution Date, (y) the portion of the
Accrued Certificate Interest on the Class B Certificates for such Distribution
Date that the Class B Group II Current Principal Amount as of such Distribution
Date bears to the aggregate Current Principal Amounts of the Class B
Certificates as of such Distribution Date, and (z) the portion of (i) any Net
Interest Shortfall and (ii) the interest portion of any Excess Losses, and after
the Cross-Over Date, (iii) the interest portion of any Realized Losses,
allocated to the Class X Certificates that the Class X Component II Accrued
Certificate Interest (determined without regard to this clause (z)) bears to the
total Accrued Certificate Interest on the Class X Certificates (determined
without regard to such Net Interest Shortfall, or the interest portion of Excess
Losses or Realized Losses, as applicable). For this purpose, the "Class B Group
II Current Principal Amount" as of any Distribution Date equals the sum of the
Scheduled Principal Balances of the Group II Mortgage Loans as of such
Distribution Date less the Current Principal Amount of the Class A-II
Certificates as of such Distribution Date. However, if on any Distribution Date,
the interest on the Group I Mortgage Loans at their Net Rates is less than the
Accrued Certificate Interest on the Class A-I Certificates, the Class X
Component II Accrued Certificate Interest for such Distribution Date shall equal
the Accrued Certificate Interest for the Class X Certificates.
The Class R-2 Certificates will bear interest on their Current Principal
Amount at a variable Pass-Through Rate equal to the weighted average of the Net
Rates of the Group I Mortgage Loans. The Pass-Through Rate for the Class R-2
Certificates for the first Interest Accrual Period is expected to be
approximately _____% per annum.
The "Accrued Certificate Interest" for any interest-bearing Certificate for
any Distribution Date will equal the interest accrued during the related
Interest Accrual Period at the applicable Pass-Through Rate on the Current
Principal Amount (or, in the case of the Class A-I-8 Certificates, the Class
<PAGE>
A-I-8 Notional Amount, and in the case of a Class X Certificate, the Class X
Notional Amount) of such Certificate immediately prior to such Distribution Date
less (i) in the case of an interest-bearing Senior Certificate, such
Certificate's share of any Net Interest Shortfall (as defined herein) and the
interest portion of any Excess Losses and, after the Cross-Over Date, the
interest portion of any Realized Losses and (ii) in the case of a Subordinate
Certificate, such Certificate's share of any Net Interest Shortfall and the
interest portion of any Realized Losses. Such shortfalls and losses will be
allocated among the Senior Certificates in proportion to the amount of Accrued
Certificate Interest that would have been allocated thereto in the absence of
such shortfalls and losses. Accrued Certificate Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months. No Accrued
Certificate Interest will be payable with respect to any Class of Certificates
after the Distribution Date on which the outstanding principal balance (or Class
A-I-8 Notional Amount or Class X Notional Amount) of such Certificate has been
reduced to zero.
The "Current Principal Amount" of any Certificate (other than a Class A-I-8
or Class X Certificate) as of any Distribution Date will equal such
Certificate's initial principal amount on the Closing Date as reduced by (i) all
amounts distributed on previous Distribution Dates on such Certificate on
account of principal (and the Class PO Cash Shortfall with respect to a Class PO
Certificate), (ii) the principal portion of all Realized Losses previously
allocated to such Certificate and (iii) in the case of a Subordinate
Certificate, such Certificate's share, if any, of the Subordinate Certificate
Writedown Amount and the Class PO Deferred Payment Writedown Amount for previous
Distribution Dates. With respect to any Class of Certificates (other than the
Class A-I-8 or Class X Certificates), the Current Principal Amount thereof will
equal the sum of the Current Principal Amounts of all Certificates in such
Class.
As of any Distribution Date, the "Subordinate Certificate Writedown Amount"
will equal the amount by which (a) the sum of the Current Principal Amounts of
all of the Certificates (after giving effect to the distribution of principal
and the allocation of Realized Losses and the Class PO Deferred Payment
Writedown Amount in reduction of the Current Principal Amounts of the
Certificates on such Distribution Date) exceeds (b) the sum of the Scheduled
Principal Balances of the Mortgage Loans on the first day of the month of such
Distribution Date less any Deficient Valuation occurring on or prior to the
Bankruptcy Coverage Termination Date (as defined herein). For any Distribution
Date, the "Class PO Deferred Payment Writedown Amount" will equal the amount, if
any, distributed on such date in respect of the Class PO Deferred Amount
pursuant to priority (A) FOURTH under "--Allocation of Available Funds" above.
The Subordinate Certificate Writedown Amount and the Class PO Deferred Payment
Writedown Amount will be allocated to the Classes of Subordinate Certificates in
inverse order of their numerical Class designations, until the Current Principal
Amount of each such Class has been reduced to zero and, from and after the
Cross-Over Date, the Subordinate Certificate Writedown Amount will be allocated
PRO RATA among the Classes of Senior Certificates (other than the Class A-I-8,
Class X and Class PO Certificates) based on their then-outstanding Current
Principal Amounts.
The Class A-I-8 Certificates will have a notional principal balance equal
to the Current Principal Amount of the Class A-I-7 Certificates.
The Class X Certificates will have a notional principal balance equal to
the aggregate Scheduled Principal Balances of all of the Mortgage Loans.
With respect to any Distribution Date, the "Interest Shortfall" is equal to
the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Rates) resulting from (a) prepayments in full received during the
related Prepayment Period, (b) partial prepayments received during the related
Prepayment Period to the extent applied prior to the Due Date in the month of
the Distribution Date and (c) interest payments on certain of the Mortgage Loans
being limited pursuant to the provisions of the Soldiers' and Sailors' Civil
Relief Act of 1940 (the "Relief Act"). Interest Shortfalls will result because
(i) Mortgagors are obligated to pay interest on prepayments in full only to the
date of prepayment by the Mortgagor, (ii) (a) partial prepayments are generally
not required to be accompanied by interest on the amount of such partial
prepayment and (b) partial prepayments applied prior to the Due Date in the
month of the Distribution Date will result in a reduction of the Scheduled
Principal Balance of the related Mortgage Loan without a corresponding reduction
of the Current Principal Amount of any Certificate and (iii) the Relief Act
<PAGE>
limits, in certain circumstances, the interest rate required to be paid by a
Mortgagor in the military service, to 6% per annum. Interest Shortfalls
resulting from prepayments in full or in part in any calendar month will be
offset by the Master Servicer on the Distribution Date in the following calendar
month to the extent that such Interest Shortfalls do not exceed the lesser of
(i) the Master Servicing Fee in connection with such Distribution Date or (ii)
_______ of the Scheduled Principal Balances of the Mortgage Loans with respect
to such Distribution Date. The amount of the Master Servicing Fee used to offset
such Interest Shortfalls is referred to herein as a "Compensating Interest
Payment." Interest Shortfalls net of Compensating Interest Payments are referred
to herein as "Net Interest Shortfalls."
If on any Distribution Date the Group I Available Funds are less than the
Accrued Certificate Interest on the Class A-I and Residual Certificates and the
Class X Component I Accrued Certificate Interest on Component I of the Class X
Certificates or if the Group II Available Funds are less than the Accrued
Certificate Interest on the Class A-II Certificates and the Class X Component II
Accrued Certificate Interest on Component II of the Class X Certificates, in
each case for such Distribution Date and prior to reduction for Net Interest
Shortfall and the interest portion of Realized Losses, the shortfall will be
allocated among the holders of each such respective Class or Component in
proportion to the respective amounts of Accrued Certificate Interest and Class X
Component I Accrued Certificate Interest or Class X Component II Accrued
Certificate Interest, as applicable, that would have been allocated thereto in
the absence of such Net Interest Shortfall and/or Realized Losses for such
Distribution Date on each such Class or Component. In addition, the amount of
any interest shortfalls with respect to the related Mortgage Loan Group that are
covered by subordination will constitute unpaid Accrued Certificate Interest or
unpaid Class X Component I Accrued Certificate Interest or unpaid Class X
Component II Accrued Certificate Interest and will be distributable to holders
of the Certificates of the related Classes or Component entitled to such amounts
on subsequent Distribution Dates, to the extent of Group I Available Funds or
Group II Available Funds, as applicable, after interest distributions as
required herein. Any such amounts so carried forward will not bear interest.
Shortfalls in interest payments will not be offset by a reduction in the
servicing compensation of the Master Servicer or otherwise, except to the
limited extent described above.
Commencing on ___________, 199_ and monthly thereafter on the second
Business Day prior to the first day of the related Interest Accrual Period for
the Class A-I-7 and Class A-I-8 Certificates (each, a "LIBOR Determination
Date"), until the Current Principal Amount of the Class A-I-7 Certificates and
the Class A-I-8 Notional Amount have been reduced to zero, the Trustee will
request each of the designated reference banks meeting the criteria set forth
herein (the "Reference Banks") to inform the Trustee of the quotation offered by
its principal London office for making one-month United States dollar deposits
in leading banks in the London interbank market, as of 11:00 a.m. (London time)
on such LIBOR Determination Date. For purposes of calculating LIBOR, "Business
Day" means a day on which banks are open for dealing in foreign currency and
exchange in London and New York City. In lieu of making a request of the
Reference Banks, the Trustee may rely on the quotations for those Reference
Banks that appear at such time on the page, whatever its designation, on which
LIBOR is for the time being displayed on the Reuters Monitor Money Rates Service
or the appropriate Associated Press-Dow Jones Telerate Service.
LIBOR will be established by the Trustee on each LIBOR Determination Date
as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Seller are quoting, on the relevant LIBOR Determination
Date, to the principal London offices of at least two of the Reference
<PAGE>
Banks to which such quotations are, in the opinion of the Trustee, being so
made, or (ii) in the event that the Trustee can determine no such
arithmetic mean, the lowest one-month United States dollar lending rate
which New York City banks selected by the Seller are quoting on such LIBOR
Determination Date to leading European banks.
(c) If on any LIBOR Determination Date, the Trustee is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR shall be _____%.
Each Reference Bank shall (i) be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) not control,
be controlled by, or be under common control with the Seller, and (iii) have an
established place of business in London. If any such Reference Bank should be
unwilling or unable to act as such or if the Seller should terminate the
appointment of any such Reference Bank, the Seller will promptly appoint another
leading bank meeting the criteria specified above.
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 Class
A-I-7 and A-I-8 Certificates for the related Interest Accrual Period shall (in
the absence of manifest error) be final and binding. Each such rate of interest
may be obtained by telephoning the Trustee at (___) ____ - _____________.
PRINCIPAL. An amount equal to all amounts payable in respect of principal
of the Group I Mortgage Loans will be allocated between (i) the Senior
Certificates (other than the Class A-I-8, Class A-II, Class PO and Class X
Certificates) and the Subordinate Certificates, on the one hand, and (ii) the
Class PO Certificates, on the other, in each case based on the applicable Non-PO
Percentage and the applicable PO Percentage, respectively, of such amounts.
The "Non-PO Percentage" with respect to any Mortgage Loan with a Net Rate
less than _____% per annum (each such Mortgage Loan, a "Group I Discount
Mortgage Loan") will be equal to the Net Rate thereof divided by _____%. The
"Non-PO Percentage" with respect to any Mortgage Loan with a Net Rate equal to
or greater than 8.00% (each such Mortgage Loan, a "Non-Discount Mortgage Loan")
will be _____%. The "PO Percentage" with respect to any Discount Mortgage Loan
will be the fraction, expressed as a percentage, equal to _____% minus the Net
Rate thereof divided by _____%. The "PO Percentage" with respect to any
Non-Discount Mortgage Loan will be _____%.
Distributions in reduction of the Current Principal Amount of each Class of
Senior Certificates (other than the Class A-I-8, Class A-II and Class X
Certificates) will be made on each Distribution Date pursuant to priority (A)
THIRD above, the fourth paragraph following priority (A) FOURTH and paragraphs
(D), (E) and (F) above under "--Allocation of Available Funds." In accordance
with priority (A) THIRD, the Group I Available Funds remaining after
distribution of interest on the Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates on such Distribution
Date will be allocated to the Class A-I and the Residual Certificates, and the
Class PO Certificates in an aggregate amount not to exceed the sum of the Group
I Senior Optimal Principal Amount and the Class PO Principal Distribution Amount
for such Distribution Date.
Distributions in reduction of the Current Principal Amount of the Class
A-II Certificates will be made on each Distribution Date pursuant to priority
(B) THIRD and paragraphs (D) and (F) under "--Allocation of Available Funds"
above.
Distributions in reduction of the Current Principal Amounts of the
Subordinate Certificates will be made pursuant to paragraph (C) under
"--Allocation of Available Funds" above. The sum of the Group I Available Funds
and the Group II Available Funds, if any, remaining after distributions of
principal and interest on the Senior Certificates and payments in respect of the
Class PO Deferred Amount on such Distribution Date will be allocated to the
Subordinate Certificates in an amount equal to each such Class's Allocable Share
for such Distribution Date, provided that no distribution of principal will be
made on any such Class until any Class ranking prior thereto has received
distributions of interest and principal, and such Class has received
distributions of interest, on such Distribution Date.
<PAGE>
The amount to which the Senior Certificates (other than the Class A-I-8,
Class PO and Class X Certificates) are entitled as principal on any Distribution
Date will be determined separately for the Class A-I Certificates and the
Residual Certificates (the "Group I Senior Optimal Principal Amount") and for
the Class A-II Certificates (the "Group II Senior Optimal Principal Amount") and
in each case will be an amount equal to the sum of:
(i) the applicable Senior Percentage (as defined below) of the applicable
Non-PO Percentage of all scheduled payments of principal due on each Mortgage
Loan in the related Mortgage Loan Group on the first day of the month in
which the Distribution Date occurs, as specified in the amortization schedule
at the time applicable thereto (after adjustment for previous principal
prepayments and the principal portion of Debt Service Reductions after the
Bankruptcy Coverage Termination Date, but before any adjustment to such
amortization schedule by reason of any other bankruptcy or similar proceeding
or any moratorium or similar waiver or grace period);
(ii) the applicable Senior Prepayment Percentage (as defined below) of the
applicable Non-PO Percentage of the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which was the subject of a
prepayment in full received by the Master Servicer during the applicable
Prepayment Period (as defined below);
(iii) the applicable Senior Prepayment Percentage of the applicable Non-PO
Percentage of all partial prepayments of principal received on each Mortgage
Loan in the related Mortgage Loan Group during the applicable Prepayment
Period;
(iv) the lesser of (a) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of the sum of (w) the net liquidation proceeds
allocable to principal on each Mortgage Loan in the related Mortgage Loan
Group which became a Liquidated Mortgage Loan during the related Prepayment
Period (other than Mortgage Loans described in clause (x)) and (x) the
Scheduled Principal Balance of each Mortgage Loan in the related Mortgage
Loan Group that was purchased by a private mortgage insurer during the
related Prepayment Period as an alternative to paying a claim under the
related insurance policy, and (b) the applicable Senior Percentage of the
applicable Non-PO Percentage of the sum of (w) the Scheduled Principal
Balance of each Mortgage Loan in the related Mortgage Loan Group which became
a Liquidated Mortgage Loan during the related Prepayment Period (other than
Mortgage Loans described in clause (x)) and (x) the Scheduled Principal
Balance of each Mortgage Loan in the related Mortgage Loan Group that was
purchased by a private mortgage insurer during the related Prepayment Period
as an alternative to paying a claim under the related insurance policy less
(y) in the case of clause (b), the applicable Senior Percentage of the
applicable Non-PO Percentage of the principal portion of Excess Losses (other
than Debt Service Reductions) on each Mortgage Loan in the related Mortgage
Loan Group incurred during the related Prepayment Period; and
(v) the applicable Senior Prepayment Percentage of the applicable Non-PO
Percentage of the sum of (a) the Scheduled Principal Balance of each Mortgage
Loan in the related Mortgage Loan Group which was repurchased by the Master
Servicer in connection with such Distribution Date and (b) the difference, if
any, between the Scheduled Principal Balance of a Mortgage Loan in the
related Mortgage Loan Group that has been replaced by the Master Servicer
with a substitute Mortgage Loan pursuant to the Pooling and Servicing
Agreement in connection with such Distribution Date and the Scheduled
Principal Balance of such substitute Mortgage Loan.
With respect to any Mortgage Loan and any Distribution Date, the
"Prepayment Period" is the period from the first day through the last day of the
month preceding the month of such Distribution Date.
The "Class A-I Senior Percentage" and the "Class A-II Senior Percentage"
(each, a "Senior Percentage") will each initially equal approximately _____%.
Each Senior Percentage will be recalculated with respect to each Distribution
Date to equal the lesser of (i) _____% and (ii) the percentage (carried to six
places rounded up) obtained by dividing the aggregate Current Principal Amounts
of all of the Class A-I Certificates and the Residual Certificates in the case
of the Class A-I Senior Percentage and the Class A-II Certificates in the case
of the Class A-II Senior Percentage immediately preceding such Distribution Date
by the aggregate Scheduled Principal Balance of all the Mortgage Loans in the
<PAGE>
related Mortgage Loan Group (other than the PO Percentage of the Group I
Discount Mortgage Loans in the case of Mortgage Loan Group I) immediately
preceding such Distribution Date. The initial Class A-I Senior Percentage is
greater than the initial percentage interest in Mortgage Loan Group I evidenced
by the related Classes of Class A-I Certificates and Residual Certificates in
the aggregate, because such percentage is calculated without regard to the PO
Percentage of the Scheduled Principal Balance of each Group I Discount Mortgage
Loan.
The "Senior Prepayment Percentage" with respect to each Mortgage Loan Group
on any Distribution Date occurring during the periods set forth below will be as
follows:
PERIOD (DATES INCLUSIVE) SENIOR PREPAYMENT PERCENTAGE
______, 199_ to _______, 20__ ............ _____%
______, 20__ to _______, 20__ ............ applicable Senior Percentage plus
_____% of the Subordinate
Percentage
______, 20__ to _______, 20__ ............ applicable Senior Percentage plus
_____% of the Subordinate
Percentage
______, 20__ to _______, 20__ ............ applicable Senior Percentage plus
_____% of the Subordinate
Percentage
______, 20__ to _______, 20__ ............ applicable Senior Percentage plus
_____% of the Subordinate
Percentage
______, 20__ and thereafter................ applicable Senior Percentage
Notwithstanding the foregoing, if on any Distribution Date the applicable
Senior Percentage exceeds the applicable Senior Percentage as of the Cut-off
Date, the related Senior Prepayment Percentage for such Distribution Date will
equal 100%. Upon reduction of the Current Principal Amounts of the Class A-I
Certificates and the Residual Certificates or the Class A-II Certificates, as
applicable, to zero, the related Senior Prepayment Percentage will equal _____%;
provided that in the circumstances described in paragraph (D) above under
"--Allocation of Available Funds," prepayments resulting from Mortgage Loans in
one Mortgage Loan Group and otherwise distributable to the Subordinate
Certificates will be distributed to the Senior Certificates related to the other
Mortgage Loan Group (other than the Class PO and Class X Certificates in the
case of the Group I Mortgage Loans).
In addition, no reduction of a Senior Prepayment Percentage shall occur on
any Distribution Date (such limitation being the "Senior Prepayment Percentage
Stepdown Limitation") unless, as of the last day of the month preceding such
Distribution Date, either (a)(i)(X) the aggregate outstanding principal balance
of Mortgage Loans in both Mortgage Loan Groups delinquent _____ days or more
(including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans
with respect to which the related Mortgaged Property has been acquired by the
Trust), averaged over the last six months, as a percentage of the aggregate
Current Principal Amount of the Subordinate Certificates averaged over the last
six months, does not exceed _____% or (Y) the aggregate outstanding principal
balance of the Mortgage Loans in both Mortgage Loan Groups delinquent 60 days or
more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last six
months, does not exceed _____% and (ii) cumulative Realized Losses on the
Mortgage Loans in both Mortgage Loan Groups do not exceed (a) _____% of the
aggregate Current Principal Amounts of the Subordinate Certificates as of the
Cut-off Date (the "Original Subordinate Principal Balance") if such Distribution
Date occurs between and including ___________ 20__ and _________ 20__, (b)
_____% of the related Original Subordinate Principal Balance if such
Distribution Date occurs between and including __________ 20__ and __________
20__, (c)_____% of the related Original Subordinate Principal Balance if such
<PAGE>
Distribution Date occurs between and including _________ 20__ and ________ 20__,
(d) _____% of the related Original Subordinate Principal Balance if such
Distribution Date occurs between and including ________, 20__ and ________,
20__, and (e) _____% of the related Original Subordinate Principal Balance if
such Distribution Date occurs during or after ________, 20__ or (b)(i) the
outstanding principal balance of the Mortgage Loans in both Mortgage Loan Groups
delinquent ______ days or more averaged over the last ______ months, as a
percentage of the aggregate outstanding principal balance of all Mortgage Loans
averaged over the last ______ months, does not exceed _____% and (ii) Realized
Losses on the Mortgage Loans in both Mortgage Loan Groups to date for such
Distribution Date are less than _____% of the Original Subordinate Principal
Balance.
The "Class PO Principal Distribution Amount" with respect to each
Distribution Date will be an amount equal to the sum of:
(i) the applicable PO Percentage of all scheduled payments of principal due
on each Group I Discount Mortgage Loan on the first day of the month in
which the Distribution Date occurs, as specified in the amortization
schedule at the time applicable thereto (after adjustment for previous
principal prepayments and the principal portion of Debt Service Reductions
after the Bankruptcy Coverage Termination Date, but before any adjustment
to such amortization schedule by reason of any other bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period);
(ii) the applicable PO Percentage of the Scheduled Principal Balance of
each Group I Discount Mortgage Loan which was the subject of a prepayment
in full received by the Master Servicer during the applicable Prepayment
Period;
(iii) the applicable PO Percentage of all partial prepayments of principal
on Group I Mortgage Loans received during the applicable Prepayment Period;
(iv) the lesser of (a) the applicable PO Percentage of the sum of (w) the
net liquidation proceeds allocable to principal on each Group I Discount
Mortgage Loan which became a Liquidated Mortgage Loan during the related
Prepayment Period (other than Group I Discount Mortgage Loans described in
clause (x)) and (x) the Scheduled Principal Balance of each Group I
Discount Mortgage Loan that was purchased by a private mortgage insurer
during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy, and (b) the applicable PO Percentage of
the sum of (w) the Scheduled Principal Balance of each Group I Discount
Mortgage Loan which became a Liquidated Mortgage Loan during the related
Prepayment Period (other than Group I Discount Mortgage Loans described in
clause (x)) and (x) the Scheduled Principal Balance of each Group I
Discount Mortgage Loan that was purchased by a private mortgage insurer
during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy less (y) in the case of clause (b), the
applicable PO Percentage of the principal portion of Excess Losses (other
than Debt Service Reductions) with respect to Group I Mortgage Loans
incurred during the related Prepayment Period; and
(v) the applicable PO Percentage of the sum of (a) the Scheduled Principal
Balance of each Group I Discount Mortgage Loan which was repurchased by the
Master Servicer in connection with such Distribution Date and (b) the
difference, if any, between the Scheduled Principal Balance of a Group I
Discount Mortgage Loan that has been replaced by the Master Servicer with a
substitute Group I Discount Mortgage Loan pursuant to the Pooling and
Servicing Agreement in connection with such Distribution Date and the
Scheduled Principal Balance of such substitute Group I Discount Mortgage
Loan.
The "Subordinate Percentage" with respect to each Mortgage Loan Group,
which will initially equal approximately _____% with respect to each of Mortgage
Loan Group I and Mortgage Loan Group II, will be recalculated for each
Distribution Date to equal _____% minus the related Senior Percentage for such
Distribution Date. The "Subordinate Prepayment Percentage" with respect to each
Mortgage Loan Group on any Distribution Date will equal _____% minus the
<PAGE>
related Senior Prepayment Percentage, except that on any Distribution Date after
the Current Principal Amounts of the related Senior Certificates (other than the
Class PO Certificates in the case of Mortgage Loan Group I) have each been
reduced to zero, the applicable Subordinate Prepayment Percentage will equal
_____%.
The "Subordinate Optimal Principal Amount" with respect to each
Distribution Date will be an amount equal to the sum of the following (but in no
event greater than the aggregate Current Principal Amounts of the Subordinate
Certificates immediately prior to such Distribution Date):
(i) the applicable Subordinate Percentage of the applicable Non-PO
Percentage of all scheduled payments of principal due on each Mortgage Loan
in the related Mortgage Loan Group on the _____ day of the month in which
the Distribution Date occurs, as specified in the amortization schedule at
the time applicable thereto (after adjustment for previous principal
prepayments and the principal portion of Debt Service Reductions after the
Bankruptcy Coverage Termination Date, but before any adjustment to such
amortization schedule by reason of any other bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period);
(ii) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of the Scheduled Principal Balance of each Mortgage Loan
in the related Mortgage Loan Group which was the subject of a prepayment in
full received by the Master Servicer during the applicable Prepayment
Period;
(iii) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of all partial prepayments of principal received on
Mortgage Loans in the Related Mortgage Loan Group during the applicable
Prepayment Period (plus, on the Distribution Date on which the Current
Principal Amounts of the related Senior Certificates (other than the Class
PO Certificates in the case of Mortgage Loan Group I) have all been reduced
to zero, 100% of any applicable Senior Optimal Principal Amount remaining
undistributed on such date);
(iv) the excess, if any, of the applicable Non-PO Percentage of the sum of
(a) the net liquidation proceeds allocable to principal received during the
related Prepayment Period in respect of each Liquidated Mortgage Loan in
the related Mortgage Loan Group (other than Mortgage Loans described in
clause (b)) and (b) the principal balance of each Mortgage Loan in the
related Mortgage Loan Group that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to paying a
claim under the related insurance policy over (c) the sum of the amounts
distributable to the related Senior Certificateholders pursuant to clause
(iv) of each of the definitions of Group I Senior Optimal Principal Amount,
Group II Senior Optimal Principal Amount and Class PO Principal
Distribution Amount on such Distribution Date; and
(v) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of the sum of (a) the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which was repurchased by
the Master Servicer in connection with such Distribution Date and (b) the
difference, if any, between the Scheduled Principal Balance of a Mortgage
Loan in the related Mortgage Loan Group that has been replaced by the
Master Servicer with a substitute Mortgage Loan pursuant to the Pooling and
Servicing Agreement in connection with such Distribution Date and the
Scheduled Principal Balance of such substitute Mortgage Loan.
The "Allocable Share" with respect to any Class of Subordinate Certificates
on any Distribution Date will generally equal such Class's PRO RATA share (based
on the Current Principal Amount of each Class entitled thereto) of each of the
components of the definition of the Subordinate Optimal Principal Amount;
provided, that, except as described in the second succeeding sentence, no Class
of Subordinate Certificates shall be entitled on any Distribution Date to
receive distributions pursuant to clauses (ii), (iii) and (v) of the definition
of the Subordinate Optimal Principal Amount unless the Class Prepayment
Distribution Trigger for the related Class is satisfied for such Distribution
Date. The "Class Prepayment Distribution Trigger" for a Class of Subordinate
Certificates for any Distribution Date is satisfied if the fraction (expressed
as a percentage), the numerator of which is the aggregate Current Principal
Amount of such Class and each Class subordinate thereto, if any, and the
denominator of which is the Scheduled Principal Balances of all of the Mortgage
<PAGE>
Loans as of the Due Date in the month next preceding such Distribution Date,
equals or exceeds such percentage calculated as of the Closing Date. If on any
Distribution Date the Current Principal Amount of any Class of Subordinate
Certificates for which the related Class Prepayment Distribution Trigger was
satisfied on such Distribution Date is reduced to zero, any amounts
distributable to such Class pursuant to clauses (ii), (iii) and (v) of the
definition of "Subordinate Optimal Principal Amount," to the extent of such
Class's remaining Allocable Share, shall be distributed to the remaining Classes
of Subordinate Certificates in reduction of their respective Current Principal
Amounts in the order of their numerical Class designations. If the Class
Prepayment Distribution Trigger is not satisfied for any Class of Subordinate
Certificates on any Distribution Date, this may have the effect of accelerating
the amortization of more senior Classes of Subordinate Certificates. On any
Distribution Date, any reduction in funds available for distribution to the
Classes of Subordinate Certificates resulting from a distribution of the Class
PO Deferred Amount will be allocated to the Classes of Subordinate Certificates,
in reduction of the Allocable Shares thereof, in inverse order of their
numerical Class designations.
"Determination Date" means the 18th day of the month of the Distribution
Date, or if such day is not a Business Day, the following Business Day (but in
no event less than two Business Days prior to the related Distribution Date).
"Insurance Proceeds" are amounts paid by an insurer under any Primary
Insurance Policy, standard hazard insurance policy, flood insurance policy or
title insurance policy covering any Mortgage Loan or Mortgaged Property other
than amounts required to be paid over to the Mortgagor pursuant to law or the
related Mortgage Note and other than amounts used to repair or restore the
Mortgaged Property or to reimburse certain expenses.
"Repurchase Proceeds" are proceeds of any Mortgage Loan repurchased by
[Corporation 1] and any cash deposit in connection with the substitution of a
Mortgage Loan pursuant to the provisions described under "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans" and "--Representations and
Warranties" herein.
"Principal Prepayment" is any payment or other recovery of principal on a
Mortgage Loan which is received in advance of its scheduled Due Date to the
extent that it is not accompanied by an amount as to interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment, including Insurance Proceeds and Repurchase Proceeds,
but excluding Liquidation Proceeds received at the time a Mortgage Loan becomes
a Liquidated Mortgage Loan.
"Monthly Payment" with respect to any Mortgage Loan and any month is the
scheduled payment or payments of principal and interest due during such month on
such Mortgage Loan which either is payable by a Mortgagor in such month under
the related Mortgage Note, or in the case of any Mortgaged Property acquired
through foreclosure or deed-in-lieu of foreclosure (each such Mortgaged
Property, an "REO Property"), would otherwise have been payable under the
related Mortgage Note.
ALLOCATION OF LOSSES; SUBORDINATION
A "Realized Loss" with respect to a Mortgage Loan is (i) a Bankruptcy Loss
(as defined below) or (ii) as to any Liquidated Mortgage Loan, the unpaid
principal balance thereof plus accrued and unpaid interest thereon at the
Mortgage Rate through the last day of the month of liquidation less the Net
Liquidation Proceeds with respect to such Mortgage Loan and the related
Mortgaged Property. A "Liquidated Mortgage Loan" is any defaulted Mortgage Loan
as to which the Master Servicer has determined that all amounts which it expects
to recover from or on account of such Mortgage Loan have been recovered.
"Liquidation Proceeds" are amounts received by the Master Servicer in
connection with the liquidation of a defaulted Mortgage Loan whether through
trustee's sale, foreclosure sale, proceeds of insurance policies, condemnation
proceeds or otherwise.
<PAGE>
"Net Liquidation Proceeds" with respect to a Mortgage Loan are Liquidation
Proceeds net of expenses incurred by the Master Servicer in connection with the
liquidation of such Mortgage Loan and the related Mortgaged Property.
In the event of a personal bankruptcy of a Mortgagor, the bankruptcy court
may establish the value of the Mortgaged Property at an amount less than the
then Outstanding Principal Balance of the Mortgage Loan secured by such
Mortgaged Property and could reduce the secured debt to such value. In such
case, the holder of such Mortgage Loan would become an unsecured creditor to the
extent of the difference between the Outstanding Principal Balance of such
Mortgage Loan and such reduced secured debt (such difference, a "Deficient
Valuation"). In addition, certain other modifications of the terms of a Mortgage
Loan can result from a bankruptcy proceeding, including the reduction of the
amount of the monthly payment on the related Mortgage Loan (a "Debt Service
Reduction").
A "Bankruptcy Loss" with respect to any Mortgage Loan is a Deficient
Valuation or Debt Service Reduction.
A "Fraud Loss" is any Realized Loss attributable to fraud in the
origination of the related Mortgage Loan.
A "Special Hazard Loss" is a Realized Loss attributable to damage or a
direct physical loss suffered by a Mortgaged Property (including any Realized
Loss due to the presence or suspected presence of hazardous wastes or substances
on a Mortgaged Property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such
Mortgaged Property under the Pooling and Servicing Agreement or any loss due to
normal wear and tear or certain other causes.
The applicable Non-PO Percentage of the principal portion of any Realized
Loss (other than Excess Losses) on a Mortgage Loan in either Mortgage Loan Group
for any Distribution Date will not be allocated to any Senior Certificates until
the Cross-Over Date. Prior to the Cross-Over Date (and on such date under
certain circumstances), the applicable Non-PO Percentage of any such Realized
Loss will be allocated among the outstanding Classes of Subordinate
Certificates, in inverse order of priority, until the Current Principal Amount
of each such Class has been reduced to zero (i.e., such Realized Losses will be
allocated first to the Class B-6 Certificates while such Certificates are
outstanding, second to the Class B-5 Certificates, and so on). The applicable
Non-PO Percentage of the principal portion of any Excess Bankruptcy Loss (other
than a Debt Service Reduction), Excess Fraud Loss or Excess Special Hazard Loss
for any Distribution Date will be allocated PRO RATA among all outstanding
Classes of Certificates (other than the Class PO and Class X Certificates) based
on their Current Principal Amounts. An "Excess Bankruptcy Loss," "Excess Fraud
Loss" or "Excess Special Hazard Loss" is any Bankruptcy Loss, Fraud Loss or
Special Hazard Loss, respectively, occurring after the Bankruptcy Coverage
Termination Date, Fraud Coverage Termination Date and Special Hazard Termination
Date, respectively, as described more fully below. Commencing on the Cross-Over
Date, the applicable Non-PO Percentage of the principal portion of any Realized
Loss (other than a Debt Service Reduction) on a Mortgage Loan will be allocated
among the outstanding Classes of Senior Certificates (other than the Class
A-I-8, Class PO and Class X Certificates) PRO RATA based upon their Current
Principal Amounts.
Since the Subordinate Certificates will absorb Realized Losses on Mortgage
Loans in both Mortgage Loan Groups, a disproportionate amount of Realized Losses
with respect to Mortgage Loans in either Mortgage Loan Group will adversely
impact the availability of subordination to the Certificates related to the
other Mortgage Loan Group.
On each Distribution Date, the applicable PO Percentage of the principal
portion of any Realized Loss on a Group I Discount Mortgage Loan and Class PO
Cash Shortfall will be allocated to the Class PO Certificates until the Current
Principal Amount thereof is reduced to zero. With respect to any Distribution
Date through the Cross-Over Date, the aggregate of all amounts so allocable to
the Class PO Certificates on such date in respect of Realized Losses (other than
Excess Losses) and Class PO Cash Shortfall and all amounts previously allocated
in respect of such losses or Class PO Cash Shortfall to the Class PO
Certificates and not distributed on prior Distribution Dates will be the "Class
PO Deferred Amount." To the extent Group I Available Funds are available
therefor on any Distribution Date through the Cross-Over Date,
<PAGE>
distributions in respect of the Class PO Deferred Amount will be made on the
Class PO Certificates in accordance with priority (A) FOURTH under "--Allocation
of Available Funds" above. Any distribution of Group I Available Funds in
respect of the Class PO Deferred Amount will not reduce the Class PO Current
Principal Amount. No interest will accrue on the Class PO Deferred Amount. On
each Distribution Date through the Cross-Over Date, the Current Principal Amount
of the lowest ranking Class of Subordinate Certificates then outstanding having
the highest numerical Class designation will be reduced by the amount of any
distributions in respect of the Class PO Deferred Amount on such Distribution
Date, through the operation of the Class PO Deferred Payment Writedown Amount.
After the Cross-Over Date, no more distributions will be made in respect of, and
Realized Losses and Class PO Cash Shortfalls allocated to the Class PO
Certificates will not be added to, the Class PO Deferred Amount.
No reduction of the Current Principal Amount of any Class shall be made on
any Distribution Date on account of Realized Losses to the extent that such
reduction would have the effect of reducing the aggregate Current Principal
Amount of all of the Certificates as of such Distribution Date to an amount less
than the Scheduled Principal Balances of all of the Mortgage Loans as of the
_____ day of the month of such Distribution Date, less any Deficient Valuations
occurring on or prior to the Bankruptcy Coverage Termination Date (such
limitation being the "Loss Allocation Limitation").
The principal portion of Debt Service Reductions will not be allocated in
reduction of the Current Principal Amount of any Certificate. However, after the
Bankruptcy Coverage Termination Date, the amounts distributable under clause (i)
of each of the definitions of Group I Senior Optimal Principal Amount or Group
II Senior Optimal Principal Amount, Class PO Principal Distribution Amount and
Subordinate Optimal Principal Amount will be reduced by the amount of any Debt
Service Reductions. Regardless of when they occur, Debt Service Reductions may
reduce the amount of Available Funds otherwise available for distribution on a
Distribution Date. As a result of the subordination of the Subordinate
Certificates in right of distribution, any Debt Service Reductions prior to the
Bankruptcy Coverage Termination Date will be borne by the Subordinate
Certificates (to the extent then outstanding) in inverse order of priority.
All allocations of Realized Losses will be accomplished on a Distribution
Date by reducing the Current Principal Amount of the applicable Classes by their
appropriate shares of any such losses occurring during the month preceding the
month of such Distribution Date and, accordingly, will be taken into account in
determining the distributions of principal and interest on the Certificates
commencing on the following Distribution Date, except that the aggregate amount
of the principal portion of any Realized Losses to be allocated to the Class PO
Certificates on any Distribution Date through the Cross-Over Date will also be
taken into account in determining distributions in respect of the Class PO
Deferred Amount for such Distribution Date.
The interest portion of all Realized Losses will be allocated among the
outstanding Classes of Certificates offered hereby to the extent described under
"Distributions on the Certificates---Interest" above.
Any Deficient Valuation will on each Distribution Date be allocated solely
to the outstanding Subordinate Certificates until the Bankruptcy Coverage
Termination Date. The "Bankruptcy Coverage Termination Date" is the Distribution
Date upon which the Bankruptcy Loss Amount has been reduced to zero or a
negative number (or the CrossOver Date, if earlier). On each Distribution Date,
the "Bankruptcy Loss Amount" will equal approximately $___________
(approximately ____% of the aggregate Scheduled Principal Balances of the
Mortgage Loans as of the Cut-off Date), subject to reduction as described in the
Pooling and Servicing Agreement, minus the aggregate amount of previous
Bankruptcy Losses. The Bankruptcy Loss Amount and the related coverage levels
described above may be reduced or modified upon written confirmation from each
of the Rating Agencies that such reduction or modification will not adversely
affect the then current ratings of the Senior Certificates by each of the Rating
Agencies. Such reduction may adversely affect the coverage provided by
subordination with respect to Bankruptcy Losses.
Any Fraud Loss will on each Distribution Date be allocated solely to the
outstanding Subordinate Certificates until the Fraud Coverage Termination Date.
The "Fraud Coverage Termination Date" is the Distribution Date upon which
<PAGE>
the Fraud Loss Amount has been reduced to zero or a negative number (or the
Cross-Over Date, if earlier). Upon the initial issuance of the Certificates, the
"Fraud Loss Amount" will equal approximately _____% (approximately
$____________) of the aggregate Scheduled Principal Balances of the Mortgage
Loans as of the Cut-off Date. As of any Distribution Date prior to the first
anniversary of the Cut-off Date, the Fraud Loss Amount will equal approximately
$___________, minus the aggregate amount of Fraud Losses that would have been
allocated to the Subordinate Certificates in the absence of the Loss Allocation
Limitation since the Cut-off Date. As of any Distribution Date from the ______
through the _____ anniversaries of the Cut-off Date, the Fraud Loss Amount will
equal (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the Cut-off Date and (b) _____% of the aggregate outstanding
principal balance of all of the Mortgage Loans as of the most recent anniversary
of the Cut-off Date minus (2) the Fraud Losses that would have been allocated to
the Subordinate Certificates in the absence of the Loss Allocation Limitation
since the most recent anniversary of the Cut-off Date. After the ______
anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero.
Any Special Hazard Loss will on each Distribution Date be allocated solely
to the outstanding Subordinate Certificates until the Special Hazard Termination
Date. The "Special Hazard Termination Date" is the Distribution Date upon which
the Special Hazard Loss Amount has been reduced to zero or a negative number (or
the Cross-Over Date, if earlier). Upon the initial issuance of the Certificates,
the "Special Hazard Loss Amount" will equal approximately _____% (approximately
$__________) of the aggregate Scheduled Principal Balances of the Mortgage Loans
as of the Cut-off Date. As of any Distribution Date, the Special Hazard Loss
Amount will equal approximately $___________, minus the sum of (i) the aggregate
amount of Special Hazard Losses that would have been previously allocated to the
Subordinate Certificates in the absence of the Loss Allocation Limitation and
(ii) the Adjustment Amount. For each anniversary of the Cut-off Date, the
"Adjustment Amount" shall be equal to the amount, if any, by which the Special
Hazard Loss Amount (without giving effect to the deduction of the Adjustment
Amount for such anniversary) exceeds the lesser of (A) an amount calculated by
_____________ and approved by each of the Rating Agencies, which amount shall
not be less than $________, and (B) the greater of (x) _____% (or if greater
than _____%, the highest percentage of Mortgage Loans by principal balance
secured by Mortgaged Properties in any California zip code) of the outstanding
principal balance of all the Mortgage Loans on the Distribution Date immediately
preceding such anniversary and (y) twice the outstanding principal balance of
the Mortgage Loan which has the largest outstanding principal balance on the
Distribution Date immediately preceding such anniversary.
SUBORDINATION
PRIORITY OF SENIOR CERTIFICATES. As of the Closing Date, the aggregate
Current Principal Amounts of all classes of Subordinate Certificates and the
Other Certificates will equal approximately _____% and _____%, respectively, of
the aggregate Current Principal Amounts of all Classes of Certificates. The
rights of the holders of each Class of Subordinate Certificates to receive
distributions with respect to the Group I Mortgage Loans and Group II Mortgage
Loans will be subordinated to such rights of the holders of the related Senior
Certificates and of each Class of Subordinate Certificates having a lower
numerical Class designation than such Class, to the extent described above. The
subordination of the Subordinate Certificates to the Senior Certificates, and
the further subordination among the Subordinate Certificates, are each intended
to increase the likelihood of timely receipt by the holders of the Certificates
with higher relative payment priorities of the maximum amount to which they are
entitled on any Distribution Date and to provide such holders protection against
losses resulting from defaults on the applicable Mortgage Loans to the extent
described above.
However, in certain circumstances, the amount of available subordination
(including the limited subordination provided for Excess Losses) may be
exhausted and shortfalls in distributions on the Offered Certificates could
result. Holders of Senior Certificates will bear their proportionate share of
Realized Losses in excess of the total subordination amount. The allocation of
the principal portion of the Non-PO Percentage of any Realized Loss, and of the
Class PO Deferred Payment Writedown Amount, to the Subordinate Certificates on
any Distribution Date will decrease the protection provided to the Senior
Certificates then outstanding on future Distribution Dates by reducing the
aggregate Current Principal Amount of the Subordinate Certificates then
outstanding.
<PAGE>
In addition, in order to extend the period during which the Subordinate
Certificates remain available as credit enhancement for the Senior Certificates,
the entire amount of any prepayment or other unscheduled recovery of principal
with respect to a Mortgage Loan will be allocated to the applicable Senior
Certificates to the extent described herein during the first _______ years after
the Closing Date (with such allocation being subject to reduction thereafter as
described herein). This allocation has the effect of accelerating the
amortization of the applicable Senior Certificates while, in the absence of
losses in respect of the related Mortgage Loans, increasing the percentage
interest in the principal balance of the related Mortgage Loans evidenced by the
Subordinate Certificates.
In certain other circumstances as described in paragraph (D) under
"--Distributions on the Certificates--Allocation of Available Funds," Principal
Prepayments otherwise distributable to the Subordinate Certificates will in lieu
thereof be distributed to Senior Certificates.
After the payment of amounts distributable in respect of the Senior
Certificates on each Distribution Date, the Subordinate Certificates will be
entitled on such date to the remaining portion, if any, of the Group I Available
Funds and Group II Available Funds in an aggregate amount equal to the Accrued
Certificate Interest on the Subordinate Certificates for such date, any
remaining undistributed Accrued Certificate Interest thereon from previous
Distribution Dates and the sum of the Allocable Shares of the Subordinate
Certificates. Amounts so distributed to Subordinate Certificateholders will not
be available to cover any delinquencies or any Realized Losses on Mortgage Loans
in respect of subsequent Distribution Dates.
PRIORITY AMONG SUBORDINATE CERTIFICATES. On each Distribution Date, the
holders of any particular Class of Subordinate Certificates will have a
preferential right to receive the amounts due them on such Distribution Date out
of Available Funds, prior to any distribution being made on such date on each
Class of Certificates subordinated to such Class. In addition, except as
described herein, the Non-PO Percentage of the principal portion of any Realized
Loss with respect to a Mortgage Loan and any Class PO Deferred Payment Writedown
Amount will be allocated, to the extent set forth herein, in reduction of the
Current Principal Amounts of the related Classes of Subordinate Certificates in
the inverse order of their numerical Class designation. The effect of the
allocation of such Realized Losses and of any Class PO Deferred Payment
Writedown Amount to a Class of Subordinate Certificates will be to reduce future
distributions allocable to such Class and increase the relative portion of
distributions allocable to more senior Classes of Subordinate Certificates.
In order to maintain the relative levels of subordination among the related
Classes of Subordinate Certificates, the applicable Non-PO Percentage of
prepayments and certain other unscheduled recoveries of principal in respect of
the Mortgage Loans (which generally will not be distributable to such
Certificates for at least the first _______ years) will not be distributable to
the holders of any Class of Subordinate Certificates on any Distribution Date
for which the related Class Prepayment Distribution Trigger is not satisfied,
except as described above. See "Description of the Certificates--Distributions
on the Certificates--Principal." If the Class Prepayment Distribution Trigger is
not satisfied with respect to any Class of Subordinate Certificates, the
amortization of more senior Classes of Subordinate Certificates may occur more
rapidly than would otherwise have been the case and, in the absence of losses in
respect of the Mortgage Loans, the percentage interest in the principal balance
of the Mortgage Loans evidenced by such Subordinate Certificates may increase.
As a result of the subordination of any Class of Subordinate Certificates,
such Class of Certificates will be more sensitive than more senior Classes of
Certificates to the rate of delinquencies and defaults on the Mortgage Loans,
and under certain circumstances investors in such Certificates may not recover
their initial investment.
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the Certificates will
be affected by the amount and timing of principal payments on the Mortgage Loans
and the allocation of Available Funds to various Classes of Certificates.
Investors should carefully consider the associated risks discussed under the
headings "Yield and Prepayment Considerations" and "Legal Investment" in the
"Summary of Terms" herein and under the headings "Yield and Prepayment
Considerations" and "Legal Investment" in the Prospectus.
ASSUMED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" for distributions on the
Certificates is ___________, 20__. The Assumed Final Distribution Date is the
first anniversary of the Distribution Date immediately following the latest
scheduled maturity date of any Mortgage Loan. Since the rate of payment
(including prepayments) of principal on the Mortgage Loans can be expected to
exceed the scheduled rate of payments, and could exceed the scheduled rate by a
substantial amount, the disposition of the last remaining Mortgage Loan may be
earlier, and could be substantially earlier, than the Assumed Final Distribution
Date. In addition, the Master Servicer or its designee may, at its option,
repurchase all the Mortgage Loans from the Trust on or after any Distribution
Date on which the aggregate unpaid principal balance of the Mortgage Loans is
less than _____% of the aggregate Scheduled Principal Balance of the Mortgage
Loans as of the Cut-off Date. See "The Pooling and Servicing
Agreement--Termination" herein.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Certificate is determined by (a) multiplying the amount of the
reduction, if any, of the principal balance of such Certificate from one
Distribution Date to the next Distribution Date by the number of years from the
date of issuance to the second such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in the
principal balance of such Certificate referred to in clause (a). The weighted
average lives of the Certificates will be influenced by, among other factors,
the rate at which principal is paid on Mortgage Loans in the applicable Mortgage
Loan Group. Principal payments of such Mortgage Loans may be in the form of
scheduled amortization or prepayments including as a result of foreclosure
proceedings or by virtue of the purchase of a Mortgage Loan in advance of its
stated maturity as required or permitted by the Pooling and Servicing Agreement.
In general, the Mortgage Loans may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The actual weighted average
life and term to maturity of each Class of Certificates, in general, will be
shortened if the level of such prepayments of principal on the applicable
Mortgage Loan Group increases.
The prepayment model used in this Prospectus Supplement (the "Prepayment
Assumption") represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of a pool of mortgage loans. A 100%
Prepayment Assumption assumes a Constant Prepayment Rate ("CPR") of 4.0% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the life of the mortgage loans and an additional amount of
approximately 1.090909% (precisely 12/11%) per annum in each month thereafter
until the twelfth month. Beginning in the twelfth month and in each month
thereafter during the life of the mortgage loans, a 100% Prepayment Assumption
assumes a CPR of 16% per annum each month. As used in the table below, a 50%
Prepayment Assumption assumes prepayment rates equal to 50% of the Prepayment
Assumption. Correspondingly, a 150% Prepayment Assumption assumes prepayment
rates equal to 150% of the Prepayment Assumption, 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 of
mortgage loans, including the Mortgage Loans.
<PAGE>
PRICING ASSUMPTION
The Certificates were structured assuming, among other things, a _____%
Prepayment Assumption with respect to the Certificates. The prepayment
assumptions to be used for pricing purposes for the respective Classes may vary
as determined at the time of sale. The actual rate of prepayment may vary
considerably from the rate used for any prepayment assumption.
DECREMENT TABLES
The following tables entitled "Percent of Initial Principal Amount
Outstanding" indicate the percentages of the initial principal amount (or
Notional Amount) of each Class of Offered Certificates that would be outstanding
after each of the dates shown at various constant percentages of the Prepayment
Assumption and the corresponding weighted average lives of such Classes of
Offered Certificates.
The following tables have been prepared based on the assumptions that: (i)
the Group I Mortgage Loans consist of four Mortgage Loans with the following
characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
PRINCIPAL APPROXIMATE APPROXIMATE TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
- --------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
$ % %
$ % %
$ % %
$ % %
</TABLE>
(ii) the Group II Mortgage Loans consist of two Mortgage Loans with the
following characteristics:
<TABLE>
<CAPTION>
PRINCIPAL APPROXIMATE APPROXIMATE TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
- --------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
$ % %
$ % %
</TABLE>
(iii) the Mortgage Loans prepay at the specified CONSTANT percentages of the
Prepayment Assumption, (iv) no defaults in the payment by Mortgagors of
principal of and interest on the Mortgage Loans are experienced, (v) scheduled
payments on the Mortgage Loans are received on the first day of each month
commencing in ____________, 199_ and are computed prior to giving effect to
prepayments received on the last day of the prior month, (vi) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vii) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in _____________, 199_, (viii) the scheduled
monthly payment for each Mortgage Loan has been calculated based on its
outstanding balance, interest rate and remaining term to maturity such that each
Mortgage Loan will amortize in amounts sufficient to repay the balance of such
Mortgage Loan by its remaining term to maturity, (ix) the initial principal or
notional amounts of the Certificates are as set forth on the cover page hereof
and under "Summary of Terms--Other Certificates," (x) interest accrues on each
Class of Certificates at the applicable interest rate or in the amounts
described herein or in the case of the Class A-I-7 and Class A-I-8 Certificates,
at their initial rates, (xi) distributions in respect of the Certificates are
received in cash on the _____ day of each month, commencing in _________, 199_,
(xii) the Offered Certificates are purchased on ___________, 199_ and (xiii) the
Master Servicer does not exercise the option to repurchase the Mortgage Loans
described under the caption "The Pooling and Servicing Agreement--Termination."
<PAGE>
While it is assumed that each of the Mortgage Loans prepays at the specified
constant percentages of the Prepayment Assumption, this is not likely to be the
case.
Discrepancies will exist between the characteristics of the actual Mortgage
Loans that will be delivered to the Trustee and the characteristics of the
Mortgage Loans assumed in preparing the tables. To the extent that the Mortgage
Loans have characteristics which differ from those assumed in preparing the
tables, the Certificates may mature earlier or later than indicated by the
tables.
Based on the foregoing assumptions, the tables below indicate the weighted
average life of each Class of Offered Certificates (other than the Class A-I-8
and Class X Certificates) and set forth the percentages of the initial Current
Principal Amount of each such Class that would be outstanding after the
Distribution Date in December of each of the years indicated, assuming that the
Mortgage Loans prepay at the percentage of the Prepayment Assumption indicated
therein. Neither the Prepayment Assumption nor any other prepayment model or
assumption purports to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. Variations in the actual prepayment experience and
the balance of the Mortgage Loans that prepay may increase or decrease the
percentage of initial Current Principal Amount (and weighted average life) shown
in the following tables. Such variations may occur even if the average
prepayment experience of all such Mortgage Loans equals any of the specified
percentages of the Prepayment Assumption.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-1 CERTIFICATES CLASS A-I-2 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage................. 100 100 100 100 100 100 100 100 100 100
__________, [1998].................
__________, [1999].................
__________, [2000].................
__________, [2001].................
__________, [2002].................
__________, [2003].................
__________, [2004].................
__________, [2005].................
__________, [2006] ................
__________, [2007] ................
__________, [2008] ................
__________, [2009] ................
__________, [2010] ................
__________, [2011] ................
__________, [2012] ................
__________, [2013] ................
__________, [2014] ................
__________, [2015] ................
__________, [2016] ................
__________, [2017] ................
__________, [2018] ................
__________, [2019] ................
__________, [2020] ................
__________, [2021] ................
__________, [2022] ................
__________, [2023] ................
__________, [2024] ................
__________, [2025] ................
__________, [2026] ................
__________, [2027] ................
Weighted Average Life to Maturity
(years)**........................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-3 CERTIFICATES CLASS A-I-4 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage....................... 100 100 100 100 100 100 100 100 100 100
__________, [1998].......................
__________, [1999].......................
__________, [2000].......................
__________, [2001].......................
__________, [2002].......................
__________, [2003].......................
__________, [2004].......................
__________, [2005].......................
__________, [2006] ......................
__________, [2007] ......................
__________, [2008] ......................
__________, [2009] ......................
__________, [2010] ......................
__________, [2011] ......................
__________, [2012] ......................
__________, [2013] ......................
__________, [2014] ......................
__________, [2015] ......................
__________, [2016] ......................
__________, [2017] ......................
__________, [2018] ......................
__________, [2019] ......................
__________, [2020] ......................
__________, [2021] ......................
__________, [2022] ......................
__________, [2023] ......................
__________, [2024] ......................
__________, [2025] ......................
__________, [2026] ......................
__________, [2027] ......................
Weighted Average Life to Maturity
(years)**................................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-5 CERTIFICATES CLASS A-I-6 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage....................... 100 100 100 100 100 100 100 100 100 100
__________, [1998].......................
__________, [1999].......................
__________, [2000].......................
__________, [2001].......................
__________, [2002].......................
__________, [2003].......................
__________, [2004].......................
__________, [2005].......................
__________, [2006].......................
__________, [2007].......................
__________, [2008] ......................
__________, [2009] ......................
__________, [2010] ......................
__________, [2011] ......................
__________, [2012] ......................
__________, [2013] ......................
__________, [2014] ......................
__________, [2015] ......................
__________, [2016] ......................
__________, [2017] ......................
__________, [2018] ......................
__________, [2019] ......................
__________, [2020] ......................
__________, [2021] ......................
__________, [2022] ......................
__________, [2023] ......................
__________, [2024] ......................
__________, [2025] ......................
__________, [2026] ......................
__________, [2027] ......................
Weighted Average Life to Maturity
(years)**................................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-7 CERTIFICATES CLASS A-I-8 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage....................... 100 100 100 100 100 100 100 100 100 100
__________, [1998].......................
__________, [1999].......................
__________, [2000].......................
__________, [2001].......................
__________, [2002].......................
__________, [2003].......................
__________, [2004].......................
__________, [2005].......................
__________, [2006] ......................
__________, [2007] ......................
__________, [2008] ......................
__________, [2009] ......................
__________, [2010] ......................
__________, [2011] ......................
__________, [2012] ......................
__________, [2013] ......................
__________, [2014] ......................
__________, [2015] ......................
__________, [2016] ......................
__________, [2017] ......................
__________, [2018] ......................
__________, [2019] ......................
__________, [2020] ......................
__________, [2021] ......................
__________, [2022] ......................
__________, [2023] ......................
__________, [2024] ......................
__________, [2025] ......................
__________, [2026].......................
__________, [2027] ......................
Weighted Average Life to Maturity
(years)**................................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-10 CERTIFICATES CLASS A-I-11 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage.................... 100 100 100 100 100 100 100 100 100 100
__________, [1998]....................
__________, [1999]....................
__________, [2000]....................
__________, [2001]....................
__________, [2002]....................
__________, [2003]....................
__________, [2004]....................
__________, [2005]....................
__________, [2006]....................
__________, [2007] ...................
__________, [2008] ...................
__________, [2009] ...................
__________, [2010] ...................
__________, [2011] ...................
__________, [2012] ...................
__________, [2013] ...................
__________, [2014] ...................
__________, [2015] ...................
__________, [2016] ...................
__________, [2017] ...................
__________, [2018] ...................
__________, [2018] ...................
__________, [2020] ...................
__________, [2021] ...................
__________, [2022] ...................
__________, [2023] ...................
__________, [2024] ...................
__________, [2025] ...................
__________, [2026] ...................
__________, [2027] ...................
Weighted Average Life to
Maturity (years)**..................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-11 CERTIFICATES CLASS PO CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage.................... 100 100 100 100 100 100 100 100 100 100
__________, [1998]....................
__________, [1999]....................
__________, [2000]....................
__________, [2001]....................
__________, [2002]....................
__________, [2003]....................
__________, [2004]....................
__________, [2005]....................
__________, [2006] ...................
__________, [2007] ...................
__________, [2008] ...................
__________, [2009] ...................
__________, [2010] ...................
__________, [2011] ...................
__________, [2012] ...................
__________, [2013] ...................
__________, [2014] ...................
__________, [2015] ...................
__________, [2016] ...................
__________, [2017] ...................
__________, [2018] ...................
__________, [2019] ...................
__________, [2020] ...................
__________, [2021] ...................
__________, [2022] ...................
__________, [2023] ...................
__________, [2024] ...................
__________, [2025] ...................
__________, [2026] ...................
__________, [2027] ...................
Weighted Average Life to Maturity
(years)**.............................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS B-1, B-2 and B-3 CERTIFICATES CLASS R-1 and R-2 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- -- --- --- -- -- --- --- ---
Initial Percentage.................... 100 100 100 100 100 100 100 100 100 100
__________, [1998]....................
__________, [1999]....................
__________, [2000]....................
__________, [2001]....................
__________, [2002]....................
__________, [2003]....................
__________, [2004]....................
__________, [2005]....................
__________, [2006] ...................
__________, [2007] ...................
__________, [2008] ...................
__________, [2009] ...................
__________, [2010] ...................
__________, [2011] ...................
__________, [2012] ...................
__________, [2013] ...................
__________, [2014] ...................
__________, [2015] ...................
__________, [2016] ...................
__________, [2017] ...................
__________, [2018] ...................
__________, [2019] ...................
__________, [2020] ...................
__________, [2021] ...................
__________, [2022] ...................
__________, [2023] ...................
__________, [2024] ...................
__________, [2025] ...................
__________, [2026] ...................
__________, [2027] ...................
Weighted Average Life to
Maturity (years)**..................
</TABLE>
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
<PAGE>
YIELD ON CLASS PO CERTIFICATES
The Class PO Certificates will be "principal only" certificates, will not
bear interest and will be offered at a substantial discount to their original
principal amount. As indicated in the table below a low rate of principal
payments (including prepayments) will have a material negative effect on the
yield to investors in the Class PO Certificates.
The significance of the effects of prepayments on the Class PO Certificates
is illustrated in the following table entitled "Sensitivity of the Class PO
Certificates to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis) to the holders of such Certificates under different CONSTANT
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above under "--Decrement Tables" and assuming that the purchase price of the
Class PO Certificates is approximately $_________ for 100% of such Class of
Certificates and such Certificates are purchased on __________, 199_.
It is not likely that the Group I Mortgage Loans will prepay at a constant
rate until maturity or that all of the Group I Mortgage Loans will prepay at the
same rate or that they will have the characteristics assumed. There can be no
assurance that the Group I Mortgage Loans will prepay at any of the rates shown
in the table or at any other particular rate. The timing of changes in the rate
of prepayments may affect significantly the yield realized by a holder of a
Class PO Certificate and there can be no assurance that the pre-tax yield to an
investor in the Class PO Certificates will correspond to any of the pre-tax
yields shown herein. Each investor must make its own decision as to the
appropriate prepayment assumptions to be used in deciding whether or not to
purchase a Class PO Certificate.
SENSITIVITY OF THE CLASS PO CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% OF PREPAYMENT ASSUMPTION
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150%
-- -- --- --- ---
Pre-Tax Yields to Maturity........................
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class PO Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class PO Certificates indicated above and converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account variations that may occur in the interest rates at which investors may
be able to reinvest funds received by them as payments on the Class PO
Certificates and consequently does not purport to reflect the return on any
investment in the Class PO Certificates when such reinvestment rates are
considered.
YIELD ON CLASS A-I-8 CERTIFICATES
The significance of the effects of prepayments and changes in LIBOR on the
Class A-I-8 Certificates is illustrated in the following table entitled
"Sensitivity of the Class A-I-8 Certificates to Prepayments and LIBOR," which
shows the pre-tax yield (on a corporate bond equivalent basis) to the holders of
such Certificates under different constant percentages of the Prepayment
Assumption and levels of LIBOR. The yields of such Certificates set forth in the
following table were calculated using the assumptions specified above under "--
Decrement Tables" and assuming that (i) on the LIBOR Determination Date in
__________ 199_ and on each LIBOR Determination Date thereafter, LIBOR will be
at the level shown, (ii) the purchase price of the Class A-I-8
<PAGE>
Certificates is approximately $____________ for 100% of such Class of
Certificates and (iii) such Certificates are purchased on ____________, 199_.
THE YIELD TO INVESTORS IN THE CLASS A-I-8 CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE LEVEL OF LIBOR AND TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH GENERALLY CAN BE PREPAID AT
ANY TIME. IN PARTICULAR, A HIGH RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) AND/OR A HIGH LEVEL OF LIBOR WILL HAVE A MATERIAL NEGATIVE EFFECT
ON THE YIELD TO INVESTORS IN THE CLASS A-I-8 CERTIFICATES. UNDER CERTAIN
CIRCUMSTANCES, INVESTORS IN THE CLASS A-I-8 CERTIFICATES COULD FAIL TO RECOVER
FULLY THEIR INITIAL INVESTMENTS.
Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR.
<TABLE>
<CAPTION>
SENSITIVITY OF THE CLASS A-I-8 CERTIFICATES
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
% OF PREPAYMENT ASSUMPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIBOR 50% 75% 100% 125% 150%
----- -- -- --- --- ---
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
_____% ____% ____% *____% *____% *____%
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-I-8 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class A-I-8 Certificates indicated above and converting such
monthly rates to corporate bond equivalent rates. Such calculation does not take
into account variations that may occur in the interest rates at which investors
may be able to reinvest funds received by them as payments of principal of and
interest on the Class A-I-8 Certificates and consequently does not purport to
reflect the return on any investment in the Class A-I-8 Certificates when such
reinvestment rates are considered.
YIELD ON CLASS X CERTIFICATES
The significance of the effects of prepayments on the Class X Certificates
is illustrated in the following table entitled "Sensitivity of the Class X
Certificates to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis) to holders of such Certificates under different CONSTANT
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above under "--Decrement Tables" and assuming that the purchase price including
accrued interest of the Class X Certificates is approximately $___________ for
100% of such Class of Certificates and such Certificates are purchased on
__________, 199_.
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS (ESPECIALLY THOSE WITH HIGH NET
RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED ABOVE, THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES
<PAGE>
WOULD BE _____% IF PREPAYMENTS WERE TO OCCUR AT A CONSTANT RATE OF APPROXIMATELY
______% OF THE PREPAYMENT ASSUMPTION. USING SUCH ASSUMPTIONS, IF THE ACTUAL
PREPAYMENT RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE FOREGOING RATE FOR AS
LITTLE AS ONE MONTH (WHILE EQUALING SUCH RATE FOR ALL OTHER MONTHS), INVESTORS
IN THE CLASS X CERTIFICATES WOULD NOT RECOVER FULLY THEIR INITIAL INVESTMENTS.
It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed. There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class X Certificate and
there can be no assurance that the pre-tax yield to an investor in the Class X
Certificates will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class X Certificate.
<TABLE>
<CAPTION>
SENSITIVITY OF THE CLASS X
CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
% OF PREPAYMENT ASSUMPTION
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
50% 75% 100% 125% 200%
--- ---
Pre-Tax Yields to Maturity.......................... ____% ____% ____% ____% ____%
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class X Certificates indicated above and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as payments of interest on the Class X
Certificates and consequently does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Reference is made to the Prospectus for important information
additional to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. The Seller will provide to
a prospective or actual Certificateholder without charge, upon written request,
a copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to Bear Stearns Mortgage Securities Inc., 245 Park Avenue,
New York, New York 10167. For information regarding collection and other
activities of the Master Servicer, see "The Agreements--Collection Procedures"
and "--Realization Upon Defaulted Mortgage Loans" in the Prospectus.
<PAGE>
VOTING RIGHTS
Voting rights of the Trust in general will be allocated ___% to the Class
A-I-8 and Class X Certificates with the balance allocated among the Classes of
Certificates based upon their respective Current Principal Amounts. Voting
rights of the Class A-I-8 and Class X Certificates will be allocated pro rata
based on the Class A-I-8 Notional Amount and the Class X Notional Amount.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Seller will cause the
Mortgage Loans, together with all principal and interest due on or with respect
to such Mortgage Loans after the Cut-off Date, to be sold to the Trustee. The
Mortgage Loans will be identified in a schedule appearing as an exhibit to the
Pooling and Servicing Agreement with the Group I Mortgage Loans and the Group II
Mortgage Loans separately identified. Such schedule will include information as
to the principal balance of each Mortgage Loan as of the Cut-off Date, as well
as information including, among other things, the Mortgage Rate, the Net Rate,
the Monthly Payment, the maturity date of each Mortgage Note, and the
Loan-to-Value Ratio.
In addition, the Seller will deposit with the Trustee, with respect to each
Mortgage Loan, the original Mortgage Note, endorsed without recourse to the
order of the Trustee and showing an unbroken chain of endorsements from the
original payee thereof to the person endorsing it to the Trustee; the original
Mortgage which shall have been recorded, with evidence of such recording
indicated thereon; the assignment (which may be in the form of a blanket
assignment) to the Trustee of the Mortgage, with evidence of recording with
respect to each Mortgage Loan in the name of the Trustee thereon; all
intervening assignments of the Mortgage, if any, with evidence of recording
thereon; the original or a copy of the policy or certificate of primary mortgage
guaranty insurance, if any; the original policy of title insurance or
mortgagee's certificate of title insurance or commitment or binder for title
insurance; originals of all assumption and modification agreements; PROVIDED,
HOWEVER, that in lieu of the foregoing, the Seller may deliver certain other
documents, under the circumstances set forth in the Pooling and Servicing
Agreement. The documents delivered to the Trustee with respect to each Mortgage
Loan are referred to collectively as the "Mortgage File." The Master Servicer
will cause the Mortgage and intervening assignments, if any, and the assignment
of the Mortgage to be recorded not later than ______ days after the Closing
Date.
The Trustee will review each item of the Mortgage File within _____ days of
the Closing Date (and will review each document permitted to be delivered to the
Trustee after the Closing Date, if received by the Trustee after the initial
_____-day period, promptly after its delivery to the Trustee). If, as a result
of its review, the Trustee determines that any document is missing, does not
appear regular on its face, or appears to be unrelated to the Mortgage Loans
identified in the Mortgage Loan schedules (a "Material Defect"), the Trustee
shall notify [CORPORATION 1] of such Material Defect. [CORPORATION 1] shall
correct or cure any such Material Defect within _____ days from the date of
notice from the Trustee of the Material Defect and if [CORPORATION 1] does not
correct or cure such Material Defect within such period and such defect
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, [CORPORATION 1] will, within_____ days of the date of
notice, provide the Trustee with a substitute Mortgage Loan (if within _____
years of the Closing Date) or purchase the related Mortgage Loan at the
applicable Repurchase Price.
The Trustee also will review the Mortgage Files within _____ days of the
Closing Date. If the Trustee discovers a Material Defect, the Trustee shall
notify [CORPORATION 1] of such Material Defect. [CORPORATION 1] shall correct or
cure any such Material Defect within _____ days from the date of notice from the
Trustee of the Material Defect and if [CORPORATION 1] does not correct or cure
such Material Defect within such period and such defect materially and adversely
affects the interests of the Certificateholders in the related Mortgage Loan,
[CORPORATION 1] will, within _____ days of the date of notice, provide the
<PAGE>
Trustee with a substitute Mortgage Loan (if within ______ years of the Closing
Date) or purchase the related Mortgage Loan at the applicable Repurchase Price.
The "Repurchase Price" means, with respect to any Mortgage Loan required to
be repurchased, an amount equal to (i) 100% of the Outstanding Principal Balance
of such Mortgage Loan plus accrued but unpaid interest on the Outstanding
Principal Balance at the related Mortgage Rate through and including the last
day of the month of repurchase reduced by (ii) any portion of the Master
Servicing Fee (as defined under "--Servicing Compensation and Payment of
Expenses" herein) or advances payable to the purchaser of the Mortgage Loan.
As of any time of determination, the "Outstanding Principal Balance" of a
Mortgage Loan is the principal balance of such Mortgage Loan remaining to be
paid by the Mortgagor or, in the case of an REO Property, the principal balance
of the related Mortgage Loan remaining to be paid by the Mortgagor at the time
such property was acquired by the Trust less any Net Insurance Proceeds with
respect thereto to the extent applied to the principal.
REPRESENTATIONS AND WARRANTIES
In the purchase agreement pursuant to which the Seller purchased the
Mortgage Loans, [CORPORATION 1] made certain representations and warranties to
the Seller concerning the Mortgage Loans. The Seller will assign to the Trustee
all of its right, title and interest in such purchase agreement insofar as it
relates to such representations and warranties, as well as the repurchase and
substitution remedies provided for breach of such representations and
warranties. The representations and warranties of [CORPORATION 1] include, among
other things, that as of the Closing Date or such other date as may be specified
below:
(a) the information set forth and to be set forth in the Mortgage Loan
schedules delivered and to be delivered to the Trustee was and will be true
and correct in all material respects at the date or dates respecting which
such information is furnished;
(b) each Mortgage relating to a Mortgage Loan is a valid and
enforceable first lien on the property securing the related Mortgage Note
and each Mortgaged Property is owned by the Mortgagor in fee simple (except
with respect to common areas in the case of condominiums, PUDs and DE
MINIMIS PUDs) or by leasehold for a term longer than the term of the
related Mortgage, subject only to certain permitted exceptions;
(c) as of the Cut-off Date, no payment of principal of or interest on
or in respect of any Mortgage Loan is 30 or more days past due:
(d) there is no valid offset, defense or counterclaim to any Mortgage
Note or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal and interest on such Mortgage Note;
(e) a lender's title insurance policy (on an ALTA or CLTA form) or
binder, or other assurance of title customary in the relevant jurisdiction
therefor, was issued on the date of the origination of each Mortgage Loan,
each such policy, binder or assurance is valid and remains in full force
and effect;
(f) at the time of origination of the Mortgage Loans, at least _____%
of the Group I Mortgage Loans and _____% of the Group II Mortgage Loans (by
aggregate principal balance), respectively, will be secured by Mortgages on
properties which were owner-occupied primary residences;
<PAGE>
(g) the improvements on each Mortgaged Property securing such Mortgage
Loan is insured (by an insurer which is acceptable to [CORPORATION 1])
against loss by fire and such hazards as are covered under a standard
extended coverage endorsement in the locale where the Mortgaged Property is
located, in an amount which is not less than the lesser of the maximum
insurable value of the improvements securing such Mortgage Loan and the
outstanding principal balance of the Mortgage Loan but in no event in an
amount less than an amount that is required to prevent the Mortgagor from
being deemed to be a co-insurer thereunder; if the improvement on the
Mortgaged Property is a condominium unit, it is included under the coverage
afforded by a blanket policy for the condominium project; if upon
origination of the Mortgage Loan, the improvements on the Mortgaged
Property were in an area identified as a federally designated flood area, a
flood insurance policy is in effect in an amount representing coverage not
less than the least of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the restorable cost of improvements located on such
Mortgaged Property and (iii) the maximum coverage available under federal
law; and each Mortgage obligates the Mortgagor thereunder to maintain the
insurance referred to above at the Mortgagor's cost and expense;
(h) there is no material monetary default existing under any Mortgage
or the related Mortgage Note and there is no material event which, with the
passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach or event of acceleration; and
neither [Corporation 1] nor any of its affiliates has taken any action to
waive any default, breach or event of acceleration; no foreclosure action
is threatened or has been commenced with respect to the Mortgage Loan; and
(i) no Mortgagor, at the time of origination of the applicable
Mortgage, was a debtor in any state or federal bankruptcy or insolvency
proceeding.
Upon discovery or receipt of notice by [CORPORATION 1], the Seller or the
Trustee of a breach of any representation or warranty relating to the Mortgage
Loans which materially and adversely affects the value of the interests of
Certificateholders or the Trustee in any of the Mortgage Loans, the party
discovering or receiving notice of such breach shall give prompt written notice
to the others. In the case of any such breach, within 60 days from the date of
discovery by [CORPORATION 1], or the date [CORPORATION 1] is notified by the
party discovering or receiving notice of such breach (whichever occurs earlier),
[CORPORATION 1] will (i) cure such breach in all material respects, (ii)
purchase the affected Mortgage Loan at the applicable Repurchase Price (or, if
such Mortgage Loan or the related Mortgaged Property acquired in respect thereof
has been sold, pay the excess of the Repurchase Price over the Net Liquidation
Proceeds (as defined herein)) to the Trust or (iii) if within two years of the
Closing Date, substitute a qualifying substitute Mortgage Loan in exchange for
such Mortgage Loan. The obligations of [CORPORATION 1] to cure, purchase or
substitute a qualifying substitute Mortgage Loan shall constitute the
Certificateholders' sole and exclusive remedy respecting a breach of such
representations or warranties.
HAZARD INSURANCE
The Master Servicer will maintain and keep, or cause to be maintained and
kept, with respect to each Mortgage Loan, in full force and effect for each
Mortgaged Property a hazard insurance policy equal to at least the lesser of the
Outstanding Principal Balance of the Mortgage Loan or the current replacement
cost of the Mortgaged Property and containing a standard mortgagee clause;
PROVIDED, HOWEVER, that the amount of hazard insurance may not be less than the
amount necessary to prevent loss due to the application of any co-insurance
provision of the related policy. Unless a higher deductible is required by law,
the deductible on such hazard insurance policy may be no more than $______ or
____% of the applicable amount of coverage, whichever is less. In the case of a
condominium unit or a unit in a planned unit development, required hazard
insurance will take the form of a multiperil policy covering the entire
condominium project or planned unit development, in an amount equal to at least
100% of the insurable value based on replacement cost. Any amounts collected by
<PAGE>
the Master Servicer under any such hazard insurance policy (other than amounts
to be applied to the restoration or repair of the Mortgaged Property or amounts
released to the Mortgagor in accordance with normal servicing procedures) shall
be deposited in a Protected Account. Any cost incurred in maintaining any such
hazard insurance policy shall not be added to the amount owing under the
Mortgage Loan for the purpose of calculating monthly distributions to
Certificateholders, notwithstanding that the terms of the Mortgage Loan so
permit. Such costs shall be recoverable by the Master Servicer out of related
late payments by the Mortgagor or out of Insurance Proceeds or Liquidation
Proceeds or any other amounts in the Certificate Account. The right of the
Master Servicer to reimbursement for such costs incurred will be prior to the
right of Certificateholders to receive any related Insurance Proceeds or
Liquidation Proceeds or any other amounts in the Certificate Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism and malicious mischief. The foregoing
list is merely indicative of certain kinds of uninsured risks and is not
intended to be all-inclusive.
Hazard insurance policies covering properties similar to the Mortgaged
Properties typically contain a clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally ____% to
____%) of the full replacement value of the improvements on the property in
order to recover the full amount of any partial loss. If the insured's coverage
falls below this specified percentage, such clause provides that the insurer's
liability in the event of partial loss does not exceed the greater of (i) the
replacement cost of the improvements less physical depreciation, or (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans may decline as the principal balances owing thereon
decrease, and since residential properties have historically appreciated in
value over time, in the event of partial loss, hazard insurance proceeds may be
insufficient to restore fully the damaged property.
Where the property securing a Mortgage Loan is located at the time of
origination in a federally designated flood area, the Master Servicer will cause
with respect to such Mortgage Loan flood insurance to the extent available and
in accordance with industry practices to be maintained. Such flood insurance
will be in an amount equal to the lesser of (i) the Outstanding Principal
Balance of the related Mortgage Loan and (ii) the minimum amount required under
the terms of coverage to compensate for any damage or loss on a replacement cost
basis, but not more than the maximum amount of such insurance available for the
related Mortgaged Property under either the regular or emergency programs of the
National Flood Insurance Program (assuming that the area in which such Mortgaged
Property is located is participating in such program). Unless applicable state
law requires a higher deductible, the deductible on such flood insurance may not
exceed $_______ or ___% of the applicable amount of coverage, whichever is less.
The Master Servicer, on behalf of the Trustee and Certificateholders, will
present claims to the insurer under any applicable Primary Insurance Policy or
hazard insurance policy. As set forth above, all collections by the Master
Servicer under such policies that are not applied to the restoration or repair
of the related Mortgaged Property or released to the Mortgagor in accordance
with normal servicing procedures are to be deposited in a Protected Account.
<PAGE>
REALIZATION UPON DEFAULTED MORTGAGE LOANS; PURCHASES OF DEFAULTED MORTGAGE LOANS
The Master Servicer will use its reasonable efforts to maximize the receipt
of principal and interest on Defaulted Mortgage Loans and foreclose upon or
otherwise comparably convert the ownership of properties securing Defaulted
Mortgage Loans as to which no satisfactory collection arrangements can be made.
The Master Servicer will service the property acquired by the Trust through
foreclosure or deed-in-lieu of foreclosure and use its reasonable efforts to
maximize the receipt of principal and interest on Defaulted Mortgage Loans;
PROVIDED, HOWEVER, that the Master Servicer will not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it determines in good faith (i) that such foreclosure or
restoration will increase the proceeds of liquidation of the Mortgage Loan to
the Certificateholders after reimbursement to itself for such expenses and (ii)
that such expenses will be recoverable to it through Liquidation Proceeds or
insurance proceeds (respecting which it shall have priority for purposes of
reimbursements from the Certificate Account).
Since Insurance Proceeds cannot exceed deficiency claims and certain
expenses incurred by the Master Servicer, no insurance payments will result in a
recovery to Certificateholders which exceeds the principal balance of the
Defaulted Mortgage Loan together with accrued interest thereon at its Net Rate.
Notwithstanding the foregoing, under the Pooling and Servicing Agreement,
the Master Servicer will have the option (but not the obligation) to purchase
any Mortgage Loan as to which the Mortgagor has failed to make unexcused payment
in full of three or more scheduled payments of principal and interest (a
"Defaulted Mortgage Loan"). Any such purchase will be for a price equal to the
Repurchase Price of such Mortgage Loan. The purchase price for any Defaulted
Mortgage Loan will be deposited in the Certificate Account on the Business Day
prior to the Distribution Date on which the proceeds of such purchase are to be
distributed to the Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer shall be entitled to receive the Master Servicing Fee
(as defined below) from full payments of accrued interest on each Mortgage Loan
as compensation for its activities under the Pooling and Servicing Agreement.
However, Interest Shortfalls resulting from prepayments in full or in part in
any calendar month will be offset by the Master Servicer on the Distribution
Date in the following calendar month to the extent such Interest Shortfalls do
not exceed the lesser of (i) the Master Servicing Fee in connection with such
Distribution Date or (ii) 1/12 of _______% of the Scheduled Principal Balances
of the Mortgage Loans for such Distribution Date (the amount of the Master
Servicing Fee used to offset Interest Shortfalls is referred to herein as a
"Compensating Interest Payment"). To the extent insufficient to cover all such
Interest Shortfall, Compensating Interest Payments will be allocated between
Mortgage Loan Group I and Mortgage Loan Group II PRO RATA based on the amount of
such Interest Shortfalls experienced by the Group I Mortgage Loans and the Group
II Mortgage Loans, respectively. The remaining amount of Interest Shortfalls
after applying Compensating Interest Payments is referred to herein as "Net
Interest Shortfalls."
In addition to the primary compensation described above, the Master
Servicer will retain all prepayment charges, if any, assumption fees, tax
service fees, fees for statement of account payoff and late payment charges, all
to the extent collected from Mortgagors. The Master Servicer will also be
entitled to retain, as additional servicing compensation, (a) amounts in respect
of interest paid by borrowers in connection with any principal prepayment in
full received by the Master Servicer from the _______ day through the _______
day of each month other than the month of the Cut-off Date, (b) any income
earned on the Certificate Account and certain other accounts and (c) any Excess
Liquidation Proceeds (i.e., the amount, if any, by which Liquidation Proceeds
with respect to a Liquidated Mortgage Loan exceeds the sum of (i) the
<PAGE>
Outstanding Principal Balance of such Mortgage Loan and accrued but unpaid
interest at the related Mortgage Rate through the related Liquidation Date, plus
(ii) related liquidation expenses, to the extent that such amount is not
required by law to be paid to the related Mortgagor), but only to the extent
that transfers or withdrawals from the Certificate Account with respect thereto
are permitted under the Pooling and Servicing Agreement.
The Master Servicer or any sub-servicer will pay all expenses incurred in
connection with its servicing responsibilities (subject to limited reimbursement
as described herein). On each Distribution Date, the Trustee will pay itself the
respective fees and reimbursable expenses to which it is entitled for the month
of such Distribution Date from amounts in the Certificate Account.
In the event a successor Trustee is appointed by the Certificateholders
pursuant to the Pooling and Servicing Agreement, that portion, if any, of the
successor Trustee's fees which exceeds the Trustee's fees established at the
time of issuance of the Certificates will be borne by the Certificateholders.
The "Master Servicing Fee" in respect of each Mortgage Loan will be ______%
per annum of the Outstanding Principal Balance of such Mortgage Loan. The Master
Servicing Fee consists of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing activities and (b) sub-servicing and
other related compensation payable to any sub-servicer.
PROTECTED ACCOUNT
The Master Servicer and each permitted sub-servicer will establish and
maintain an account (each, a "Protected Account") into which it will deposit
daily all collections of principal and interest on any Mortgage Loan, including
Principal Prepayments, Insurance Proceeds, Liquidation Proceeds, the Repurchase
Price for any Mortgage Loans repurchased, and advances made from the Master
Servicer's own funds (less servicing compensation as permitted above). All
Protected Accounts shall be held in a depository institution, the accounts of
which are insured by the FDIC to the maximum extent permitted by law, segregated
on the books of such institution and held in trust. The amount at any time
credited to a Protected Account shall be fully insured by the FDIC to the
maximum extent permitted by law or, to the extent that such balance exceeds the
limits of such insurance, such excess must be transferred to an account or
invested in permitted investments meeting the requirements of the Rating
Agencies or to the Certificate Account. Certain payments may be required to be
transferred into noncommingled accounts on an accelerated basis.
Prior to each Distribution Date, the Master Servicer shall withdraw or
shall cause to be withdrawn from the Protected Accounts and any other permitted
accounts and shall deposit or cause to be deposited in the Certificate Account
amounts representing the following collections and payments (other than with
respect to principal of or interest on the Mortgage Loans due on or before the
Cut-off Date):
(i) Scheduled payments on the related Mortgage Loans received or
advanced by the Master Servicer which were due on the related Due Date, net
of servicing fees due the Master Servicer;
(ii) Full principal prepayments and any Liquidation Proceeds received
by the Master Servicer with respect to such Mortgage Loans in the related
Prepayment Period, with interest to the date of prepayment or liquidation,
net of servicing fees due the Master Servicer; and
(iii) Partial prepayments of principal received by the Master Servicer
for such Mortgage Loans in the related Prepayment Period.
<PAGE>
CERTIFICATE ACCOUNT
The Trustee shall establish and maintain in the name of the Trustee, for
the benefit of the Certificateholders, an account (the "Certificate Account") as
a non-interest bearing trust account. The Certificate Account shall have two
separate subaccounts, one each for all funds with respect to each Mortgage Loan
Group. The Trustee will deposit in the appropriate subaccount of the Certificate
Account, as received, the following amounts:
(i) Any amounts withdrawn from a Protected Account or other permitted
account;
(ii) Any Monthly Advance and Compensating Interest Payments;
(iii) Any Insurance Proceeds or Liquidation Proceeds received by the
Master Servicer which were not deposited in a Protected Account or other
permitted account;
(iv) The Repurchase Price with respect to any Mortgage Loans
repurchased and all proceeds of any Mortgage Loans or property acquired in
connection with the optional termination of the Trust;
(v) Any amounts required to be deposited with respect to losses on
Permitted Investments; and
(vi) Any other amounts received by the Master Servicer or the Trustee
and required to be deposited in the Certificate Account pursuant to the
Pooling and Servicing Agreement.
All amounts deposited to the Certificate Account shall be held by the
Trustee in the name of the Trustee in trust for the benefit of the
Certificateholders in accordance with the terms and provisions of the Agreement,
subject to the right of the Master Servicer to require the Trustee to make
withdrawals therefrom as provided below. The amount at any time credited to the
Certificate Account shall be in general (i) fully insured by the FDIC to the
maximum coverage provided thereby or (ii) at the written direction of the Master
Servicer invested, in the name of the Trustee, in such Permitted Investments as
the Master Servicer may direct or deposited in demand deposits with such
depository institutions as designated by the Master Servicer, provided that time
deposits of such depository institutions would be a Permitted Investment.
The Trustee will, from time to time on demand of the Master Servicer, make
or cause to be made such withdrawals or transfers from the appropriate
subaccount of the Certificate Account as the Master Servicer has designated for
such transfer or withdrawal for the following purposes:
(i) to reimburse the Master Servicer or a sub-servicer for any Monthly
Advance of its own funds or any advance of such sub-servicer's own funds,
the right of the Master Servicer or a sub-servicer to reimbursement
pursuant to this subclause (i) being limited to amounts received on a
particular Mortgage Loan (including, for this purpose, the Repurchase
Proceeds, Insurance Proceeds and Liquidation Proceeds) which represent late
payments or recoveries of the principal of or interest on such Mortgage
Loan respecting which such Monthly Advance or advance was made;
(ii) to reimburse the Master Servicer or a sub-servicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
amounts expended by the Master Servicer or a Sub-Servicer in good faith in
connection with the restoration of the related Mortgaged Property which was
damaged by an uninsured cause or in connection with the liquidation of such
Mortgage Loan;
(iii) to reimburse the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from Insurance Proceeds
relating to a particular Mortgage Loan for expenses incurred with respect
to such Mortgage Loan and to reimburse the Master Servicer or a
sub-servicer from Liquidation Proceeds from a particular Mortgage Loan for
liquidation expenses incurred with respect to such Mortgage Loan;
<PAGE>
(iv) to pay the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from Liquidation Proceeds
or Insurance Proceeds received in connection with the liquidation of a
Mortgage Loan, the amount which the Master Servicer or a sub-servicer would
have been entitled to receive under subclause (ix) below as servicing
compensation on account of each defaulted scheduled payment on such
Mortgage Loan if paid in a timely manner by the related Mortgagor;
(v) to pay the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from the Repurchase Price
for any Mortgage Loan, the amount which the Master Servicer or a
sub-servicer would have been entitled to receive under subclause (ix) below
as servicing compensation;
(vi) to reimburse the Master Servicer or a sub-servicer for certain
advances of funds made to protect a Mortgaged Property, the right to
reimbursement pursuant to this subclause being limited to amounts received
on the related Mortgage Loan (including, for this purpose, the Repurchase
Proceeds, Insurance Proceeds and Liquidation Proceeds) which represent late
recoveries of the payments for which such advances were made;
(vii) to pay the Master Servicer or a sub-servicer with respect to
each Mortgage Loan that has been repurchased, all amounts received thereon,
representing recoveries of principal that reduce the Outstanding Principal
Balance of the related Mortgage Loan below the Outstanding Principal
Balance used in calculating the Repurchase Price or representing interest
included in the calculation of the Repurchase Price or accrued after the
end of the month during which such repurchase occurs;
(viii) to reimburse the Master Servicer or a sub-servicer for any
Monthly Advance or advance, if a Realized Loss is to be allocated with
respect to the related Mortgage Loan on the related Distribution Date, if
the advance has not been reimbursed pursuant to clauses (i) and (vi);
(ix) to pay the Master Servicer and a sub-servicer servicing
compensation as set forth above;
(x) to reimburse the Master Servicer for expenses, costs and
liabilities incurred by and reimbursable to it pursuant to the Pooling and
Servicing Agreement, which, if not specifically allocable to a Mortgage
Loan Group, shall be allocated to each subaccount, PRO RATA, based on the
Schedule Principal Balances of the Group I Mortgage Loans and the Group II
Mortgage Loans;
(xi) to pay to the Master Servicer, as additional servicing
compensation, any Excess Liquidation Proceeds;
(xii) to clear and terminate the Certificate Account; and
(xiii) to remove amounts deposited in error.
On each Distribution Date, the Trustee shall make the following payments
from the funds in the Certificate Account:
(i) First, the Trustee's Fees shall be paid to the Trustee; and
<PAGE>
(ii) Second, the amount distributable to the Certificateholders shall
be paid in accordance with the provisions set forth under "Description of
the Certificates--Distributions on the Certificates."
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Pooling and Servicing Agreement will provide that neither the Master
Servicer nor any of its directors, officers, employees and agents shall be under
any liability to the Trustee, the Trust or the Certificateholders for taking any
action or for refraining from taking any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; PROVIDED, HOWEVER,
that neither the Master Servicer nor any such person will be protected against
any breach of warranties or representations made in the Pooling and Servicing
Agreement or any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. The Pooling
and Servicing Agreement will further provide that the Master Servicer and its
directors, officers, employees and agents are entitled to indemnification from
the Certificate Account and will be held harmless thereby against any loss,
liability or expense incurred in connection with any legal proceeding relating
to the Pooling and Servicing Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loans (except as otherwise
reimbursable under the Pooling and Servicing Agreement) or incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, the Pooling and Servicing Agreement will provide that
the Master Servicer is under no obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties under the Pooling and
Servicing Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer may, however, in its discretion undertake any
such action which it may deem necessary or desirable in respect of the Pooling
and Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust and the Master Servicer will be
entitled to be reimbursed therefor from the Certificate Account. Any such
indemnification or reimbursement to the Trustee which is not specifically
related to a Mortgage Loan Group shall be charged against the subaccounts of the
Certificate Account PRO RATA based upon the respective outstanding principal
amounts of the Group I Mortgage Loans and the Group II Mortgage Loans. See "The
Agreements--Certain Matters Regarding the Master Servicer and the Seller" in
the Prospectus.
Upon the receipt by the Master Servicer of a notice of termination or an
opinion of counsel to the effect that the Master Servicer is legally unable to
act or to delegate its duties to a person which is legally able to act, the
Trustee shall automatically become the successor in all respects to the Master
Servicer in its capacity under the Pooling and Servicing Agreement and the
transactions set forth or provided for therein and shall thereafter be subject
to all the responsibilities, duties, liabilities and limitations on liabilities
relating thereto placed on the Master Servicer by the terms and provisions
hereof; PROVIDED, HOWEVER, that the Trustee (i) shall be under no obligation to
repurchase any Mortgage Loan; and (ii) shall have no obligation whatsoever with
respect to any liability incurred by the Master Servicer at or prior to the time
of receipt by such Master Servicer of such notice or of such opinion of counsel.
As compensation therefor, the Trustee shall be entitled to all funds relating to
the Mortgage Loans which the Master Servicer would have been entitled to retain
if the Master Servicer had continued to act as such, except for those amounts
due the Master Servicer as reimbursement for advances previously made.
Notwithstanding the above, the Trustee may, if it shall be unwilling so to act,
or shall, if it is legally unable so to act, appoint, or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution which is a Fannie Mae or Freddie Mac-approved servicer having a net
worth of not less than $___________, as the successor to the Master Servicer
under the Pooling and Servicing Agreement in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer under the
Pooling and Servicing Agreement. Pending appointment of a successor to the
Master Servicer under the Pooling and Servicing Agreement, the Trustee shall act
in such capacity as provided under the Pooling and Servicing Agreement. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Mortgage
<PAGE>
Loans as it and such successor shall agree; PROVIDED, HOWEVER, that no such
compensation shall be in excess of that permitted the Trustee as provided above,
and that such successor shall undertake and assume the obligations of the
Trustee to pay compensation to any third person acting as an agent or
independent contractor in the performance of master servicing responsibilities
under the Pooling and Servicing Agreement. See "The Agreements--Events of
Default; Rights Upon Event of Default" in the Prospectus.
MONTHLY ADVANCES
If the scheduled payment on a Mortgage Loan which was due on the Due Date
in the month of a Distribution Date and is delinquent other than as a result of
application of the Relief Act exceeds the amount deposited in the appropriate
subaccount of the Certificate Account which will be used for a Certificate
Account Advance (as defined below) with respect to such Mortgage Loan, the
Master Servicer will deposit in the appropriate subaccount of the Certificate
Account not later than the fourth Business Day immediately preceding the
Distribution Date an amount equal to such deficiency net of the related Master
Servicing Fee except to the extent the Master Servicer determines any such
advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or
from future payments on the Mortgage Loan for which such advance was made.
Subject to the foregoing, such advances will be made through liquidation of the
related Mortgaged Property. Any amount used as a Certificate Account Advance
shall be replaced by the Master Servicer by deposit in the appropriate
subaccount of the Certificate Account on or before any future date to the extent
that funds in the appropriate subaccount of the Certificate Account on such date
are less than the amount required to be transferred to the appropriate
subaccount of the Certificate Account. If applicable, on the _______ Business
Day preceding each Distribution Date, the Master Servicer shall present an
Officer's Certificate to the Trustee (i) stating that the Master Servicer elects
not to make a Monthly Advance in a stated amount and (ii) detailing the reason
it deems the advance to be nonrecoverable.
As of any Determination Date, a "Certificate Account Advance" is the amount
on deposit in a Protected Account or another permitted account which is not
required to be transferred to the Certificate Account for distribution during
the calendar month in which such Determination Date occurs but which is used to
make a distribution to Certificateholders during such calendar month on account
of scheduled payments on the Mortgage Loans due on the Due Date for such month
not being paid on or before the Determination Date except insofar as such unpaid
amounts are the result of application of the Relief Act.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, a written report will be provided to each holder
of Certificates setting forth certain information with respect to the
composition of the payment being made, the Current Principal Amount or Notional
Amount of an individual Certificate following the payment and certain other
information relating to the Certificates and the Mortgage Loans.
TERMINATION
The obligations of the Master Servicer and the Trustee created by the
Pooling and Servicing Agreement will terminate upon (i) the later of the making
of the final payment or other liquidation, or any advance with respect thereto,
of the last Mortgage Loan subject thereto or the disposition of all property
acquired upon foreclosure or acceptance of a deed in lieu of foreclosure of any
such Mortgage Loans and (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to such Agreement.
On any Distribution Date on which the aggregate unpaid principal
balance of the Mortgage Loans is less than _____% of the aggregate Scheduled
Principal Balance as of the Cut-off Date, the Master Servicer or its
<PAGE>
designee may repurchase from the Trust all Mortgage Loans remaining outstanding
at a purchase price equal to (a) the unpaid principal balance of such Mortgage
Loans (other than Mortgage Loans related to REO Property), net of the principal
portion of any unreimbursed Monthly Advances made by the purchaser, plus accrued
but unpaid interest thereon at the applicable Mortgage Rate to the next Due
Date, plus (b) the appraised value of any REO Property (but not more than the
unpaid principal balance of the related Mortgage Loan, together with accrued but
unpaid interest on that balance at the applicable Mortgage Rate to the next Due
Date), less the good faith estimate of the Master Servicer of liquidation
expenses to be incurred in connection with its disposal thereof. The Trust may
also be terminated and the Certificates retired on any Distribution Date upon
the Master Servicer's determination, based upon an opinion of counsel, that the
REMIC status of REMIC I or REMIC II has been lost or that a substantial risk
exists that such status will be lost for the then current taxable year. Upon
termination, the holders of Certificates (other than the Class A-I-8 and Class X
Certificates) will receive the Current Principal Amount of their Certificates,
if any, and accrued but unpaid interest and the holders of the Class A-I-8 and
Class X Certificates will receive accrued but unpaid interest on their
Certificates.
THE TRUSTEE
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor Trustee. The Trustee also may be removed at
any time by the Master Servicer, if the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if the Trustee
becomes incapable of acting, bankrupt, insolvent or if a receiver or public
officer takes charge of the Trustee or its property. The Trustee may also be
removed at any time by the holders of Certificates evidencing ownership of not
less than _____% of the Trust. In the event that the Certificateholders remove
the Trustee, the compensation of any successor Trustee shall be paid by the
Certificateholders to the extent that such compensation exceeds the amount
agreed to by the Master Servicer and the Trustee. 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 FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Mortgage Loans, the Certificate
Account and certain assets owned by the Trust as a REMIC ("REMIC II") for
federal income tax purposes. REMIC II will issue "regular interests" and one
"residual interest." An election will be made to treat the "regular interests"
in REMIC II and certain other assets owned by the Trust as a REMIC ("REMIC I").
The Certificates (other than the Class R-1, Class R-2 and Class X Certificates),
as well as the Separate Components of the Class X Certificates, will be
designated as regular interests in REMIC I. The Certificates (other than the
Class R-1 and Class R-2 Certificates) and, where the context so requires, the
Separate Components of the Class X Certificates (in lieu of the Class X
Certificates) are herein referred to as "Regular Certificates" or "REMIC Regular
Certificates". The Class R-2 Certificates will be designated as the residual
interest in REMIC II and the Class R-1 Certificates will be designated as the
residual interest in REMIC I (collectively, the "Residual Certificates" or the
"REMIC Residual Certificates"). All Certificateholders are advised to see
"Certain Federal Income Tax Consequences" in the Prospectus for a discussion of
the anticipated federal income tax consequences of the purchase, ownership and
disposition of the REMIC Regular Certificates and the REMIC Residual
Certificates.
Because the REMIC Regular Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the "Code"), and interest paid or accrued on
the Regular Certificates, including original issue discount with respect to any
Regular Certificates issued with original issue discount, will be taxable to
Certificateholders in accordance with the accrual method of accounting. The
Class A-I-8 Certificates, the Class PO Certificates and each of the Separate
Components comprising the Class X Certificates will be treated as issued with
original issue discount. Some or all of the other Classes of Regular
Certificates may also be subject to the original issue discount provisions. See
"Certain Federal Income Tax Consequences--REMIC Regular Securities--Current
<PAGE>
Income on REMIC Regular Securities--Original Issue Discount" in the Prospectus.
All purchasers of REMIC Regular Certificates are urged to consult their tax
advisors for advice regarding the effect, if any, of the OID Regulations on the
purchase of the 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% of the Prepayment Assumption. The Prepayment
Assumption represents a rate of payment of unscheduled principal on a pool of
mortgage loans, expressed as an annualized percentage of the outstanding
principal balance of such mortgage loans at the beginning of each period.
However, no representation is made as to the rate at which prepayments actually
will occur. In addition, other Classes of Regular Certificates may be treated as
having been issued at a premium. See "Certain Federal Income Tax
Consequences--REMIC Regular Securities--Premium" in the Prospectus.
The Residual Certificates generally will not be treated as evidences of
indebtedness for federal income tax purposes. Instead, the Residual Certificates
will be considered as residual interests in a REMIC, representing rights to the
taxable income or net loss of REMIC I (in the case of the Class R-1
Certificates) or REMIC II (in the case of the Class R-2 Certificates). Holders
of the Residual Certificates will be required to report and will be taxed on
their PRO RATA share of such income or loss, and such reporting requirements
will continue until there are no Certificates of any Class outstanding, even
though holders of Residual Certificates previously may have received full
payment of any stated interest and principal. The taxable income of holders of
the Residual Certificates attributable to the Residual Certificates may exceed
any principal and interest payments received by such Certificateholders during
the corresponding period, which would result in a negligible (or even negative)
after-tax return, in certain circumstances.
The Offered Certificates (excluding the Class X Certificates and including
the Residual Certificates) as well as each of the Separate Components comprising
the Class X Certificates will be treated as "regular" or "residual interests in
a REMIC" for domestic building and loan associations, and "real estate assets"
for real estate investment trusts ("REIT"), subject to the limitations described
in "Certain Federal Income Tax Consequences--REMIC Securities--Status of REMIC
Securities" in the Prospectus. Similarly, interest on such Certificates and the
Separate Components of the Class X Certificates will be considered "interest on
obligations secured by mortgages on real property" for REITs, subject to the
limitations described in "Certain Federal Income Tax Consequences--REMIC
Securities--Status of REMIC Securities" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to Title I of ERISA should
consider the ERISA fiduciary investment standards before authorizing an
investment by a plan in the Certificates. In addition, fiduciaries of employee
benefit plans subject to Title I of ERISA, as well as certain plans or other
retirement arrangements not subject to ERISA, but which are subject to Section
4975 of the Code (such as individual retirement accounts and Keogh plans
covering only a sole proprietor, or partners), or any entity whose underlying
assets include plan assets by reason of a plan or account investing in such
entity, including an insurance company general account (collectively,
"Plan(s)"), should consult with their legal counsel to determine whether an
investment in the Certificates will cause the assets of the Trust ("Trust
Assets") to be considered plan assets pursuant to the plan asset regulations set
forth at 29 C.F.R. ss.2510.3-101 (the "Plan Asset Regulations"), thereby
subjecting the Plan to the prohibited transaction rules with respect to the
Trust Assets and the Trustee or the Master Servicer to the fiduciary investments
standards of ERISA, or cause the excise tax provisions of Section 4975 of the
Code to apply to the Trust Assets, unless an exemption granted by the Department
of Labor applies to the purchase, sale, transfer or holding of the Certificates.
In particular, investors that are insurance companies should consult with their
legal counsel with respect to the United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517
(1993). In John Hancock, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be plan assets under
certain circumstances. Investors should analyze whether that decision or federal
<PAGE>
legislation enacted affecting insurance company general accounts (see Section
1460 of the Small Job Protection Act of 1996) and any regulations issued
thereunder may have an impact with respect to purchases of Certificates.
Prohibited Transaction Exemption 90-30 (the "Exemption") will generally be
met with respect to the Senior Certificates (other than the Class PO
Certificates), except for those conditions which are dependent on facts unknown
to the Seller or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision to
purchase such Class of Senior Certificates. However, before purchasing a Senior
Certificate (other than a Class PO Certificate), a fiduciary of a Plan should
make its own determination as to the availability of exemptive relief provided
by the Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will be applicable
to such Senior Certificates. See "ERISA Considerations" in the Prospectus.
The Exemption does not apply to the Class PO Certificates because neither
the Underwriter nor any of its affiliates is either underwriting or acting as a
selling or placement agent with respect to the Class PO Certificates. However,
if the Class PO Certificates were to be made available for purchase in the
secondary market through an underwriting or sale or placement by an entity
(including the Underwriter) which has been granted an underwriters' prohibited
transaction exemption similar to the Exemption, such Class PO Certificates, as
applicable would be eligible for purchase by Plans, subject to the same
considerations set forth herein with respect to the other Classes of Senior
Certificates. The Class PO may be acquired by a purchaser which is acquiring
such Certificates directly or indirectly for or on behalf of a Plan, provided
that neither the proposed transfer and/or holding of a Certificate nor the
servicing, management and operation of the Trust (i) will result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code which will
not be covered under an individual or class prohibited transaction exemption
including but not limited to Department of Labor Prohibited Transaction
Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers); PTE 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds);
PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts), PTE 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts), and PTCE 96-23 (Class Exemption
for Plan Asset Transactions Determined by In-House Asset Managers) or (ii) will
give rise to any additional fiduciary duties under ERISA on the part of the
Master Servicer or the Trustee, which will be deemed to be represented by the
purchaser of the PO Certificate by its acquisition of such Certificate.
The Exemption does not apply to the Class B Certificates because the rights
and interests evidenced by such Class B Certificates are subordinated to the
rights and interests evidenced by other Classes of Certificates issued by the
Trust. However, the Class B Certificates may be acquired by any investor who is,
or who is acquiring such Class B Certificates directly or indirectly for, on
behalf of or with the assets of, a Plan, unless such investor is an insurance
company and the source of funds to be used by the investor to pay the purchase
price of the Class B Certificates is funds held by the investor in an "insurance
company general account" as defined in Section V(e) of PTE 95-60. By acquiring a
Certificate, the owner of a Book-Entry Certificate will be deemed to have
represented, and the holder of a Physical Certificate or a Definitive
Certificate will be required to represent, that it meets one of the requirements
set forth in the immediately preceding sentence.
Any Plan fiduciary which proposes to cause a Plan to purchase Offered
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
the Certificates. Assets of a Plan should not be invested in the Certificates
unless it is clear that the Exemption or any other prohibited transaction
exemption will apply and exempt all potential prohibited transactions.
<PAGE>
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such governmental plan may be subject to
Federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for and the availability of any exemptive relief under any Similar Law.
LEGAL INVESTMENT
The Senior Certificates and the Class B-1 Certificates will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long as they are rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization, and, as such, will be legal investments for certain
entities to the extent provided in SMMEA, subject to state laws overriding
SMMEA. Certain states have enacted legislation overriding the legal investment
provisions of SMMEA. The remaining Classes of Certificates will NOT constitute
"mortgage related securities" under SMMEA (the "Non-SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Non-SMMEA Certificates, may be subject to significant
interpretive uncertainties.
All investors whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in the Certificates. Any such institution
should consult its own legal advisors in determining whether and to what extent
there may be restrictions on its ability to invest in the Certificates. See
"Legal Investment" in the Prospectus.
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL CERTIFICATES
The Residual Certificates are not offered for sale to any investor that is
a "disqualified organization" as described in "Certain Federal Income Tax
Consequences--Transfers of REMIC Residual Securities--Tax on Disposition of
REMIC Residual Securities" and "--Restrictions on Transfer; Holding by
Pass-Through Entities" in the Prospectus.
Residual Certificates (or interests therein) may not be transferred without
the prior express written consent of __________________, acting as "Tax Matters
Person" as defined in the Code. The Tax Matters Person will not give its consent
to any proposed transfer to a disqualified organization. As a prerequisite to
such consent to any other transfer, the proposed transferee must provide the Tax
Matters Person and the Trustee with an affidavit that the proposed transferee is
not a disqualified organization (and, unless the Tax Matters Person consents to
the transfer to a person who is not a U.S. Person (as defined below), an
affidavit that it is a U.S. Person). Notwithstanding the fulfillment of the
prerequisites described above, the Tax Matters Person may withhold its consent
to a transfer, but only to the extent necessary to avoid a risk of REMIC
disqualification or REMIC-level tax. In the event that legislation is enacted
which would subject the Trust to tax (or disqualify REMIC I or REMIC II as a
REMIC) on the transfer of an interest in a Residual Certificate to any other
person or persons, the Tax Matters Person may, without action on the part of
Holders, amend the Pooling and Servicing Agreement to restrict or prohibit
prospectively such transfer. A transfer in violation of the restrictions set
forth herein may subject a Residual Certificateholder to taxation. See "Certain
Federal Income Tax Consequences--Transfers of REMIC Residual Securities--Tax on
Disposition of REMIC Residual Securities" and "--Restrictions on Transfer;
Holding by Pass-Through Entities" in the Prospectus. Moreover, certain transfers
of Residual Certificates that are effective to transfer legal ownership may
nevertheless be ineffective to transfer ownership for federal income tax
purposes, if at the time of the transfer the Residual Certificate represents a
"non-economic residual interest" as defined in the REMIC Regulations and if
avoiding or impeding the assessment or collection of tax is a significant
purpose of the transfer. See "Certain Federal Income Tax Consequences--Transfers
<PAGE>
of REMIC Residual Securities" and "--Restrictions on Transfer; Holding by
Pass-Through Entities" in the Prospectus. Further, unless the Tax Matters Person
consents in writing (which consent may be withheld in the Tax Matters Person's
sole discretion), the Residual Certificates (including a beneficial interest
therein) may not be purchased by or transferred to any person who is not a
"United States person," as such term is defined in Section 7701(a)(30) of the
Code (a "U.S. Person").
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Offered Certificates (other than the Class PO Certificates), are
being purchased from the Seller by the Underwriter upon issuance. The
Underwriter is an affiliate of the Seller. Distribution of such Certificates
will be made from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Seller are
expected to be approximately ______% of the aggregate principal balance of the
Offered Certificates, as of the Cut-off Date, plus accrued interest thereon, but
before deducting expenses payable by the Seller in connection with the Offered
Certificates. ln connection with the purchase and sale of the Offered
Certificates, the Underwriter may be deemed to have received compensation from
the Seller in the form of an underwriting discount.
The Seller will indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the Underwriters may be required to make in
respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Seller and the Underwriter by Stroock & Stroock & Lavan LLP, New York, New
York.
<PAGE>
RATINGS
It is a condition to the issuance of each Class of Offered Certificates
that it receives the ratings set forth below from _______ and _______.
Rating
--------------------------------------
CLASS _______ _______
- -----
Class A-I-1 ___ ___
Class A-I-2 ___ ___
Class A-I-3 ___ ___
Class A-I-4 ___ ___
Class A-I-5 ___ ___
Class A-I-6 ___ ___
Class A-I-7 ___ ___
Class A-I-8 ___ ___
Class A-I-9 ___ ___
Class A-I-10 ___ ___
Class A-I-11 ___ ___
Class A-II ___ ___
Class PO ___ ___
Class X ___ ___
Class B-1 ___ ___
Class B-2 ___ ___
Class B-3 ___ ___
Class R-1 ___ ___
Class R-2 ___ ___
_______'s ratings on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of payments required under the
Pooling and Servicing Agreement. _______'s ratings take into consideration the
credit quality of the mortgage pool, structural and legal aspects associated
with the Certificates, and the extent to which the payment stream in the
mortgage pool is adequate to make payments required under the Certificates.
_______'s rating on the Offered Certificates does not, however, constitute a
statement regarding frequency of prepayments on the mortgages.
The ratings assigned by _______ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related certificateholders under the agreements pursuant to which such
certificates are issued. _______'s ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make payments
required by such certificates. _______'s ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments (i) Certificateholders might suffer a lower
than anticipated yield and (ii) if there is a rapid rate of principal payments
(including principal prepayments) on the Mortgage Loans, investors in the Class
A-I-8 or Class X Certificates could fail to fully recover their initial
investments. The ratings on the Class R-1 and Class R-2 Certificates address
only the return of their respective principal balances and interest thereon.
<PAGE>
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the Rating Agencies.
The Seller has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate the Offered Certificates or, in
such event, what rating would be assigned to the Offered Certificates by such
other rating agency. The ratings assigned by such other rating agency to the
Offered Certificates may be lower than the ratings assigned by the Rating
Agencies.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
[CORPORATION 1]..................................................6, 28
_______________ Series Program......................................29
Accrued Certificate Interest....................................11, 41
Adjustment Amount...................................................51
Aggregate Expense Rate...............................................8
Allocable Share.....................................................48
Assumed Final Distribution Date.....................................53
Available Funds.................................................10, 36
Bankruptcy Coverage Termination Date................................51
Bankruptcy Loss.....................................................49
Bankruptcy Loss Amount..............................................51
Benefit Plan Opinion................................................25
Book-Entry Certificates..............................................6
BSMSI.............................................................1, 2
Business Day........................................................35
Buydown Loans.......................................................29
Cedel............................................................6, 35
Certificate Account.................................................71
Certificate Account Advance.........................................75
Certificates...............................................1, 4, 5, 35
Class A Certificates.................................................5
Class A-I Certificates...............................................6
Class A-I Senior Percentage.........................................45
Class A-I-11 Optimal Principal Amount...............................38
Class A-I-11 Pro Rata Optimal Principal Amount......................38
Class A-I-8 Notional Amount..........................................5
Class A-II Certificates..............................................6
Class A-II Senior Percentage........................................45
Class B Certificates.................................................6
Class B Group I Current Principal Amount............................41
Class B Group II Current Principal Amount...........................41
Class PO Cash Shortfall.............................................38
Class PO Deferred Amount........................................14, 50
Class PO Deferred Payment Writedown Amount..........................42
Class PO Principal Distribution Amount..............................46
Class Prepayment Distribution Trigger...............................48
Class X Component I Accrued Certificate Interest....................40
Class X Component II Accrued Certificate Interest...................41
CLTV................................................................30
Code............................................................24, 76
Compensating Interest Payment...............................12, 42, 70
Component I.....................................................11, 40
Component II....................................................11, 40
CPR.................................................................53
Cross-Over Date.................................................12, 37
Current Principal Amount........................................12, 41
Cut-off Date Scheduled Principal Balance.........................7, 28
<PAGE>
Defaulted Mortgage Loan.............................................70
Determination Date..................................................48
Distribution Date.................................................2, 9
DTC..............................................................6, 35
Due Date.............................................................8
Due Period...........................................................9
ERISA...............................................................24
Euroclear........................................................6, 35
Excess Bankruptcy Loss..........................................16, 49
Excess Fraud Loss...............................................16, 49
Excess Losses.......................................................16
Excess Special Hazard Loss......................................16, 49
Exemption.......................................................25, 77
FHA.................................................................28
Floating Rate Certificates...........................................6
Fraud Coverage Termination Date.....................................51
Fraud Loss..........................................................49
Fraud Loss Amount...................................................51
Group I Available Funds.............................................36
Group I Discount Mortgage Loan......................................44
Group I Mortgage Loans...............................................2
Group II Available Funds............................................36
Group I Senior Optimal Principal Amount.............................44
Group II Senior Optimal Principal Amount............................44
Insurance Proceeds..................................................48
Interest Accrual Period.............................................10
Interest Shortfall..................................................42
Inverse Floating Rate Certificates...................................6
LIBOR.............................................................1, 4
LIBOR Determination Date............................................43
Liquidated Mortgage Loan............................................49
Liquidation Proceeds................................................49
Master Servicer............................................3, 4, 6, 34
Master Servicing Fee................................................71
Material Defect.....................................................66
Monthly Advance.....................................................15
Monthly Payment.....................................................48
Mortgage File.......................................................66
Mortgage Loan Group I................................................2
Mortgage Loan Group II...............................................2
Mortgage Rate........................................................8
Mortgaged Properties.................................................7
Net Interest Shortfalls.........................................42, 70
Net Liquidation Proceeds............................................49
Net Rate.............................................................8
Non-Discount Mortgage Loan..........................................44
Non-PO Percentage...................................................44
Non-SMMEA Certificates..........................................26, 78
Offered Certificates..........................................1, 5, 35
Original Subordinate Principal Balance..............................46
Other Certificates...............................................5, 35
Outstanding Principal Balance.......................................67
<PAGE>
Pass-Through Rate...................................................10
Physical Certificates...............................................6
Plan Asset Regulations.............................................77
Plan(s)........................................................24, 77
PO Percentage......................................................44
Pooling and Servicing Agreement.....................................4
Prepayment Assumption..............................................53
Prepayment Period...............................................9, 45
Primary Insurance Policy...........................................28
Principal Prepayment...............................................48
Protected Account..............................................35, 71
PTE................................................................77
Rating Agencies....................................................25
Realized Loss......................................................49
Record Date.........................................................9
Reduced Documentation Program......................................30
Reference Banks....................................................43
Regular Certificates........................................6, 24, 76
Relief Act.........................................................42
REMIC...............................................................3
REMIC I........................................................24, 76
REMIC II.......................................................24, 76
REMIC Regular Certificates.....................................24, 76
REMIC Residual Certificates....................................24, 76
REO Property.......................................................49
Repurchase Price...................................................67
Repurchase Proceeds................................................48
Reserve Interest Rate..............................................43
Residual Certificates.......................................6, 24, 76
Scheduled Principal Balance.........................................8
Seller.....................................................1, 2, 4, 6
Senior Certificates.................................................6
Senior Percentage..................................................45
Senior Prepayment Percentage.......................................45
Senior Prepayment Percentage Stepdown Limitation...................46
Separate Component.............................................11, 40
Similar Law........................................................78
SMMEA..........................................................26, 78
Special Hazard Loss................................................49
Special Hazard Loss Amount.........................................51
Special Hazard Termination Date....................................51
Subordinate Certificate Writedown Amount...........................42
Subordinate Certificates............................................6
Subordinate Optimal Principal Amount...............................47
Subordinate Percentage.............................................47
Subordinate Prepayment Percentage..................................47
TACs...............................................................20
Tax Matters Person.............................................25, 78
Trust............................................................2, 4
Trust Assets...................................................24, 77
Trustee.............................................................4
U.S. Person........................................................79
VA.................................................................28
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The tables below set forth estimates of certain expected characteristics
(as of the Cut-off Date) of the Group I Mortgage Loans and the Group II Mortgage
Loans. In each of the following tables, the percentages are based on the Cut-off
Date Scheduled Principal Balances and have been rounded and, as a result, may
not total 100.00%.
The description herein of the Mortgage Loans is based upon estimates of the
composition of the Mortgage Loans as of the Cut-off Date, as adjusted for all
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed as a result of (i)
Principal Prepayments thereof in full prior to __________, 199_, (ii)
requirements of each of the Rating Agencies or (iii) delinquencies or otherwise.
In any such event, other mortgage loans may be included in the Trust. The Seller
believes that the estimated information set forth herein with respect to the
Mortgage Loans and the Mortgage Loans Groups as presently constituted is
representative of the characteristics of the Mortgage Loans and the Mortgage
Loans Groups as they will be constituted at the time the Certificates are
issued, although certain characteristics of the Mortgage Loans and the Mortgage
Loans Groups may vary.
YEAR OF FIRST PAYMENT OF THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
YEAR OF FIRST PAYMENT LOANS CUT-OFF DATE LOAN GROUP
- --------------------- -------- ------------------- ----------
<S> <C> <C> <C>
199_.............................................. $ %
199_.............................................. __________ _________ _____
Total.................................... $ 100%
= ====
</TABLE>
- ----------------
(1) As of the Cut-off Date, the weighted average seasoning of the Group I
Mortgage Loans is expected to be approximately ____ months.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP I MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ------------- ----------- ------------------- ----------
<S> <C> <C> <C>
Single-Family............................ $ %
Two- to Four-Family......................
Planned Unit Development.................
Condominium.............................. __________ ___________ ____
Total.................................... $ 100%
= ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------- ----------- ------------------ ----------
<S> <C> <C> <C>
Primary Residence........................ $ %
Second Home..............................
Investor Property........................ __________ __________ ________
Total.................................... $ 100%
= ====
</TABLE>
- ----------------
(1) Based on representations of the Mortgagor at the time of Group I Mortgage
Loan origination.
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ----- ----------- ------------------- ----------
<S> <C> <C> <C>
Alabama.................................. $ %
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................ __________ __________ _________
Total.................................... $ 100%
= ====
- -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the aggregate
Outstanding Principal Balance of the Group I Mortgage Loans is expected to
be secured by properties located in any one zip code.
LOAN PURPOSE OF THE GROUP I MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOSS PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ------------ ----------- ------------------ ----------
<S> <C> <C> <C>
Purchase................................. $ %
Rate and Term Refinance..................
Cash-Out Refinance....................... __________ __________ __________
Total.................................... $ 100%
= ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ORIGINAL GROUP I MORTGAGE LOAN AMOUNTS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL MORTAGE LOAN AMOUNT LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------- ----------- ------------------ ----------
<S> <C> <C> <C>
$50,000 or less.......................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000...................... __________ __________ __________
Total $ 100%
= ===
</TABLE>
- -----------------
(1) As of the Cut-off Date, the average Outstanding Principal Balance of the
Group I Mortgage Loans is expected to be approximately $_______.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ----------------------------- ----------- ------------------ ----------
<S> <C> <C> <C>
50.00% or less........................... $ %
50.01% - 55.00%..........................
55.01% - 60.00%..........................
60.01% - 65.00%..........................
65.01% - 70.00%..........................
70.01% - 75.00%..........................
75.01% - 80.00%..........................
80.01% - 85.00%..........................
85.01% - 90.00%..........................
90.01% - 95.00%.......................... __________ __________ __________
Total.................................... $ 100%
= ====
</TABLE>
- ---------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group I Mortgage Loans is expected to be approximately
_____%.
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE RATE LOANS CUT-OFF DATE LOAN GROUP
- ------------- ----------- ------------------ ----------
<S> <C> <C> <C>
7.375%................................... $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%.................................. __________ __________ __________
Total.................................... $ 100%
===
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Group I
Mortgage Loans is expected to be approximately _____% per annum.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERM OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGNAL TERM LOANS CUT-OFF DATE LOAN GROUP
- ------------ ----------- ------------------ ----------
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360............................... __________ __________ _______
Total.................................... $ 100%
===
</TABLE>
- ------------------
(1) As of the Cut-off Date, the weighted average calculated remaining term of
the Group I Mortgage Loans is expected to be approximately ___ months.
<TABLE>
<CAPTION>
DOCUMENTATION TYPE OF THE GROUP I MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ------------------ ----------- ------------------ ----------
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset....................... __________ __________ __________
Total.................................. $ 100%
</TABLE>
<TABLE>
<CAPTION>
YEAR OF FIRST PAYMENT OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
YEAR OF FIRST PAYMENT LOANS CUT-OFF DATE LOAN GROUP
- --------------------- ----------- ------------------ ----------
<S> <C> <C> <C>
199_.......................................... $ %
199_.......................................... _______ __________ ______
Total.................................... $ 100%
= ====
</TABLE>
- ----------------
(1) As of the Cut-off Date, the weighted average seasoning of the Group II
Mortgage Loans is expected to be approximately ___ months.
<PAGE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ------------- ----------- ------------------ ----------
<S> <C> <C> <C>
Single-Family............................ $ %
Two- to Four-Family......................
Planned Unit Development.................
Condominium.............................. __________ ___________ ____
Total.................................... $ 100%
= ====
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------- ----------- ---------------- ----------
<S> <C> <C> <C>
Primary Residence......................... $ %
Second Home..............................
Investor Property........................ __________ __________ ________
Total.................................... $ 100%
= ===
</TABLE>
- ----------------
(1) Based on representations of the Mortgagor at the time of Group II Mortgage
Loan origination.
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ----- ------------ ------------------- ----------
<S> <C> <C> <C>
Alabama........................................... $ %
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................ __________ __________ _________
Total.................................. $ 100%
= ===
</TABLE>
- -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the aggregate
Outstanding Principal Balance of the Group II Mortgage Loans is expected to
be secured by properties located in any one zip code.
<PAGE>
<TABLE>
<CAPTION>
LOAN PURPOSE OF THE GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOSS PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ------------ ----------- ------------------- ----------
<S> <C> <C> <C>
Purchase................................. $ %
Rate and Term Refinance..................
Cash-Out Refinance....................... __________ __________ __________
Total.................................. $ 100%
= ===
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ORIGINAL GROUP II MORTGAGE LOAN AMOUNTS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL MORTGAGE LOAN AMOUNT LOANS CUT-OFF DATE LOAN GROUP
- ----------------------------- ----------- ------------------- ----------
<S> <C> <C> <C>
$50,000 or less.......................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000...................... __________ __________ __________
Total $ 100%
===
</TABLE>
- -----------------
(1) As of the Cut-off Date, the average Outstanding Principal Balance of the
Group II Mortgage Loans is expected to be approximately $_______.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ----------------------------- ----------- ------------------- ----------
<S> <C> <C> <C>
50.00% or less........................... $ %
50.01% - 55.00%..........................
55.01% - 60.00%..........................
60.01% - 65.00%..........................
65.01% - 70.00%..........................
70.01% - 75.00%..........................
75.01% - 80.00%..........................
80.01% - 85.00%..........................
85.01% - 90.00%..........................
90.01% - 95.00%.......................... __________ __________ __________
Total.................................... $ 100%
===
</TABLE>
- ---------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group II Mortgage Loans is expected to be approximately
_____%.
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE RATE LOANS CUT-OFF DATE LOAN GROUP
- ------------- ----------- ------------------- ----------
<S> <C> <C> <C>
7.375%............................................ $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%.................................. __________ __________ __________
Total............................... $ 100%
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Group II
Mortgage Loans is expected to be approximately _____% per annum.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERM OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERM LOANS CUT-OFF DATE LOAN GROUP
- ------------- ----------- ------------------ ----------
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360............................... __________ __________ __________
Total............................... $ 100%
===
</TABLE>
- ------------------
(1) As of the Cut-off Date, the weighted average calculated remaining term of
the Group II Mortgage Loans is expected to be approximately ___ months.
<TABLE>
<CAPTION>
DOCUMENTATION TYPE OF THE GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ------------------ ----------- ------------------ -----------
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset....................... __________ __________ __________
Total............................... $ 100%
===
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
===============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus Supplement and the $___________
accompanying Prospectus and, if given or made, such (Approximate) information or
representation must not be relied upon as having been authorized by the Seller
or the Underwriter. This Prospectus Supplement and the accompanying Prospectus
do not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Certificates Bear Stearns offered hereby nor an offer
of such Certificates to any person Mortgage Securities Inc. in any state or
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus Supplement and the accompanying Prospectus at any time does not imply
that Mortgage Pass-Through information herein is correct as of any time
subsequent to its Certificates, date. Series 199_-_
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver a Prospectus Supplement and PROSPECTUS SUPPLEMENT Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms ..............................................S-__
Description of the Mortgage Loans..............................S-__
Description of the Certificates................................S-__
Yield and Prepayment Considerations............................S-__
The Pooling and Servicing Agreement............................S-__
Certain Federal Income Tax Consequences........................S-__
ERISA Considerations...........................................S-__
Legal Investment...............................................S-__
Restrictions on Purchase and Transfer of the
Residual Certificates.........................................S-__
Method of Distribution.........................................S-__
Legal Matters..................................................S-__
Ratings........................................................S-__
Index of Principal Definitions.................................S-__
Annex A - Certain Characteristics of the Mortgage
Loans.........................................................A-1
PROSPECTUS
Prospectus Supplement...........................................___
Available Information...........................................___
Incorporation of Certain Documents by Reference.................___
Reports to Securityholders......................................___
Summary of Terms................................................___
The Trust Fund..................................................___
Use of Proceeds.................................................___
The Seller......................................................___
The Mortgage Loans..............................................___
Description of the Securities...................................___
Exchangeable Securities.........................................___
Credit Enhancement..............................................___
Yield and Prepayment Considerations.............................___
The Agreements..................................................___
Certain Legal Aspects of the Mortgage Loans.....................___
Certain Federal Income Tax Consequences.........................___
ERISA Considerations............................................___
Legal Investment................................................___
Method of Distribution..........................................___
Legal Matters...................................................___
Financial Information...........................................___
Rating..........................................................___
Glossary .......................................................___
===============================================================================
$_____________
(APPROXIMATE)
BEAR STEARNS
MORTGAGE SECURITIES INC.
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 199_-_
PROSPECTUS SUPPLEMENT
BEAR, STEARNS & CO. INC.
_____________, 19--
<PAGE>
PROSPECTUS
MORTGAGE-BACKED CERTIFICATES
MORTGAGE-BACKED NOTES
(ISSUABLE IN SERIES)
BEAR STEARNS MORTGAGE SECURITIES INC.
SELLER
This Prospectus relates to Mortgage-Backed Certificates (the
"Certificates") and Mortgage-Backed Notes (the "Notes" and, collectively with
the Certificates, the "Securities") which may be sold from time to time in one
or more series (each, a "Series") on terms determined at the time of sale and
described in the related Prospectus Supplement for the Series. The Securities of
a Series will evidence either beneficial ownership of one or more trusts (each a
"Trust Fund") or the debt obligations of a Trust Fund. As specified in the
related Prospectus Supplement, a Trust Fund for a Series of Securities will
include certain mortgage-related assets (the "Mortgage Assets") consisting of
(i) mortgage loans or participations therein secured by one- to four-family
residential properties ("Single Family Loans"), (ii) mortgage loans or
participations therein secured by multifamily residential properties
("Multifamily Loans"), (iii) loans or participations therein secured by security
interests or similar liens on shares in cooperative housing corporations and the
related proprietary leases or occupancy agreements ("Cooperative Loans"), (iv)
conditional sales contracts and installment sales or loan agreements or
participations therein secured by manufactured housing ("Contracts"), (v)
mortgage pass-though securities (the "Agency Securities") issued or guaranteed
by the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("Fannie Mae"), Freddie Mac (formerly, the Federal Home
Loan Mortgage Corporation) ("Freddie Mac") or other government agencies or
government-sponsored agencies or (vi) privately issued mortgage-backed
securities ("Private Mortgage-Backed Securities"). If specified in the related
Prospectus Supplement, certain Securities will evidence the entire beneficial
ownership interest in, or the debt obligations of, a Trust Fund that will
contain a beneficial ownership interest in another Trust Fund which will contain
the Mortgage Assets. The Mortgage Assets will be acquired by Bear Stearns
Mortgage Securities Inc. (the "Seller") from one or more institutions which may
be affiliates of the Seller (each, a "Lender") and conveyed by the Seller to the
related Trust Fund. In addition to Mortgage Assets, a Trust Fund may include
United States Treasury securities and other securities issued by the U.S.
Government, any of its agencies or other issuers established by federal statute
(collectively, "U.S. Government Securities"), insurance policies, cash accounts,
letters of credit, financial guaranty insurance policies, third party guarantees
or other assets to the extent described in the related Prospectus Supplement
(collectively, the "Trust Assets").
Each Series of Securities will include either one or more classes of
Certificates or, if Notes are issued as part of a Series, one or more classes of
Notes and one or more classes of Certificates, as set forth in the related
Prospectus Supplement. Each class of Securities of a Series will evidence
beneficial ownership of a specified percentage (which may be 0%) or portion of
future interest payments and a specified percentage (which may be 0%) or portion
of future principal payments on the Trust Assets in the related Trust Fund or
will evidence the obligations of the related Trust Fund to make payments from
amounts received on the Trust Assets in the related Trust Fund. A Series of
Securities may include one or more senior classes that receive certain
preferential treatment with respect to one or more other classes of Securities
of such Series. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof prior to
one or more other classes of Securities of such Series or after the occurrence
of specified events or may be required to absorb one or more types of losses
prior to one or more other classes of Securities, in each case as specified in
the related Prospectus Supplement. Certain Series will provide for the issuance
of one or more classes of "Exchangeable Securities," or "Callable Securities"
and "Call Securities," as provided in this Prospectus. See "Summary of
Terms--Description of the Securities."
Distributions to holders of Securities ("Securityholders") will be made
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the Securities
of a Series will be made only from the assets of the related Trust Fund and any
other assets specified in the related Prospectus Supplement.
The Securities will not represent an obligation of or interest in the
Seller or any affiliate thereof and will not be insured or guaranteed by any
governmental agency or instrumentality and will be insured or guaranteed by
another person only if specified in the related Prospectus Supplement. In
general, with respect to a Series of Securities, the Seller will obtain certain
representations and warranties from the Lender or Lenders from which it acquired
the Mortgage Assets or other third parties and will assign its rights with
respect to such representations and warranties to the Trust Fund for the related
Series of Securities. The Seller will have obligations with respect to a Series
only to the extent specified in the related Prospectus Supplement. The principal
obligations of one or more master servicers (each, a "Master Servicer") named in
the Prospectus Supplement with respect to the related Series of Securities will
be limited to its or their contractual servicing obligations, including any
obligation to advance delinquent payments on the Mortgage Assets in the related
Trust Fund. (CONTINUED ON NEXT PAGE)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prior to issuance there will have been no market for the Securities of any
Series and there can be no assurance that a secondary market for any Securities
will develop. This Prospectus may not be used to consummate sales of a Series of
Securities unless accompanied by a Prospectus Supplement.
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described under "Method
of Distribution" herein and in the related Prospectus Supplement. To the extent
Securities are underwritten, Securities will be distributed by, or sold by
underwriters managed by:
BEAR, STEARNS & CO. INC.
The date of this Prospectus is _______, 199_.
<PAGE>
The yield on each class of Securities of a Series will be affected by the
rate of payment of principal (including prepayments) n the Mortgage Assets in
the related Trust Fund and the timing of receipt of such payments as described
herein and in the related Prospectus Supplement. Certain classes of Securities
may be subject to call and a Trust Fund may be subject to early termination
under the circumstances described herein and in the related Prospectus
Supplement. See "The Agreements--Termination; Optional Termination."
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust Fund or specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") or a "financial asset securitization
investment trust" ("FASIT") for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
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 the Securities of each Series to be
offered hereunder will, among other things, set forth with respect to such
Securities, as appropriate: (i) a description of the class or classes of
Securities; (ii) the rate of interest or method of determining the amount of
interest, if any, to be paid to each such class; (iii) the aggregate principal
amount, if any, relating to each such class; (iv) the distribution dates (each a
"Distribution Date") for interest and principal distributions and, if
applicable, the initial and final scheduled Distribution Dates for each class;
(v) if applicable, the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Securities; (vi) information as to
the nature and extent of subordination with respect to any class of Securities
that is subordinate to any other class; (vii) information as to the assets
comprising the Trust Fund, including the general characteristics of the Mortgage
Assets included therein and, if applicable, the amount and source of any reserve
fund (a "Reserve Account"), and the insurance, letters of credit, guarantees, or
other instruments or agreements included in the Trust Fund; (viii) the
circumstances, if any, under which the Trust Fund may be subject to early
termination; (ix) additional information with respect to the plan of
distribution of such Securities; (x) whether one or more REMIC or FASIT
elections will be made and designation of the regular interests and residual
interests; (xi) information as to the Trustee; and (xii) information as to any
Master Servicer.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus and the Prospectus
Supplement relating to each Series of Securities contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part. For further information, reference is made to such
Registration Statement and the exhibits thereto. Such Registration Statement and
exhibits can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
as follows: 500 West Madison Street, Chicago, Illinois 60661; and Seven World
Trade Center, New York, New York 10048. The Commission maintains an Internet Web
site that contains reports, proxy and information statements and other
information regarding the registrants that file electronically with the
Commission, including the Seller. The address of such Internet Web 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by Bear Stearns Mortgage Securities Inc. (the "Seller")
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, with respect to a Series of Securities subsequent to the date
of this Prospectus and the related Prospectus Supplement and prior to the
termination of the offering of such Series of Securities shall be deemed to be
incorporated by reference in this Prospectus as supplemented by the related
Prospectus Supplement. If so specified in any such documents, such document
shall also be deemed to be incorporated by reference in the Registration
Statement of which this Prospectus forms a part.
Any statement contained herein or in a Prospectus Supplement for a Series
of Securities or in a document incorporated or deemed to be incorporated by
reference herein or therein shall be deemed to be modified or superseded for
purposes of this Prospectus and such Prospectus Supplement and, if applicable,
the Registration Statement to the extent that a statement contained herein or
therein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein or therein modifies or supersedes such
statement, except to the extent that such subsequently filed document expressly
states otherwise. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement or, if applicable, the
Registration Statement.
The Seller will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and the related Prospectus
Supplement is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the President, Bear Stearns Mortgage Securities Inc., 245
Park Avenue, New York, New York 10167. Telephone requests for such copies should
be directed to the President at (212) 272-2000.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund will be
provided to the Securityholders. See "Description of the Securities-Reports to
Securityholders."
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT WHICH WILL BE PREPARED IN CONNECTION WITH EACH SERIES OF SECURITIES.
Title of Securities............... Mortgage-Backed Certificates (the
"Certificates") and Mortgage- Backed Notes
(the "Notes" and, together with the
Certificates, the "Securities"), issuable
from time to time in Series.
Seller............................ Bear Stearns Mortgage Securities Inc., a
Delaware corporation and a wholly-owned
subsidiary of Bear Stearns Mortgage Capital
Corporation. See "The Seller."
Issuer............................ The trust created pursuant to the Pooling
and Servicing Agreement (each, a "Pooling
and Servicing Agreement") among the Seller,
the Master Servicer(s), if applicable, and
the Trustee for the related Series or the
owner trust created pursuant to the Deposit
Trust Agreement (each, a "Trust Agreement")
among the Seller, the Master Servicer(s),
if applicable, and the Trustee for the
related series, as applicable.
Trustee........................... The trustee under the applicable Pooling
and Servicing Agreement, Trust Agreement or
Indenture (as herein defined) and named as
such in the related Prospectus Supplement.
Master Servicer................... One or more entities named as a Master
Servicer in the related Prospectus
Supplement, which may be an affiliate of
the Seller. See "The Agreements-Certain
Matters Regarding the Master Servicer and
the Seller."
Trust Fund Assets................. A Trust Fund for a Series of Securities
will include the Mortgage Assets consisting
of (i) a pool (a "Mortgage Pool") of Single
Family Loans, Multifamily Loans,
Cooperative Loans or Contracts
(collectively, the "Mortgage Loans"), (ii)
Agency Securities or (iii) Private
Mortgage-Backed Securities, together with
payments in respect of such Mortgage Assets
and certain other accounts, obligations or
agreements, such as United States Treasury
securities and other securities issued by
the U.S. Government, any of its agencies or
other issuers established by federal
statute (collectively, "U.S. Government
Securities"), in each case as specified in
the related Prospectus Supplement. The
assets of a Trust Fund will be purchased by
such Trust Fund under the terms of the
related Pooling and Servicing Agreement or
the related Trust Agreement, as applicable.
A. Single Family, Cooperative
and Multifamily Loans........ Single Family Loans will be secured by
mortgage liens on one- to four-family
residential properties or by other liens
specified in the related Prospectus
Supplement. Cooperative Loans generally
will be secured by security interests in
shares issued by private, nonprofit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy agreements
granting exclusive rights to occupy
specific dwelling units in such
Cooperatives' buildings. Single Family
Loans and Cooperative Loans may be
conventional loans (I.E., loans that are
not insured or guaranteed by any
governmental agency), insured by the
Federal Housing Authority ("FHA") or
partially guaranteed by the Veterans
Administration ("VA") as specified in the
related Prospectus Supplement. Single
Family Loans and Cooperative Loans will all
have individual principal balances at
origination of not less than $25,000 and
not more than $1,000,000, and original
terms to stated maturity of 15 to 40 years,
or such other individual principal balances
at origination and/or original terms to
stated maturity as are specified in the
related Prospectus Supplement.
Multifamily Loans will be secured by
mortgage liens on rental apartment
buildings or projects containing five or
more residential units, including apartment
buildings owned by Cooperatives. Such loans
may be conventional loans or insured by the
FHA, as specified in the related Prospectus
Supplement. Multifamily Loans will all have
individual principal balances at
origination of not less than $25,000 and
original terms to stated maturity of not
more than 40 years, or such other
individual principal balances at
origination and/or original terms to stated
maturity as are specified in the related
Prospectus Supplement.
The payment terms of the Mortgage Loans to
be included in a Trust Fund 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, a rate 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. 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 specified interest rate on the
Mortgage Loan (the "Mortgage 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 or another source
("Buydown Loans") or may be treated as
accrued interest and added to the
principal of the Mortgage Loan.
(b) Principal may be payable on a level
debt service 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 interest
rate on the Mortgage Loan 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) Payments of principal and interest may
be fixed for the life of the Mortgage
Loan, may increase over a specified
period of time 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 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 Lender.
Certain Mortgage Loans may be originated or
acquired in connection with employee
relocation programs. The real property
constituting security for repayment of a
Mortgage Loan may be located in any one of
the fifty states, the District of Columbia,
Guam, Puerto Rico or any other territory of
the United States. The Mortgage Loans
generally will be covered by standard
hazard insurance policies insuring against
losses due to fire and various other
causes. The Mortgage Loans will be covered
by primary mortgage insurance policies to
the extent provided in the related
Prospectus Supplement. All Mortgage Loans
will have been purchased by the Seller,
either directly or through an affiliate,
from Lenders.
B. Contracts.................... Contracts will consist of conditional
sales and installment sales or loan
agreements secured by new or used
Manufactured Homes (as defined herein).
Contracts may be conventional loans,
insured by the FHA or partially guaranteed
by the VA, as specified in the related
Prospectus Supplement. Each Contract
generally will be fully amortizing and will
bear interest at a fixed accrual percentage
rate ("APR"). Contracts will all have
individual principal balances at
origination of not less than $10,000 and
not more than $1,000,000 and original terms
to stated maturity of 5 to 30 years, or
such other individual principal balances at
origination and/or original terms to stated
maturity as are specified in the related
Prospectus Supplement.
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
("Fannie Mae Certificates"), (iii) Mortgage
Participation Certificates issued and
guaranteed as to timely payment of interest
and ultimate (but generally not timely)
payment of principal by Freddie Mac
(formerly the Federal Home Loan Mortgage
Corporation) ("Freddie Mac 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, Fannie Mae, Freddie Mac or
other government agency or
government-sponsored agency certificates
and generally guaranteed to the same extent
as the underlying securities, (v) another
type of guaranteed pass-through certificate
issued or guaranteed by GNMA, Fannie Mae,
Freddie Mac 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 Fannie Mae or Freddie Mac
Certificates will be backed, directly or
indirectly, by the full faith and credit of
the United States. However, to the extent
any Fannie Mae or Freddie Mac Certificates
are backed by GNMA Certificates, such
Fannie Mae or Freddie Mac Certificates
benefit from the backing of the underlying
GNMA Certificates 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, Freddie Mac's Cash or
Guarantor Program or another program
specified in the related Prospectus
Supplement. The payment characteristics of
the Mortgage Loans underlying the Agency
Securities will be described in the related
Prospectus Supplement.
D. Private Mortgage-Backed
Securities................... Private Mortgage-Backed Securities may
include (i) mortgage participation or
pass-through certificates representing
beneficial interests in certain Mortgage
Loans or (ii) Collateralized Mortgage
Obligations ("CMOs") secured by such
Mortgage Loans. Private Mortgage-Backed
Securities may include stripped
mortgage-backed securities representing an
undivided interest in all or a part of any
of 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 mortgage loans. Although individual
Mortgage Loans underlying a Private
Mortgage-Backed Security may be insured or
guaranteed by the United States or an
agency or instrumentality thereof, they
need not be, and the Private
Mortgage-Backed Securities themselves will
not be so insured or guaranteed. See "The
Trust Fund-Private Mortgage-Backed
Securities." Payments on the Private
Mortgage-Backed Securities will be
distributed directly to the Trustee as
registered owner of such Private
Mortgage-Backed Securities or as otherwise
specified in the related Prospectus
Supplement. See "The Trust Fund-Private
Mortgage-Backed Securities."
The Prospectus Supplement for a Series will
specify (i) the aggregate approximate
principal amount, if any, and type of any
Private Mortgage-Backed Securities to be
included in the Trust Fund for such Series;
(ii) certain characteristics of the
Mortgage Loans which comprise the
underlying assets for the Private
Mortgage-Backed Securities including to the
extent available (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 the Mortgage
Loans, (D) the minimum and maximum stated
maturities of the Mortgage Loans at
origination and (E) delinquency experience
with respect to the Mortgage Loans; (iii)
the pass-through or certificate rate or
ranges thereof for the Private
Mortgage-Backed Securities and the method
of determination thereof; (iv) the issuer
of the Private Mortgage-Backed Securities
(the "PMBS Issuer"), the servicer of the
Private Mortgage-Backed Securities (the
"PMBS Servicer") and the trustee of the
Private Mortgage-Backed Securities (the
"PMBS Trustee"); (v) certain
characteristics of credit support, if any,
such as subordination, 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; (vi) the terms on which
underlying Mortgage Loans for such Private
Mortgage-Backed Securities, or such Private
Mortgage-Backed Securities themselves, may,
or are required to, be repurchased prior to
stated maturity; and (vii) the terms on
which substitute Mortgage Loans or
substitute Private Mortgage-Backed
Securities may be delivered to replace
those initially deposited with the PMBS
Trustee or the Trustee. See "The Trust
Fund."
E. U.S. Government Securities... If specified in the related Prospectus
Supplement, United States Treasury
securities and other securities issued by
the U.S. Government, any of its agencies or
other issuers established by federal
statute (collectively, "U.S. Government
Securities") may be included in the Trust
Assets. Such securities will be backed by
the full faith and credit of the United
States or will represent the obligations of
the U.S. Government or such agency or such
other issuer or obligations payable from
the proceeds of U.S. Government Securities,
as specified in the related Prospectus
Supplement.
F. Pre-Funding and
Capitalized Interest
Accounts..................... If specified in the related Prospectus
Supplement, a Trust Fund will include one
or more segregated trust accounts (each, a
"Pre-Funding Account") established and
maintained with the Trustee for the related
Series. If so specified, on the closing
date for such Series, a portion of the
proceeds of the sale of the Securities of
such Series (such amount, the "Pre-Funded
Amount") will be deposited in the
Pre-Funding Account and may be used to
purchase additional Mortgage Assets during
the period of time, not to exceed six
months, specified in the related Prospectus
Supplement (the "Pre-Funding Period"). The
Mortgage Assets to be so purchased will be
required to have certain characteristics
specified in the related Prospectus
Supplement. If any Pre-Funded Amount
remains on deposit in the Pre-Funding
Account at the end of the Pre-Funding
Period, such amount will be applied in the
manner specified in the related Prospectus
Supplement to prepay the Securities of the
applicable Series. The amount initially
deposited in a pre-funding account for a
Series of Securities will not exceed fifty
percent of the aggregate principal amount
of such Series of Securities.
If a Pre-Funding Account is established,
one or more segregated trust accounts
(each, a "Capitalized Interest Account")
may be established and maintained with the
Trustee for the related Series. On the
closing date for such Series, a portion of
the proceeds of the sale of the Securities
of such Series will be deposited in the
Capitalized Interest Account and used to
fund the excess, if any, of (x) the sum of
(i) the amount of interest accrued on the
Securities of such Series and (ii) if
specified in the related Prospectus
Supplement, certain fees or expenses during
the Pre-Funding Period such as trustee fees
and credit enhancement fees, over (y) the
amount of interest available therefor from
the Mortgage Assets or other assets in the
Trust Fund. Any amounts on deposit in the
Capitalized Interest Account at the end of
the Pre-Funding Period that are not
necessary for such purposes will be
distributed to the person specified in the
related Prospectus Supplement.
Description of the
Securities A Series will include either one or more
classes of Certificates or, if Notes are
issued as part of a Series, one or more
classes of Notes and one or more classes of
Certificates. Each Certificate will
represent a beneficial ownership interest
in a trust (a "Trust Fund") created by the
Seller pursuant to a Pooling and Servicing
Agreement or a Trust Agreement for the
related Series. Each Note will represent a
debt obligation of a Trust Fund created
pursuant to an Indenture for such Notes.
The Securities of any Series may be issued
in one or more classes as specified in the
related Prospectus Supplement. A Series of
Securities may include one or more classes
of senior Securities (collectively, the
"Senior Securities") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect
to one or more classes of subordinate
Securities (collectively, the "Subordinated
Securities"). Certain Series or classes of
Securities may be covered by U.S.
Government Securities, insurance policies,
cash accounts, letters of credit, financial
guaranty insurance policies, third party
guarantees or other forms of credit
enhancement as described herein and in the
related Prospectus Supplement.
One or more classes of Securities of each
Series (i) may be entitled to receive
distributions allocable only to principal,
only to interest or to any combination
thereof; (ii) may be entitled to receive
distributions only of prepayments of
principal throughout the lives of the
Securities or during specified periods;
(iii) may be subordinated in the right to
receive distributions of scheduled payments
of principal, prepayments of principal,
interest or any combination thereof to one
or more other classes of 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) may be
entitled to receive such distributions only
after the occurrence of events specified in
the related Prospectus Supplement; (v) may
be entitled to receive distributions in
accordance with a schedule or formula or on
the basis of collections from designated
portions of the assets in the related Trust
Fund; (vi) as to Securities entitled to
distributions allocable to interest, may be
entitled to receive interest at a fixed
rate or a rate that is subject to change
from time to time; and (vii) as to
Securities entitled to distributions
allocable to interest, may be entitled to
such distributions only after the
occurrence of events specified in the
related Prospectus Supplement and may
accrue interest until such events occur, in
each case as specified in the related
Prospectus Supplement. The timing and
amounts of such distributions may vary
among classes, over time, or otherwise as
specified in the related Prospectus
Supplement.
In addition, the holders of one or more
classes of Securities may be entitled, upon
notice and payment of an administrative
fee, to exchange all or a portion of such
classes for proportionate interests in one
or more classes of exchangeable securities
(each an "ES Class" or "Exchangeable
Security") as provided in the related
Prospectus Supplement, and the holders of
such ES Classes may be entitled to exchange
all or a portion of such ES Classes for
proportionate interests in the related
classes of Securities and, if so provided,
in other related ES Classes. Any class of
Securities subject to the exchange
arrangements may be deposited in a separate
trust that will issue securities identical
to those so deposited. These issued
securities may then be exchanged, in whole
or in part, for ES Classes. See
"Exchangeable Securities--General."
Further, if so provided in the related
Prospectus Supplement, one or more classes
of Securities (each, a "Callable Class")
may be callable at the option of one or
more other classes of securities (each, a
"Call Class"). A Call Class and its related
Callable Class or Classes will be issued
pursuant to a separate trust agreement. A
Callable Class generally will not be called
unless the market value of the assets in
the trust fund for such Callable Class
exceeds the outstanding principal balance
of such assets. If so provided in the
related Prospectus Supplement, after the
issuance of the Callable Class, there may
be a specified "lock-out period" during
which such Securities could not be called.
It is anticipated that Call Classes
generally will be offered only on a private
basis. See "Description of the
Securities--General."
The related Prospectus Supplement will
specify whether application will be made to
list any Securities on a securities
exchange or to quote the Securities in the
automated quotation system of a registered
securities association.
Distributions on the
Securities................... Distributions on the Securities entitled
thereto will be made monthly, quarterly,
semi-annually or at such other intervals
and on such other Distribution Dates
specified in the related Prospectus
Supplement solely out of the payments
received in respect of the assets of the
related Trust Fund or other assets pledged
for the benefit of the Securities as
specified in the related Prospectus
Supplement. The amount allocable to
distributions of principal and interest on
any Distribution Date will be determined as
specified in the related Prospectus
Supplement. All distributions will be made
pro rata to Securityholders of the class
entitled thereto or as otherwise specified
in the related Prospectus Supplement, and
the aggregate original principal balance of
the Securities will equal the aggregate
distributions allocable to principal that
such Securities will be entitled to
receive. If specified in the related
Prospectus Supplement, the Securities will
have an aggregate original principal
balance equal to or less than the aggregate
unpaid principal balance of the Trust
Assets (plus amounts held in a Pre-Funding
Account) as of a date specified in the
Prospectus Supplement related to the
creation of the Trust Fund (the "Cut-off
Date") and will bear interest in the
aggregate at a rate (the "Interest Rate")
equal to the interest rate borne by the
underlying Mortgage Loans, Agency
Securities or Private Mortgage-Backed
Securities, net of the aggregate servicing
fees and any other amounts specified in the
related Prospectus Supplement. If specified
in the related Prospectus Supplement, the
aggregate original principal balance of the
Securities and interest rates on the
classes of Securities will be determined
based on the cash flow on the Trust Assets.
The Interest Rate at which interest will be
paid to holders of Securities entitled
thereto may be a fixed rate or a rate that
is subject to change from time to time from
the time and for the periods, in each case
as specified in the related Prospectus
Supplement. Any such rate may be calculated
on a loan-by-loan, weighted average or
other basis, in each case as described in
the related Prospectus Supplement.
Credit
Enhancement .......... The assets in a Trust Fund or the
Securities of one or more classes in the
related Series may have the benefit of one
or more types of credit enhancement
described in the related Prospectus
Supplement. The protection against losses
afforded by any such credit support will be
limited. Such credit enhancement may
include one or more of the following types:
A. Subordination................ The rights of the holders of the
Subordinated Securities of a Series to
receive distributions with respect to the
assets in the related Trust Fund will be
subordinated to such rights of the holders
of the Senior Securities of the same Series
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 of a
Series by means of the subordination
feature may be accomplished by (i) 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 them on each Distribution Date
out of the funds available for distribution
on such date in the related Securities
Account and, to the extent described in the
related Prospectus Supplement, by the right
of such holders to receive future
distributions from the assets in the
related Trust Fund that would otherwise
have been payable to the Subordinated
Securityholders; (ii) reducing the
ownership interest of the related
Subordinated Securities; (iii) a
combination of clauses (i) and (ii) above;
or (iv) as otherwise described in the
related Prospectus Supplement. The
protection afforded to the holders of
Senior Securities of a Series by means of
the subordination feature also may be
accomplished by allocating certain types of
losses or delinquencies to the 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 be Senior Securities with respect to
certain types of payments or certain types
of losses or delinquencies and Subordinated
Securities with respect to other types of
payments or types of 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 the borrower.
If specified in the related Prospectus
Supplement, a reserve fund may be
established and maintained by the deposit
therein of distributions allocable to the
holders of Subordinated Securities 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 Securities in a Series, the
circumstances in which such subordination
will be applicable, the manner, if any, in
which the amount of subordination will
decrease over time, the manner of funding
the related reserve fund, if any, and the
conditions under which amounts in any such
reserve fund will be used to make
distributions to holders of Senior
Securities or released from the related
Trust Fund.
B. Reserve Accounts............. One or more Reserve Accounts may be
established and maintained for each Series.
The related Prospectus Supplement will
specify whether or not any such Reserve
Account will be included in the corpus of
the Trust Fund for such Series and will
also specify the manner of funding the
related Reserve Account and the conditions
under which the amounts in any such Reserve
Account will be used to make distributions
to holders of Securities of a particular
class or released from the related Trust
Fund.
C. Pool Insurance Policy........ A mortgage pool insurance policy or
policies (the "Pool Insurance Policy") may
be obtained and maintained for each Series
pertaining to Single Family Loans,
Cooperative Loans or Contracts, limited in
scope, covering defaults on the related
Single Family Loans, Cooperative Loans or
Contracts in an initial amount equal to a
specified percentage of the aggregate
principal balance of all Single Family
Loans, Cooperative Loans or Contracts
included in the Mortgage Pool as of the
Cut-off Date or such other date as is
specified in the related Prospectus
Supplement.
D. Special Hazard Insurance
Policy....................... In the case of Single Family Loans,
Cooperative 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
(the "Special Hazard Insurance Policy").
Each Special Hazard Insurance Policy
generally will be limited in scope and will
cover losses in an initial amount equal to
the greatest of (i) a specified percentage
of the aggregate principal balance of the
Single Family Loans, Cooperative Loans or
Contracts as of the related Cut-off Date,
(ii) twice the unpaid principal balance as
of the related Cut-off Date of the largest
Single Family Loan, Cooperative Loan or
Contract in the related Mortgage Pool, or
(iii) the aggregate principal balance of
Single Family Loans, Cooperative Loans or
Contracts as of the Cut-off Date secured by
property in any single zip code
concentration.
E. Bankruptcy Bond.............. A bankruptcy bond or bonds (the "Bankruptcy
Bond") may be obtained covering certain
losses resulting from action which may be
taken by a bankruptcy court in connection
with a Single Family Loan, Cooperative Loan
or Contract. The level of coverage of each
Bankruptcy Bond will be specified in the
related Prospectus Supplement.
F. FHA Insurance and VA
Guarantee.................... All or a portion of the Mortgage Loans in a
Mortgage Pool may be insured by FHA
insurance and all or a portion of the
Single Family Loans or Contracts in a
Mortgage Pool may be partially guaranteed
by the VA.
G. Other Arrangements........... Other arrangements as described in the
related Prospectus Supplement including,
but not limited to, one or more U.S.
Government Securities, letters of credit,
financial guaranty insurance policies or
third party guarantees, interest rate or
other swap agreements, caps, collars or
floors, may be used to provide coverage for
certain risks of defaults or losses. These
arrangements may be in addition to or in
substitution for any forms of credit
support described in the Prospectus. Any
such arrangement must be acceptable to each
nationally recognized rating agency that
rates the related Series of Securities (the
"Rating Agency").
H. Cross Support................ If specified in the related Prospectus
Supplement, separate groups of assets or
separate Trust Funds may be beneficially
owned by separate classes of the related
Series of Securities or separate groups of
assets or separate Trust Funds may be
available for the payment of principal and
interest on certain classes of Securities.
In any such case, credit support may be
provided by a cross-support feature which
requires that distributions be made with
respect to certain Securities relating to
one or more asset groups or Trust Funds
prior to distributions to other Securities
relating to other asset groups or Trust
Funds or that losses be allocated in such
manner as to provide such cross-support. 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 Trust
Funds, without priority among such Trust
Funds, until the credit support is
exhausted. If applicable, the related
Prospectus Supplement will identify the
asset groups or Trust Funds to which such
credit support relates and the manner of
determining the amount of the coverage
provided thereby and of the application of
such coverage to the identified asset
groups or Trust Funds.
Advances..................... Each Master Servicer and, if applicable,
each mortgage servicing institution that
services a Mortgage Loan in a Mortgage Pool
on behalf of a Master Servicer (a
"Sub-Servicer") generally will be obligated
to advance amounts corresponding to
delinquent principal and interest payments
on such Mortgage Loan until the date on
which the related Mortgaged Property is
sold at a foreclosure sale or the related
Mortgage Loan is otherwise liquidated. Any
such obligation to make advances may be
limited to amounts due holders of Senior
Securities of the related Series, to
amounts deemed to be recoverable from late
payments or liquidation proceeds, for
specified periods or any combination
thereof, or as otherwise specified in the
related Prospectus Supplement. See
"Description of the Securities-Advances."
Advances will be reimbursable to the extent
described herein and in the related
Prospectus Supplement.
Optional Termination......... The Seller, a Master Servicer, the holders
of the residual interests in a REMIC, a
FASIT or any other entity specified in the
related Prospectus Supplement may have the
option to effect early retirement of a
Series of Securities through the purchase
of the Mortgage Assets and other assets in
the related Trust Fund under the
circumstances and in the manner described
in "The Agreements-Termination; Optional
Termination."
Legal Investment............. Certain classes of Securities offered
hereby and by the related Prospectus
Supplement and as identified therein will
constitute "mortgage-related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
and, as such, will be legal investments for
certain types of institutional investors to
the extent provided in SMMEA, subject, in
any case, to any other regulations which
may govern investments by such
institutional investors. See "Legal
Investment."
Institutions whose investment activities
are subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Securities. Any such institution should
consult its own legal advisors in
determining whether and to what extent
there may be restrictions on its ability to
invest in the Securities. See "Legal
Investment" herein.
Certain Federal Income Tax
Consequences................. The income tax consequences of the
purchase, ownership and disposition of the
Securities of each Series will depend on
whether an election is made to treat the
corresponding Trust Fund (or certain assets
of the Trust Fund) as either a REMIC or a
FASIT under the Internal Revenue Code of
1986, as amended (the "Code"), or whether
the Trust Fund will be treated as either a
grantor trust or a partnership for federal
income tax purposes.
REMIC. If an election is to be made to
treat the Trust Fund for a series of
Securities 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 Securities") and which class of
Certificates will be designated as the
residual interest in the REMIC ("REMIC
Residual Certificates").
For federal income tax purposes, REMIC
Regular Securities generally will be
treated as debt obligations of the Trust
Fund with payment terms equivalent to the
terms of such Securities. Holders of REMIC
Regular Securities will be required to
report income with respect to such
Securities under an accrual method,
regardless of their normal tax accounting
method. Original issue discount, if any, on
REMIC Regular Securities 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. Certain "disqualified
organizations (as defined under "Certain
Federal Income Tax Consequences--Transfers
of REMIC Residual
Certificates--Restrictions on Transfer;
Holding by Pass-Through Entities") are
prohibited from acquiring or holding any
beneficial interest in the REMIC Residual
Certificates. In certain cases, a transfer
of a REMIC Residual Certificate will not be
effective for federal income tax purposes.
FASIT. If an election is to be made to
treat the Trust Fund for a series of
Securities as a FASIT for federal income
tax purposes, the related Prospectus
Supplement will specify which class or
classes thereof will be designated as
regular interests in the FASIT ("FASIT
Regular Securities"), which class or
classes of FASIT Regular Securities
constitute "High-Yield Interests" and which
class of Certificates will be designated as
the ownership interest in the FASIT ("FASIT
Ownership Certificate").
For federal income tax purposes, FASIT
Regular Securities generally will be
treated as debt obligations of the Trust
Fund with payment terms equivalent to the
terms of such Securities. Holders of FASIT
Regular Securities will be required to
report income with respect to such
Securities under an accrual method,
regardless of their normal tax accounting
method. Original issue discount, if any, on
FASIT Regular Securities 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. Holders of
High-Yield Interests may not use net
operating losses to offset any non-FASIT
income derived from the High-Yield
Interest, and in certain cases, a transfer
of a High-Yield Interest will not be
recognized for federal income tax purposes.
The FASIT Ownership Certificate generally
will not be treated as an evidence of
indebtedness for federal income tax
purposes, but instead, as representing
rights to the taxable income or net loss of
the FASIT. The holder of the FASIT
Ownership Certificate will be required to
take into account all of the income or loss
of the FASIT under an accrual method
regardless of its normal accounting method.
In certain situations, particularly in the
early years of a FASIT, the holder of the
FASIT Ownership Certificate may have
taxable income, and possibly tax
liabilities with respect to such income, in
excess of cash distributed to it. Certain
"disqualified holders" are prohibited from
acquiring or holding the FASIT Ownership
Certificate.
GRANTOR TRUST. If a determination is to be
made to treat the Trust Fund for a series
of Certificates as a grantor trust, the
Trust Fund will be classified as a grantor
trust for federal income tax purposes and
not as an association or taxable mortgage
pool taxable as a corporation. Holders of
Certificates issued by a grantor trust
("Non-Electing Securities") will be treated
for such purposes, subject to the possible
application of the stripped bond rules, as
owners of undivided interests in the
related Trust Assets and 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 Trust Assets and
will be entitled, subject to certain
limitations, to deduct their pro rata share
of expenses of the Trust Fund.
PARTNERSHIPS. If a Prospectus Supplement
for a series indicates that a Trust Fund is
to be treated as a partnership, assuming
that all the provisions of the applicable
Agreement are complied with, the Trust Fund
will not be treated as an association,
taxable mortgage pool, or a publicly traded
partnership taxable as a corporation. If a
Prospectus Supplement indicates that one or
more classes of Securities of the related
Series are to be treated as indebtedness
for federal income tax purposes, assuming
that all of the provisions of the
applicable Agreement are complied with, the
Securities so designated will be considered
indebtedness for federal income tax
purposes. Each holder of a Note, by the
acceptance of a Note of a given Series,
will agree to treat such Note as
indebtedness, and each holder of a
Certificate, by the acceptance of a
Certificate of a given Series, will agree
to treat the related Trust Fund for federal
tax purposes as a partnership in which such
holder is a partner if there is more than
one holder of Certificates for federal
income tax purposes, or to disregard the
Trust Fund as an entity separate from the
holder of Certificates if there is only one
such holder for federal income tax
purposes. Alternative characterizations of
such Trust Fund and such Securities are
possible, but would not result in
materially adverse tax consequences to
holders of Securities. See "Certain Federal
Income Tax Consequences."
Generally, gain or loss will be recognized
on a sale of Securities in the amount equal
to the difference between the amount
realized and the seller's tax basis in the
Securities sold. The material federal
income tax consequences for investors
associated with the purchase, ownership and
disposition of the Securities are set forth
herein under "Certain Federal Income Tax
Consequences." The material federal income
tax consequences for investors associated
with the purchase, ownership and
disposition of Securities of any particular
Series will be set forth under the heading
"Certain Federal Income Tax Consequences"
in the related Prospectus Supplement. See
"Certain Federal Income Tax Consequences."
ERISA Considerations.............. A fiduciary of any employee benefit plan or
other retirement plan or arrangement
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
and/or Section 4975 of the Code should
carefully review with its legal advisors
whether the purchase, holding or
disposition of Securities could give rise
to a prohibited transaction under ERISA or
the Code or subject the assets of the Trust
Fund to the fiduciary investment standards
of ERISA. See "ERISA Considerations."
<PAGE>
THE TRUST FUND
A Trust Fund for a Series of Securities will include the Mortgage Assets
consisting of (A) a Mortgage Pool* comprised of (i) Single Family Loans, (ii)
Multifamily Loans, (iii) Cooperative Loans or (iv) Contracts, (B) Agency
Securities, or (C) 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, such as U.S. Government Securities, in each case as specified in the
related Prospectus Supplement.
The Securities will be entitled to payment only from the assets of the
related Trust Fund and any other assets specified in the related Prospectus
Supplement, but will not be entitled to payments in respect of the assets of any
other trust fund established by the Seller. If specified in the related
Prospectus Supplement, certain Securities will evidence the entire beneficial
ownership interest in, or the debt obligations of, a Trust Fund that will
contain a beneficial ownership interest in another Trust Fund which will contain
the Trust Assets.
The Mortgage Assets will be acquired by the Seller, either directly or
through affiliates, from Lenders and conveyed by the Seller to the related Trust
Fund. The Lenders may have originated the Mortgage Assets or acquired the
Mortgage Assets from the originators or other entities. See "The Mortgage
Loans--Underwriting Standards."
As used herein, "Agreement" means, (i) with respect to the Certificates of
a Series, the Pooling and Servicing Agreement or the Trust Agreement and (ii)
with respect to the Notes of a Series, the Indenture or the Master Servicing
Agreement, as the context requires.
The following is a brief description of the Trust Assets expected to be
included in a Trust Fund. If specific information respecting the Trust 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
related 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
Pooling and Servicing Agreement or the Trust Agreement and/or the Indenture, as
applicable, 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 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 (the "Mortgaged Properties") may be located in
any one of the fifty states or the District of Columbia, Guam, Puerto Rico or
any other territory of the United States. Certain Mortgage Loans may be
conventional loans (I.E., loans that are not insured or guaranteed by any
governmental agency), insured by the FHA or partially guaranteed by the VA, as
specified in the related Prospectus Supplement and described below. Mortgage
Loans with certain Loan-to-Value Ratios (as defined herein) or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Insurance Policy"). The existence, extent
and duration of any such coverage will be described in the related Prospectus
Supplement.
Mortgage Loans in a Mortgage Pool will provide for payments to be made
monthly or bi-weekly or as specified in the related Prospectus Supplement. All
of the monthly-pay Mortgage Loans in a Mortgage Pool will have
--------------------------------
* Whenever the terms "Mortgage Pool" and "Securities" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Securities
representing certain undivided interests in, or the debt obligations of, a
single Trust Fund consisting primarily of the Mortgage Loans in such
Mortgage Pool. Similarly, the term "Interest Rate" will refer to the
Interest Rate borne by the Securities of one specific Series and the term
"Trust Fund" will refer to one specific Trust Fund.
payments due on the first day of each month or such other day as is specified in
the related Prospectus Supplement. The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in the related Prospectus Supplement
and may include any of the following features or combination thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index, a rate that is fixed for 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. 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 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 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 debt service 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
interest rate on the Mortgage Loan 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 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. Certain Mortgage
Loans, sometimes called graduated payment mortgage loans, may require the
monthly payments of principal and interest to increase for a specified
period, provide for deferred payment of a portion of the interest due
monthly during such period, and recoup the deferred interest through
negative amortization whereby the difference between the scheduled payment
of interest and the amount of interest actually accrued is added monthly to
the outstanding principal balance. Other Mortgage Loans, sometimes referred
to as growing equity mortgage loans, may provide for periodic scheduled
payment increases for a specified period with the full amount of such
increases being applied to principal. Other Mortgage Loans, sometimes
referred to as reverse mortgages, may provide for monthly payments to the
borrowers with interest and principal payable when the borrowers move or
die. Reverse mortgages typically are made to older persons who have
substantial equity in their homes.
(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 Lender.
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then specifically known to the Seller,
with respect to the Mortgage Loans contained in the related Mortgage Pool,
including, generally (i) the aggregate outstanding principal balance and the
average outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (E.G., one-
to four-family houses, vacation and second homes, Manufactured Homes,
multifamily apartments or other real property), (iii) the original terms to
maturity of the Mortgage Loans, (iv) the largest original principal balance and
the smallest original principal balance of any of the Mortgage Loans, (v) the
earliest origination date and latest maturity date of any of the Mortgage Loans,
(vi) the aggregate principal balance of Mortgage Loans having Loan-to-Value
Ratios at origination exceeding 80%, (vii) the Mortgage Rates or APR's or range
of Mortgage Rates or APR's borne by the Mortgage Loans, and (viii) the
geographical distribution of the Mortgage Loans on a state-by-state basis. If
specific information respecting the Mortgage Loans is not known to the Seller at
the time the related Securities are initially offered, more general information
of the nature described above will be provided in the related Prospectus
Supplement and specific information will be set forth in the Detailed
Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property. The
"Collateral Value" of a Mortgaged Property, other than with respect to Contracts
and certain Mortgage Loans the proceeds of which were used to refinance an
existing mortgage loan (each, a "Refinance Loan"), generally is the lesser of
(a) the appraised value determined in an appraisal obtained by the originator at
origination of such Mortgage Loan and (b) the sales price for such property. In
the case of Refinance Loans, the Collateral Value of the related Mortgaged
Property generally is the appraised value thereof determined in an appraisal
obtained at the time of refinancing. For purposes of calculating the
Loan-to-Value Ratio of a Contract relating to a new Manufactured Home, the
Collateral Value generally is 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 Collateral
Value of a used Manufactured Home generally is the least of the sales price,
appraised value, and National Automobile Dealer's Association book value plus
prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties, in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. In the case of
Multifamily Loans, such other factors could include excessive building resulting
in an oversupply of rental housing stock or a decrease in employment reducing
the demand for rental 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 to tenants 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 holders of the Securities of the related Series.
The Seller will cause the Mortgage Loans comprising each Mortgage 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
Pooling and Servicing Agreement or, if the Series includes Notes, pursuant to a
Master Servicing Agreement among the Seller, the Master Servicer and the related
Trust Fund (the "Master Servicing Agreement") and will receive a fee for such
services. See "The Mortgage Loans" and "The Agreements." With respect to
Mortgage Loans serviced by a Master Servicer through a Sub-Servicer, the Master
Servicer will remain liable for its servicing obligations under the applicable
Agreement, as if the Master Servicer alone were servicing such Mortgage Loans.
In general, the Seller with respect to a Series of Securities will obtain
certain representations and warranties from the Lenders or other third parties
and will assign its rights with respect to such representations and warranties
to the Trustee for such Series of Securities. The Seller will have obligations
with respect to a Series only to the extent specified in the related Prospectus
Supplement. See "The Agreements-Assignment of Mortgage Assets." The obligations
of each Master Servicer with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the related Agreement
(including its obligation to enforce the obligations of the Sub-Servicers,
Lenders or other third parties as more fully described herein under "The
Mortgage Loans--Representations by Lenders; Repurchases" and "The
Agreements--Sub-Servicing by Lenders," "--Assignment of Mortgage Assets") 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.
SINGLE FAMILY AND COOPERATIVE LOANS
Single Family Loans generally will consist of mortgage loans, deeds of
trust or participation or other beneficial interests therein, secured by liens
on one- to four-family residential properties. The Single Family Loans also may
include loans or participations therein secured by mortgages or deeds of trust
on condominium units in condominium buildings together with such condominium
unit's appurtenant interest in the common elements of the condominium building.
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. Single Family
Loans and Cooperative Loans may be conventional loans (I.E., loans that are not
insured or guaranteed by any governmental agency), insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Single Family Loans and Cooperative Loans will all have individual
principal balances at origination of not less than $25,000 and not more than
$1,000,000, and original terms to stated maturity of 15 to 40 years or such
other individual principal balances at origination and/or original terms to
stated maturity as are specified in the related Prospectus Supplement.
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, individual
units in planned unit developments, and certain other dwelling units. Such
Mortgaged Properties may include vacation and second homes, investment
properties and leasehold interests. In the case of leasehold interests, the term
of the leasehold generally will exceed the scheduled maturity of the Mortgage
Loan by at least five years. Certain Mortgage Loans may be originated or
acquired in connection with employee relocation programs.
MULTIFAMILY LOANS
Multifamily Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by liens on rental
apartment buildings or projects containing five or more residential units. Such
loans may be conventional loans or FHA-insured loans, as specified in the
related Prospectus Supplement. Multifamily Loans generally will have original
terms to stated maturity of not more than 40 years.
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. 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 loan, real property taxes, maintenance
expenses and other capital or ordinary expenses. Those payments are in addition
to any payments of principal and interest the tenant-stockholder must make on
any loans to the tenant-stockholder secured by its shares in the Cooperative.
The Cooperative will be directly responsible for building management and, in
most cases, payment of real estate taxes and hazard and liability insurance. A
Cooperative's ability to meet debt service obligations on a Multifamily Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments on the tenant-stockholders.
CONTRACTS
The 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 FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Each Contract generally will be fully amortizing and will bear
interest at its APR. Contracts will have individual principal balances at
origination of not less than $10,000 and not more than $1,000,000 and original
terms to stated maturity of 5 to 40 years, or such other individual principal
balances at origination and/or original terms to stated maturity as are
specified in the related Prospectus Supplement.
The "Manufactured Homes" securing the Contracts generally 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 Fund 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 Fund, and the original maturities of
the Contracts and the last maturity date of any Contract.
AGENCY SECURITIES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. GNMA is a wholly-owned corporate
instrumentality of the United States with the United States Department of
Housing and Urban Development. Section 306(g) of Title II of the National
Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which represent an interest in a pool of mortgage loans insured by FHA under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or partially
guaranteed by the VA under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an amount which is at any
time sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA CERTIFICATES. Each GNMA Certificate held in a Trust Fund (which may be
issued under either the GNMA I Program or the GNMA II Program) 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 Fannie Mae as a seller-servicer of FHA Loans and/or VA
Loans. The mortgage loans underlying the GNMA Certificates 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 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties or manufactured homes and 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 Loan or VA Loan
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 I Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on such GNMA I Certificate
will equal the interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA I Certificate, less one-half percentage
point per annum of the unpaid principal balance of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
"buydown" mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or Buydown Loans. No statistics comparable
to the FHA's prepayment experience on level payment, non-buydown loans are
available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
If specified in a related Prospectus Supplement, GNMA Certificates may be
backed by multifamily mortgage loans having the characteristics specified in
such Prospectus Supplement.
The GNMA Certificates included a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
FEDERAL NATIONAL MORTGAGE ASSOCIATION. Fannie Mae is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act (the "Charter Act"). Fannie Mae 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.
Fannie Mae provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. Fannie Mae 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, Fannie
Mae helps to redistribute mortgage funds from capital-surplus to capital-short
areas.
FANNIE MAE CERTIFICATES. Fannie Mae Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a pool
of mortgage loans formed by Fannie Mae. Each mortgage loan must meet the
applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae Certificates held by a Trust Fund will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae Certificate are expected to be between either 8 to
15 years or 20 to 30 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 Fannie Mae 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 Fannie Mae Certificate 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 Fannie Mae's guaranty fee.
Under a regular servicing option (pursuant to which the mortgagee or other
servicers assumes the entire risk of foreclosure losses), the annual interest
rates on the mortgage loans underlying a Fannie Mae Certificate will be between
50 basis points and 250 basis points greater than in its annual pass-through
rate and under a special servicing option (pursuant to which Fannie Mae assumes
the entire risk for foreclosure losses), the annual interest rates on the
mortgage loans underlying a Fannie Mae Certificate will generally be between 55
basis points and 255 basis points greater than the annual Fannie Mae Certificate
pass-through rate. If specified in the related Prospectus Supplement, Fannie Mae
Certificates may be backed by adjustable rate mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae Certificate
that it will distribute amounts representing such holder's proportionate share
of scheduled principal and interest payments at the applicable pass-through rate
provided for by such Fannie Mae 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
Fannie Mae under its guarantees are obligations solely of Fannie Mae and are not
backed by, nor entitled to, the full faith and credit of the United States.
Although the Secretary of the Treasury of the United States has discretionary
authority to lend Fannie Mae up to $2.25 billion outstanding at any time,
neither the United States nor any agency thereof is obligated to finance Fannie
Mae's operations or to assist Fannie Mae in any other manner. If Fannie Mae were
unable to satisfy its obligations, distributions to holders of Fannie Mae
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Fannie Mae Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than Fannie Mae Certificates backed by
pools containing graduated payment mortgage loans or mortgage loans secured by
multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each Fannie Mae Certificate will be made by Fannie Mae
on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or registered
on the Fannie Mae Certificate register in the case of fully registered Fannie
Mae Certificates) as of the close of business on the last day of the preceding
month. With respect to Fannie Mae Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
Fannie Mae Certificates, distributions thereon will be made by check.
The Fannie Mae Certificates included in a Trust Fund, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FREDDIE MAC. Freddie Mac 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"). Freddie Mac 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 Freddie
Mac 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 Freddie Mac Certificates. Freddie Mac 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.
FREDDIE MAC CERTIFICATES. Each Freddie Mac 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 "Freddie Mac Certificate Group").
Freddie Mac Certificates are sold under the terms of a Mortgage Participation
Certificate Agreement. A Freddie Mac Certificate may be issued under either
Freddie Mac's Cash Program or Guarantor Program.
Unless otherwise described in the related Prospectus Supplement, Mortgage
loans underlying the Freddie Mac Certificates held by a Trust Fund will consist
of mortgage loans with original terms to maturity of between 10 and 30 years.
Each such mortgage loan must meet the applicable standards set forth in the
FHLMC Act. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another Freddie Mac Certificate group. Under
the Guarantor Program, any such Freddie Mac Certificate group may include only
whole loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable Certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans in the Freddie Mac Certificate group represented by such Freddie
Mac Certificate, whether or not received. Freddie Mac also guarantees to each
registered holder of a Freddie Mac Certificate collection by such holder of all
principal on the underlying mortgage loans, without any offset or deduction, to
the extent of such holder's pro rata share thereof, but does not, except if and
to the extent specified in the Prospectus Supplement for a Series of
Certificates, guarantee the timely payment of scheduled principal. Under Freddie
Mac's Gold PC Program, Freddie Mac 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, Freddie Mac indemnifies holders of
Freddie Mac Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. Freddie Mac 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 Freddie Mac Certificates, including the timing
of demand for acceleration, Freddie Mac 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
Freddie Mac to determine that a mortgage loan should be accelerated varies with
the particular circumstances of each mortgagor, and Freddie Mac has not adopted
standards which require that the demand be made within any specified period.
Freddie Mac 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 Freddie Mac under its
guarantee are obligations solely of Freddie Mac and are not backed by, nor
entitled to, the full faith and credit of the United States. If Freddie Mac were
unable to satisfy such obligations, distributions to holders of Freddie Mac
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Freddie Mac Certificates would be affected by delinquent payments and defaults
on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac Certificateholder's
pro rata share of principal payments on the underlying mortgage loans, interest
at the Freddie Mac 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 Freddie Mac.
Under Freddie Mac's cash program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a Freddie Mac Certificate
may exceed the pass-through rate on the Freddie Mac Certificate. Under such
program, Freddie Mac 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 Freddie Mac. The required yield, which includes a
minimum servicing fee retained by the servicer, is calculated using the
outstanding principal balance. The range of interest rates on the mortgage loans
and participations in a Freddie Mac Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a Freddie Mac Certificate group based upon their yield to Freddie Mac rather
than on the interest rate on the underlying mortgage loans. Under Freddie Mac's
Guarantor Program, the pass-through rate on a Freddie Mac Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of Freddie Mac's management
and guaranty income as agreed upon between the seller and Freddie Mac.
Freddie Mac 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 Freddie Mac
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 Freddie Mac 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 Freddie Mac Certificates sold by Freddie Mac
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.
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 Freddie Mac, Fannie
Mae, GNMA or other government agency or government-sponsored agency
Certificates. The underlying securities will be held under a trust agreement by
Freddie Mac, Fannie Mae, GNMA or another government agency or
government-sponsored agency, each as trustee, or by another trustee named in the
related Prospectus Supplement. Freddie Mac, Fannie Mae, GNMA or another
government agency or government-sponsored agency generally will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security.
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, Fannie Mae, Freddie Mac or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage
pass-through certificates will be described in such related Prospectus
Supplement. If so specified, a combination of different types of Agency
Securities may be held in a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
GENERAL. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing a direct or indirect undivided interest in
a pool of Mortgage Loans, or (b) collateralized mortgage obligations secured by
Mortgage Loans. Private Mortgage-Backed Securities will have been issued
pursuant to a pooling and servicing agreement (a "PMBS Agreement"). The Private
Mortgage-Backed Securities in a Trust Fund may include a class or classes of
securities that are callable at the option of another class or classes of
securities. The seller/servicer of the underlying Mortgage Loans will have
entered into the PMBS Agreement with the PMBS Trustee under the PMBS Agreement.
The PMBS Trustee or its agent, or a custodian, will possess the Mortgage Loans
underlying such Private Mortgage-Backed Security. Mortgage Loans underlying a
Private Mortgage-Backed Security will be serviced by the PMBS Servicer directly
or by one or more sub-servicers who may be subject to the supervision of the
PMBS Servicer. The PMBS Servicer will be a Fannie Mae or Freddie Mac approved
servicer and, if FHA Loans underlie the Private Mortgage-Backed Securities,
approved by the Department of Housing and Urban Development ("HUD") as an FHA
mortgagee, or such other servicer as specified in the related Prospectus
Supplement.
The PMBS Issuer generally 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 related Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Seller. 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 or the assignment by it of the
representations and warranties of another entity from which it acquired the
assets. The PMBS Issuer generally 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 be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
UNDERLYING LOANS. The Mortgage Loans underlying the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing loans or
graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans,
or loans having balloon or other special payment features. Such Mortgage Loans
may be secured by single family property, multifamily property, Manufactured
Homes or by an assignment of the proprietary lease or occupancy agreement
relating to a specific dwelling within a Cooperative and the related shares
issued by such Cooperative. In general, (i) no Mortgage Loan will have had a
Loan-to-Value Ratio at origination in excess of 95%, (ii) each Single Family
Loan secured by a Mortgaged Property having a Loan-to-Value Ratio in excess of
80% at origination will be covered by a primary mortgage insurance policy until
the principal balance is reduced to 80%, (iii) each Mortgage Loan will have had
an original term to stated maturity of not less than 5 years and not more than
40 years, (iv) no Mortgage Loan that was more than 30 days delinquent more than
once in the past 12 months and will not be delinquent as of the Cut-off Date as
to the payment of principal or interest will have been eligible for inclusion in
the assets under the related PMBS Agreement, (v) each Mortgage Loan (other than
a Cooperative Loan) will be required to be covered by a standard hazard
insurance policy (which may be a blanket policy), and (vi) each Mortgage Loan
(other than a Cooperative Loan or a Contract secured by a Manufactured Home)
will be covered by a title insurance policy.
CREDIT SUPPORT RELATING TO PRIVATE MORTGAGE-BACKED SECURITIES. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Mortgage Loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
ADDITIONAL INFORMATION. The related Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including to the extent available (A) the
payment features of such Mortgage Loans, (B) the approximate aggregate principal
balance, if known, of underlying Mortgage Loans insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing fees with
respect to the Mortgage Loans, (D) the minimum and maximum stated maturities of
the underlying Mortgage Loans at origination and (E) delinquency experience with
respect to the Mortgage Loans, (iii) the pass-through or certificate rate of the
Private Mortgage-Backed Securities and the method of determination thereof, (iv)
the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS
Trustee for such Private Mortgage-Backed Securities, (v) certain characteristics
of credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the Mortgage Loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (vi) the terms on which the underlying
Mortgage Loans for such Private Mortgage-Backed Securities, or such Private
Mortgage-Backed Securities themselves, may, or are required to, be purchased
prior to their stated maturity or the stated maturity of the Private
Mortgage-Backed Securities and (vii) the terms on which Mortgage Loans or
Private Mortgage-Backed Securities may be substituted for those originally
deposited with the PMBS Trustee or the Trustee.
U.S. GOVERNMENT SECURITIES
If specified in the related Prospectus Supplement, United States Treasury
securities and other securities issued by the U.S. Government, any of its
agencies or other issuers established by federal statute (collectively, "U.S.
Government Securities") may be included in the Trust Assets. Such securities
will be backed by the full faith and credit of the United States or will
represent the obligations of the U.S. Government or such agency or such other
issuer or obligations payable from the proceeds of U.S. Government Securities,
as specified in the related Prospectus Supplement.
SUBSTITUTION OF MORTGAGE ASSETS
If so provided in the related Prospectus Supplement, substitution of
Mortgage Assets will be permitted in the event of breaches of representations
and warranties with respect to any original Mortgage Asset or in the event the
documentation with respect to any Mortgage Asset is determined by the Trustee or
other party identified in the related Prospectus Supplement to be incomplete.
The period during which such substitution will be permitted generally will be
indicated in the related Prospectus Supplement. The related Prospectus
Supplement will describe any other conditions upon which Mortgage Assets may be
substituted for Mortgage Assets initially included in the Trust Fund.
USE OF PROCEEDS
The Seller intends to use the net proceeds to be received from the sale of
the Securities of each Series to repay short-term loans incurred to finance the
purchase of the Trust Assets related to such Securities, to acquire certain of
the Trust Assets to be deposited in the related Trust Fund, and/or to pay other
expenses connected with pooling Trust Assets and issuing Securities. Any amounts
remaining after such payments may be used for general corporate purposes. The
Seller expects to sell Securities in Series from time to time.
THE SELLER
Bear Stearns Mortgage Securities Inc., the Seller, is a Delaware
corporation organized on October 17, 1991 for the purpose of acquiring Mortgage
Assets and selling interests therein or bonds secured thereby. It is a wholly
owned subsidiary of Bear Stearns Mortgage Capital Corporation, a Delaware
corporation, and an affiliate of Bear, Stearns & Co. Inc. The Seller maintains
its principal office at 245 Park Avenue, New York, New York 10167. Its telephone
number is (212) 272-2000.
The Seller does not have, nor is it expected in the future to have, any
significant assets.
THE MORTGAGE LOANS
The Mortgage Loans will have been purchased by the Seller, either directly
or through affiliates, from Lenders. The Mortgage Loans so acquired by the
Seller will have been originated in accordance with the underwriting criteria
specified below under "Underwriting Standards" or such other underwriting
criteria as is specified in the related Prospectus Supplement.
UNDERWRITING STANDARDS
In general, each Lender will represent and warrant that all Mortgage Loans
originated and/or sold by it to the Seller or one of its affiliates will have
been underwritten in accordance with standards consistent with those utilized by
mortgage lenders or manufactured home lenders generally during the period of
origination. As to any Mortgage Loan insured by the FHA or partially guaranteed
by the VA, the Lender will represent that it has complied with underwriting
policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a Lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the Mortgaged Property as collateral. In general, a prospective borrower
applying for a Single Family Loan or a Cooperative Loan or for financing secured
by a Manufactured Home is required to fill out a detailed application designed
to provide to the underwriting officer pertinent credit information. As part of
the description of the borrower's financial condition, the borrower generally is
required to provide a current list of assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with local merchants and lenders
and any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source (typically the borrower's employer) which
verification reports the length of employment with that organization, the
current salary, and whether it is expected that the borrower will continue such
employment in the future. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. The borrower
may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts. Underwriting
standards which pertain to the creditworthiness of borrowers seeking Multifamily
Loans will be described in the related Prospectus Supplement.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. With respect to Single Family
Loans, the appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the home. With respect to Cooperative Loans, the appraisal is based
on the market value of comparable units. With respect to Contracts, the
appraisal is based on recent sales of comparable Manufactured Homes and, when
deemed applicable, a replacement cost analysis based on the cost of a comparable
Manufactured Home. With respect to a Multifamily Loan, the appraisal must
specify whether an income analysis, a market analysis or a cost analysis, was
used. An appraisal employing the income approach to value analyzes a multifamily
project's cashflow, expenses, capitalization and other operational information
in determining the property's value. The market approach to value focuses its
analysis on the prices paid for the purchase of similar properties in the
multifamily project's area, with adjustments made for variations between these
other properties and the multifamily project being appraised. The cost approach
calls for the appraiser to make an estimate of land value and then determine the
current cost of reproducing the building less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal,
must be such that it currently supports, and is anticipated to support in the
future, the outstanding loan balance.
In the case of Single Family Loans, Cooperative Loans and Contracts, once
all applicable employment, credit and property information is received, a
determination generally is made as to whether the prospective borrower has
sufficient monthly income available (i) to meet the borrower's monthly
obligations on the proposed mortgage loan (determined on the basis of the
monthly payments due in the year of origination) and other expenses related to
the Mortgaged Property (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly living
expenses. The underwriting standards applied by Lenders may be varied in
appropriate cases where factors such as low Loan-to-Value Ratios or other
favorable credit factors exist.
A Lender may originate Mortgage Loans under a reduced documentation program
with balances that exceed in size or other respects general agency criteria. A
reduced documentation program is designed to facilitate the loan approval
process and thereby improve the Lender's competitive position among other loan
originators. Under a reduced documentation program, relatively more emphasis is
placed on property underwriting than on credit underwriting and certain credit
underwriting documentation concerning income and employment verification is
waived.
In the case of a Single Family or Multifamily Loan secured by a leasehold
interest in a real property, the title to which is held by a third party lessor,
the Lender will represent and warrant, among other things, that the remaining
term of the lease and any sublease is at least five years longer than the
remaining term of the Mortgage Loan.
Certain of the types of Mortgage Loans which may be included in the
Mortgage Pools are more recently developed and may involve additional
uncertainties not present in traditional types of loans. For example, certain of
such Mortgage Loans may provide for escalating or variable payments by the
mortgagor or obligor. These types of Mortgage Loans are underwritten on the
basis of a judgment that mortgagors or obligors will have the ability to make
monthly payments required initially. In some instances, however, a mortgagor's
or obligor's income may not be sufficient to permit continued loan payments as
such payments increase.
QUALIFICATIONS OF LENDERS
Each Lender will be required to satisfy the qualifications set forth herein
or as otherwise set forth in the related Prospectus Supplement. Each Lender must
be an institution experienced in originating and servicing Mortgage Loans of the
type contained in the related Mortgage Pool in accordance with accepted
practices and prudent guidelines, and must maintain satisfactory facilities to
originate and service those Mortgage Loans. In general, each Lender must be a
seller/servicer approved by either Fannie Mae or Freddie Mac, and each Lender
must be a mortgagee approved by the HUD or an institution the deposit accounts
in which are insured by the Federal Deposit Insurance Corporation (the "FDIC").
REPRESENTATIONS BY LENDERS; REPURCHASES
Each Lender generally will have made representations and warranties in
respect of the Mortgage Loans sold by such Lender and included in the assets of
the Trust Fund. Such representations and warranties generally include, among
other things: (i) that title insurance (or in the case of Mortgaged Properties
located in areas where such policies are generally not available, an attorney's
certificate of title) in the case of Single Family Loans and Multifamily Loans
and any required hazard insurance policy was in effect on the date of purchase
of the Mortgage Loan from the Lender by or on behalf of the Seller; (ii) that
the Lender had title to each such Mortgage Loan and such Mortgage Loan was
subject to no offsets, defenses or counterclaims; (iii) that each Mortgage Loan
constituted a valid first or other applicable lien on, or a perfected security
interest with respect to, the Mortgaged Property (subject only to permissible
title insurance exceptions, if applicable, and certain other exceptions
described in the Agreement) and that the Mortgaged Property was free from damage
and was in good repair; (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property, (v) that no required payment on a Mortgage
Loan was more than a specified number of days delinquent; and (vi) that each
Mortgage Loan was made in compliance with, and is enforceable under, all
applicable state and federal laws and regulations in all material respects.
All of the representations and warranties of a Lender in respect of a
Mortgage Loan will have been made as of the date on which such Lender sold the
Mortgage Loan to the Seller or one of its affiliates or as of such other date as
is specified in the related Prospectus Supplement. A substantial period of time
may have elapsed between such date and the date of initial issuance of the
Series of Securities evidencing an interest in, or secured by, such Mortgage
Loan. Since the representations and warranties of a Lender do not address events
that may occur following the sale of a Mortgage Loan by such Lender, its
repurchase obligation described below will not arise if the relevant event that
would otherwise have given rise to such an obligation with respect to a Mortgage
Loan occurs after the date of sale of such Mortgage Loan by such Lender to the
Seller or its affiliates. If the Master Servicer is also a Lender with respect
to a particular Series, such representations will be in addition to the
representations and warranties, if any, made by the Master Servicer in its
capacity as a Master Servicer.
In general, the Master Servicer or the Trustee, if the Master Servicer is
the Lender, will be required to promptly notify the relevant Lender of any
breach of any representation or warranty made by it in respect of a Mortgage
Loan which materially and adversely affects the interests of the Securityholders
with respect to such Mortgage Loan. If such Lender cannot cure such breach
generally within 60 days after notice from the Master Servicer or the Trustee,
as the case may be, then such Lender generally will be obligated to repurchase
such Mortgage Loan from the Trust Fund at a price (the "Purchase Price") equal
to the unpaid principal balance thereof as of the date of the repurchase plus
accrued interest thereon to the first day of the month following the month of
repurchase at the Mortgage Rate (less any amount payable as related servicing
compensation if the Lender is the Master Servicer) or such other price as may be
described in the related Prospectus Supplement. This repurchase obligation will
constitute the sole remedy available to holders of Securities or the Trustee for
a breach of representation by a Lender. Certain rights of substitution for
defective Mortgage Loans may be provided with respect to a Series in the related
Prospectus Supplement.
Neither the Seller nor the Master Servicer (unless the Master Servicer is
the Lender) will be obligated to purchase a Mortgage Loan if a Lender defaults
on its obligation to do so, and no assurance can be given that Lenders will
carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of a representation and warranty of
a Lender may also constitute a breach of a representation made by the Seller or
the Master Servicer, the Master Servicer may have a repurchase obligation as
described below under "The Agreements-Assignment of Mortgage Assets."
If specified in the related Prospectus Supplement, the Lender may have
acquired the Mortgage Loans from a third party which made certain
representations and warranties to the Lender as of the time of the sale to the
Lender. In lieu of representations and warranties made by the Lender as of the
time of the sale to the Seller, the Lender may assign the representations and
warranties from the third party to the Seller, which will assign them to the
Trustee on behalf of the Securityholders. In such cases, the third party will be
obligated to purchase a Mortgage Loan upon a breach of such representations and
warranties, and the Lender will not be obligated to purchase a Mortgage Loan if
the third party defaults on its obligation to do so.
The Lender and any third party which conveyed the Mortgage Loans to the
Lender may experience financial difficulties and in some instances may enter
into insolvency proceedings. As a consequence, the Lender or such third party
may be unable to perform its repurchase obligations with respect to the Mortgage
Loans. Any arrangements for the assignment of representations and the repurchase
of Mortgage Loans must be acceptable to the Rating Agency rating the related
Securities.
OPTIONAL PURCHASE OF DEFAULTED LOANS
If specified in the related Prospectus Supplement, the Master Servicer or
another entity identified in such Prospectus Supplement may, at its option,
purchase from the Trust Fund any Mortgage Loan which is delinquent in payment by
91 days or more. Any such purchase shall be at such price as may be described in
the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
The Notes of a Series will be issued pursuant to an indenture (the
"Indenture") between the related Trust Fund and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Notes. The
Certificates will also be issued in Series pursuant to separate agreements (each
a "Pooling and Servicing Agreement" or a "Trust Agreement") among the Seller,
one or more Master Servicers, if applicable, and the Trustee. The provisions of
each such Agreement will vary depending upon the nature of the Securities to be
issued thereunder and the nature of the related Trust Fund. A form of Pooling
and Servicing Agreement, a form of a Trust Agreement and a form of Indenture are
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions which may appear in each such
Agreement. The Prospectus Supplement for a Series of Securities will provide
additional information regarding each such Agreement relating to such Series.
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
applicable Agreement or Agreements for each Series of Securities and the
applicable Prospectus Supplement. The Seller will provide a copy of the
applicable Agreement or Agreements (without exhibits) relating to any Series
without charge upon written request of a Securityholder of such Series addressed
to Bear Stearns Mortgage Securities Inc., 245 Park Avenue, New York, New York
10167; Attention: Mortgage Department.
GENERAL
The Securities of each Series will be issued in fully registered form, in
the denominations specified in the related Prospectus Supplement, will evidence
specified beneficial ownership interests in, or debt secured by the assets of,
the related Trust Fund and will not be entitled to distributions in respect of
the Trust Assets included in any other Trust Fund established by the Seller. The
Securities will not represent obligations of the Seller or any affiliate of the
Seller. The Mortgage Loans generally will not be insured or guaranteed by any
governmental entity or other person unless the Prospectus Supplement provides
that loans are included that have the benefit of FHA insurance ("FHA
Insurance"), VA guarantees ("VA Guarantees"), primary mortgage insurance, pool
insurance or another form of insurance or guarantees. Each Trust Fund will
consist of, to the extent provided in the Agreement, (i) the Mortgage Assets, as
from time to time are subject to the related Agreement (exclusive of any amounts
specified in the related Prospectus Supplement ("Retained Interest")), (ii) such
assets as from time to time are required to be deposited in the related
Protected Account, Securities Account or any other accounts established pursuant
to the Agreement (collectively, the "Accounts"); (iii) property which secured a
Mortgage Loan and which is acquired on behalf of the Securityholders by
foreclosure or deed in lieu of foreclosure, (iv) U.S. Government Securities; and
(v) any Primary Insurance Policies, FHA Insurance, VA Guarantees, other
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the Agreement. If so specified in the related Prospectus
Supplement, a Trust Fund may include one or more of the following: reinvestment
income on payments received on the Trust Assets, a reserve fund, a mortgage pool
insurance policy, a special hazard insurance policy, a bankruptcy bond, one or
more letters of credit, a financial guaranty insurance policy, third party
guarantees or similar instruments, U.S. Government Securities designed to assure
payment of the Securities or other agreements. If provided in the related
Agreement, a securities administrator may be obligated to perform certain duties
in connection with the administration of the Securities.
Each Series of Securities will be issued in one or more classes. Each class
of Securities of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on the assets in the related Trust Fund or will evidence the obligations of the
related Trust Fund to make payments from amounts received on the such assets in
the related Trust Fund. A Series of Securities may include one or more classes
that receive certain preferential treatment with respect to one or more other
classes of Securities of such Series. Certain Series or classes of Securities
may he covered by insurance policies or other forms of credit enhancement, in
each case as described herein and in the related Prospectus Supplement.
Distributions on one or more classes of a Series of Securities may be made prior
to one or more other classes, after the occurrence of specified events, in
accordance with a schedule or formula, on the basis of collections from
designated portions of the assets in the related Trust Fund or on a different
basis, in each case, as specified in the related Prospectus Supplement. The
timing and amounts of such distributions may vary among classes or over time as
specified in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, the Securityholder of a class (a "Call Class") of
securities of a Series may have the right to direct the Trustee to redeem a
related Callable Class or Classes (as defined herein). A "Callable Class" is a
class of Securities of a Series that is redeemable, directly or indirectly, at
the direction of the holder of the related Call Class, as provided in the
related Prospectus Supplement. A Call Class and its related Callable Class or
Classes will be issued pursuant to a separate trust agreement. A Callable Class
generally will not be called unless the market value of the assets in the trust
fund for such Callable Class exceeds the outstanding principal balance of such
assets. If so provided in the related Prospectus Supplement, after the issuance
of the Callable Class, there may be a specified "lock-out period" during which
such Securities could not be called. It is anticipated that Call Classes
generally will be offered only on a private basis. It is anticipated that Call
Classes generally will be offered only on a private basis.
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 Distribution Date (I.E., monthly, quarterly, semi-annually or at such other
intervals and on the dates specified in the related Prospectus Supplement) in
the proportions 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 dates specified in the related Prospectus Supplement
(each, a "Record Date"). Distributions will be made by check or money order
mailed to the persons entitled thereto at the address appearing in the register
maintained for holders of Securities (the "Securities Register") or, if
specified in the related Prospectus Supplement, in the case of Securities that
are of a certain minimum denomination, upon written request by the
Securityholder, by wire transfer or by such other means as are described
therein; provided, however, 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 notice
to Securityholders of such final distribution.
Except with respect to REMIC Residual Securities and FASIT Ownership
Securities, the Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge. Certain
representations will be required in connection with the transfer of REMIC
Residual Securities and FASIT Ownership Securities, as provided in the related
Prospectus Supplement.
DISTRIBUTIONS ON SECURITIES
GENERAL. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See "Credit Enhancement." Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Securities Account, including any funds transferred from any Reserve Account and
funds received as a result of credit enhancement or from other specified
sources. As between Securities of different classes and as between distributions
of interest and principal and, if applicable, between distributions of
prepayments of principal and scheduled payments of principal, distributions made
on any Distribution Date will be applied as specified in the related Prospectus
Supplement. Distributions to any class of Securities will be made pro rata to
all Securityholders of that class or as specified in the related Prospectus
Supplement.
AVAILABLE FUNDS. All distributions on the Securities of each Series on each
Distribution Date will be made from the Available Funds in accordance with the
terms described in the related Prospectus Supplement and as specified in the
Agreement. "Available Funds" for each Distribution Date will generally equal the
amounts on deposit in the related Securities Account on a date specified in the
related Prospectus Supplement, net of related fees and expenses payable by the
related Trust Fund and other amounts to be held therein for distribution on
future Distribution Dates.
DISTRIBUTIONS OF INTEREST. Interest generally will accrue on the aggregate
Current Principal Amount (defined herein) (or, in the case of Securities
entitled only to distributions allocable to interest, the aggregate notional
principal balance) of each class of Securities entitled to interest from the
date, at the interest rate (the "Interest Rate") and for the periods specified
in the related Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each such specified period on each class of
Securities entitled to interest (other than a class of Securities that provides
for interest that accrues, but is not currently payable, referred to hereinafter
as "Accrual Securities") will be distributable on the Distribution Dates
specified in the related Prospectus Supplement until the aggregate Current
Principal Amount of the Securities of such class has been distributed in full
or, in the case of Securities entitled only to distributions allocable to
interest, until the aggregate notional principal balance of such Securities is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Current Principal Amount of each Security will equal
the aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated based on the
notional principal balance of such Security or on such other basis as is
specified in the related Prospectus Supplement. The notional principal balance
of a Security will not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in expressing the
calculation of interest and for certain other purposes.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Current Principal
Amount of such class of Securities on that Distribution Date. Distributions of
interest on each class of Accrual Securities will commence only after the
occurrence of the events specified in the related Prospectus Supplement. Prior
to such time, the beneficial ownership interest of such class of Accrual
Securities in the Trust Fund, as reflected in the aggregate Current Principal
Amount of such class of Accrual Securities, generally will increase on each
Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Current Principal Amount as so adjusted.
DISTRIBUTIONS OF PRINCIPAL. The aggregate "Current Principal Amount" of any
class of Securities entitled to distributions of principal generally will be the
aggregate original Current Principal Amount of such class of Securities
specified in the related Prospectus Supplement, reduced by all distributions and
losses reported to the holders of such Securities as allocable to principal,
and, in the case of Accrual Securities, generally will be increased by all
interest accrued but not then distributable on such Accrual Securities. The
related Prospectus Supplement will specify the method by which the amount of
principal to be distributed on the Securities on each Distribution Date will be
calculated and the manner in which such amount will be allocated among the
classes of Securities entitled to distributions of principal.
If so provided in the related Prospectus Supplement, one or more classes of
Senior Securities will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the month of such payments ("Principal
Prepayments") in the percentages and under the circumstances or for the periods
specified in the related Prospectus Supplement. Any such allocation of Principal
Prepayments to such class or classes of Securities will have the effect of
accelerating the amortization of such Senior Securities while increasing the
interests evidenced by the Subordinated Securities in the Trust Fund. Increasing
the interests of the Subordinated Securities relative to that of the Senior
Securities is intended to preserve the availability of the subordination
provided by the Subordinated Securities. See "Credit Enhancement-Subordination."
UNSCHEDULED DISTRIBUTIONS. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in the related Prospectus Supplement. If applicable, the
Trustee will be required to make such unscheduled distributions on the day and
in the amount specified in the related Prospectus Supplement if, due to
substantial payments of principal (including Principal Prepayments) on the
Mortgage Assets, low rates then available for reinvestment of such payments or
both, the Trustee or the Master Servicer determines, based on the assumptions
specified in the Agreement, that the amount anticipated to be on deposit in the
Securities Account on the next Distribution Date, together with, if applicable,
any amounts available to be withdrawn from any Reserve Account, may be
insufficient to make required distributions on the Securities on such
Distribution Date. The amount of any such unscheduled distribution that is
allocable to principal generally will not exceed the amount that would otherwise
have been required to be distributed as principal on the Securities on the next
Distribution Date. All unscheduled distributions generally will include interest
at the applicable Interest Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified in
the related Prospectus Supplement.
All distributions allocable to principal in any unscheduled distribution
generally will be made in the same priority and manner as distributions of
principal on the Securities would have been made on the next Distribution Date,
and with respect to Securities of the same class, unscheduled distributions of
principal generally will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
ADVANCES
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in any of the
Accounts for future distributions to the holders of such Securities), an amount
equal to the aggregate of payments of principal and interest that were
delinquent on the related Determination Date and were not advanced by any
Sub-Servicer, subject to the Master Servicer's determination that such advances
will be recoverable out of late payments by Mortgagors, Liquidation Proceeds,
Insurance Proceeds or otherwise with respect to the specific Mortgage Loan or,
if required by the applicable Rating Agency, with respect to any of the Mortgage
Loans.
In making advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to holders of the Securities,
rather than to guarantee or insure against losses. If advances are made by the
Master Servicer from cash being held for future distribution to Securityholders,
the Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Account on such Distribution
Date would be less than the amount required to be available for distributions to
Securityholders on such date. Any Master Servicer funds advanced will be
reimbursable to the Master Servicer out of recoveries on the specific Mortgage
Loans with respect to which such advances were made (E.G., late payments made by
the related Mortgagor, any related Insurance Proceeds, Liquidation Proceeds or
proceeds of any Mortgage Loan purchased by a Lender under the circumstances
described herein). Advances by the Master Servicer (and any advances by a
Sub-Servicer) also will be reimbursable to the Master Servicer (or Sub-Servicer)
from cash otherwise distributable to Securityholders (including the holders of
Senior Securities) at such time as the Master Servicer determines that any such
advances previously made are not ultimately recoverable from the proceeds with
respect to the specific Mortgage Loan or, if required by the applicable Rating
Agency, at such time as a loss is realized with respect to a specific Mortgage
Loan. The Master Servicer also will be obligated to make advances, to the extent
recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Master Servicer to the
extent permitted by the Agreement. If specified in the related Prospectus
Supplement, the obligations of the Master Servicer to make advances may be
supported by a cash advance reserve fund, a surety bond or other arrangement, in
each case as described in such Prospectus Supplement.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date or
at such other time as is specified in the related Prospectus Supplement or
Agreement, the Master Servicer or the Trustee will furnish to each
Securityholder of record of the related Series a statement setting forth, to the
extent applicable or material to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, prepayment penalties
included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any advance by the Master Servicer;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Securityholders on such Distribution Date, and (b) withdrawn from the
Reserve Fund, if any, that is included in the amounts distributed to the
Senior Securityholders;
(v) the outstanding Current Principal Amount or notional principal
balance of such class after giving effect to the distribution of principal
on such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Loans, if
any, which such class will be entitled to receive on the following
Distribution Date;
(vii) the percentage of Principal Prepayments on the Mortgage Loans,
if any, which such class will be entitled to receive on the following
Distribution Date;
(viii) unless the Interest Rate is a fixed rate, the Interest Rate
applicable to the distribution on the Distribution Date;
(ix) the number and aggregate principal balances of Mortgage Loans in
the related Mortgage Pool delinquent (a) one month, (b) two months or (c)
three or more months, and the number and aggregate principal balances of
Mortgage Loans in foreclosure;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure, and if such real estate secured a
Multifamily Loan, such additional information as may be specified in the
related Prospectus Supplement; and
(xi) if applicable, the amount remaining in any Reserve Account or the
amount remaining of any other credit support, after giving effect to the
distribution on the Distribution Date.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant class having a denomination or
interest specified in the related Prospectus Supplement or in the report to
Securityholders. The report to Securityholders for any Series of Securities may
include additional or other information of a similar nature to that specified
above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) for such calendar
year and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
BOOK-ENTRY REGISTRATION
If specified in the related Prospectus Supplement, one or more classes of
Securities of any Series may be issued in book-entry form. Persons acquiring
beneficial ownership interests in the book-entry Securities ("Owners") will hold
their Securities through the Depository Trust Company ("DTC") in the United
States, or Cedel Bank, societe anonyme, ("Cedel") or the Euroclear System
("Euroclear") (in Europe) if they are participants of any of such systems
("Participants"), or indirectly through organizations which are Participants.
The book-entry Securities will be issued in one or more certificates or notes,
as the case may be, that equal the aggregate principal balance of the applicable
class or classes of Securities and will initially be registered in the name of
Cede & Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions
on behalf of their Participants through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective depositaries that
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 and The Chase Manhattan Bank will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no person acquiring a
book-entry Security will be entitled to receive a physical certificate or note
representing such Security (a "Definitive Security"). Unless and until
Definitive Securities are issued, it is anticipated that the only
"Securityholder" will be Cede & Co., as nominee of DTC. Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Owner's ownership of a book-entry Security 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 Security will be recorded on the records of DTC (or
of a DTC Participant 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 or Euroclear, as appropriate).
Owners will receive all distributions allocable to principal and interest
with respect to the book-entry Securities from the Trustee through DTC and DTC
Participants. While the book-entry Securities are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating, governing 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 Securities and is required to receive and transmit
distributions allocable to principal and interest with respect to the
Securities. Participants and Financial Intermediaries with whom Owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Owners. Accordingly, although Owners will not possess physical
certificates or notes, the Rules provide a mechanism by which Owners will
receive distributions and will be able to transfer their beneficial ownership
interests in the Securities.
Owners will not receive or be entitled to receive Definitive Securities,
except under the limited circumstances described below. Unless and until
Definitive Securities are issued, Owners who are not Participants may transfer
ownership of Securities only through Participants and Financial Intermediaries
by instructing such Participants and Financial Intermediaries to transfer
beneficial ownership interests in the Securities by book-entry transfer through
DTC for the account of the purchasers of such Securities, which account is
maintained with their respective Participants or Financial Intermediaries. Under
the Rules and in accordance with DTC's normal procedures, transfers of ownership
of Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and Financial Intermediaries will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Owners.
Because of time zone differences, credits of securities received in Cedel
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 Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel or Euroclear cash
account only as of the business day following settlement in DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel 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
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC is a New York-chartered limited purpose trust company that 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 Securities, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of book-entry Securities will be subject to the Rules as in
effect from time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its Participants and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for movement of physical securities. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to its Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets in
several countries. As a professional depository, Cedel is subject to regulation
by the Luxembourg Monetary Institute. Cedel 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 is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its Participants and
to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for movement of physical securities 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 provides
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 Securities will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC Participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Owners 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 Owners that it
represents.
Under a book-entry format, Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede & Co. Distributions with respect to Securities held through Cedel or
Euroclear will be credited to the cash accounts of Cedel 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
DTC Participants that in turn can only act on behalf of Financial
Intermediaries, the ability of an Owner to pledge book-entry Securities to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such book-entry Securities, may be limited due to the lack
of physical certificates or notes for such book-entry Securities. In addition,
issuance of the book-entry Securities in book-entry form may reduce the
liquidity of such Securities in the secondary market since certain potential
investors may be unwilling to purchase Securities for which they cannot obtain
physical certificates or notes.
Monthly and annual reports on the applicable Trust Fund will be provided to
Cede & Co., as nominee of DTC, and may be made available by Cede & Co. to Owners
upon request, in accordance with the Rules, and to the DTC Participants to whose
DTC accounts the book-entry Securities of such Owners are credited directly or
are credited indirectly through Financial Intermediares.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
book-entry Securities under the Agreement only at the direction of one or more
DTC Participants to whose DTC accounts the book-entry Securities are credited,
to the extent that such actions are taken on behalf of such Participants whose
holdings include such book-entry Securities. Cedel or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a holder
under the Agreement on behalf of a Cedel 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 Securities which conflict with actions taken with respect to
other Securities.
Definitive Securities will be issued to Owners only upon the events
specified in the related Agreement. Such events may include the following: (i)
the Seller advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Securities, and the Trustee or the Seller is unable to locate a qualified
successor, (ii) the Seller, at its option, elects to terminate the book-entry
system through DTC, or (iii) after the occurrence of an Event of Default
(defined herein), Securityholders representing not less than 50% of the
aggregate Current Principal Amount of the applicable Securities advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interest of the Securityholders. Upon the occurrence of any of the events
specified in the related Agreement, DTC will be required to notify all
Participants of the availability through DTC of Definitive Securities. Upon
surrender by DTC of the certificates or notes representing the Securities and
instruction for re-registration, the Trustee will issue the Securities 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 Certificates will be made by the Trustee
directly to Securityholders in accordance with the procedures set forth herein
and in the Agreement. The final distribution of any Security (whether Definitive
Securities or Securities registered in the name of Cede & Co.), however, will be
made only upon presentation and surrender of such Securities on the final
Distribution Date at such office or agency as is specified in the notice of
final payment to Securityholders.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
None of the Seller, the Master 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 Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
EXCHANGEABLE SECURITIES
GENERAL
Certain Series will provide for the issuance of one or more classes of
Exchangeable Securities. In any such Series, the holders of one or more
specified classes of Securities will be entitled, upon notice and payment to the
Trustee of an administrative fee, to exchange all or a portion of such classes
for proportionate interests in one or more related classes of Exchangeable
Securities, as provided in the relevant Prospectus Supplement. Similarly, the
holders of ES Classes will be entitled to exchange all or a portion of such ES
Classes for proportionate interests in the related classes of Securities and, if
so provided, in other related ES Classes. This process may be repeated again and
again. For this purpose, "related" classes are those within the same
"Combination" as described in the related Prospectus Supplement.
In general, the descriptions in this Prospectus of classes of Securities of
a Series also apply to the ES Classes of that Series, except where the context
requires otherwise. For example, the ES Classes of a Series and their related
classes of Securities are entitled to receive payments of principal and/or
interest, are issued in book-entry form or as Definitive Securities to
Securityholders in prescribed denominations, may be provided with credit
enhancements, and are subject to yield and prepayment considerations, in the
same manner and to the same extent as are the classes of Securities of such
Series. Similarly, the discussions under "ERISA Considerations" and "Legal
Investment" apply to Exchangeable Securities as well as Securities.
In each Series that includes Exchangeable Securities, the classes of
Securities shown on the cover page of the related Prospectus Supplement will be
issued and those classes that are to be subject to the exchange arrangements
will be deposited in a separate trust fund (an "Exchangeable Security Trust
Fund") established pursuant to a trust agreement between the Seller and a
trustee. The Trustee may serve as such trustee. The Exchangeable Security Trust
Fund will issue classes of securities that are identical in all respects to the
classes of Securities deposited in such trust fund (and consequently are
referred to herein as "Securities"). At any time after their issuance, including
immediately after such issuance, these classes of Securities may be exchanged,
in whole or in part, for classes of Exchangeable Securities. When an exchange is
effected, the Exchangeable Security Trust Fund will cancel the relevant portion
or portions of the class or classes of Securities that are being exchanged and
will issue the corresponding portion or portions of the class or classes of
Exchangeable Securities into which such class or classes of Securities are
exchangeable. Each Security and Exchangeable Security issued by an Exchangeable
Security Trust Fund will represent a beneficial ownership interest in the
related class or classes of Securities deposited in such trust fund or will
represent the debt obligations of such trust fund.
The maximum original principal (or notional principal) amount of each ES
Class within a Series represents the largest amount of that class that could be
supported by the related class or classes of Securities as of the date of their
original issuance.
EXCHANGES
Any exchange of related classes within a Series will be permitted, so long
as the following constraints are met:
Such classes must be exchanged in the applicable "exchange
proportions," if any, shown in the related Prospectus Supplement,
which, as described below, are based at all times on the original
principal amounts (or original notional principal amounts, if
applicable) of such classes.
The aggregate principal amount (rounded to whole dollars) of the
securities received in the exchange, immediately after the exchange,
must equal that of the securities surrendered for exchange immediately
before the exchange (for this purpose, the principal amount of any
interest only class always equals $0).
The aggregate "Annual Interest Amount" (rounded to whole dollars) of
the securities received in the exchange must equal that of the
securities surrendered for exchange (the "Annual Interest Amount" for
any security equals its outstanding principal amount or notional
principal amount multiplied by its Interest Rate or, in the case of a
floating rate, inverse floating rate or weighted average coupon class,
its original class Interest Rate).
Where "exchange proportions" are shown for classes that are exchangeable
for other classes, the Issuer will follow the convention of basing such
proportions on the original, rather than on the outstanding, principal or
notional principal amounts of such classes. If such classes receive principal
payments pro rata with each other, the exchange proportions also will apply to
their outstanding principal amounts. If such classes do not receive principal
payments pro rata with each other, an investor can calculate current exchange
proportions for such classes, based on their outstanding principal amounts, by
(i) multiplying the exchange proportion shown in the related Prospectus
Supplement for each such class by its current Class Factor (as defined herein)
and (ii) dividing each resulting percentage by the sum of such percentages. The
Trustee will include the Class Factor for each class of outstanding Securities
having a principal amount in the statements it furnishes to Securityholders in
connection with each Distribution Date. The current Class Factor also will be
available to Securityholders upon request from the Trustee or the Seller as
specified in the related Prospectus Supplement. The "Class Factor" for any month
will be a truncated seven-digit decimal which, when multiplied by the original
principal amount of that class, will equal its remaining principal amount, after
giving effect to any payment of (or addition to) principal to be made on the
Distribution Date in the following month. A Class Factor for each interest only
class having a notional principal amount will be included in the statements the
Trustee furnishes to Securityholders in connection with each Distribution Date
and also will be available to Securityholders upon request from the Trustee or
the Seller as specified in the related Prospectus Supplement. Such a Class
Factor will reflect the remaining notional principal amount of the interest only
class in an analogous manner.
Example: Class A-1 and Class A-2, which together are exchangeable for an ES
Class, have equal original principal amounts and therefore have exchange
proportions of 50% and 50%. However, they receive principal payments in
alphabetical order, so that no principal payment is made on Class A-2 until
Class A-1 has been retired. If the current Class Factors are 0.6000000 for
Class A-1 and 1.0000000 for Class A-2, their exchange proportions, based on
their current outstanding principal amounts, would be calculated as
follows:
Step (i):
Class A-1: 50% X 0.6000000 = 30%
Class A-2: 50% X 1.0000000 = 50%
Step (ii):
Class A-1: 30% / (30% + 50%) = 37.5%
Class A-2: 50% / (30% + 50%) = 62.5%
A permitted exchange might include $375,000 outstanding principal
amount of Class A-1 and $625,000 outstanding principal amount of Class
A-2 (equivalent to $625,000 original principal amount of Class A-1 and
$625,000 original principal amount of Class A-2). If Class A-1 has
been retired, its current exchange proportion would be 0%, that of
Class A-2 would be 100%, and only Class A-2 would be included in the
exchange.
Within a particular Series, one or more types of Combinations may exist.
For example, a class of Securities of the Series with an Interest Rate that
varies directly with changes in an index (a "Floating Rate Class") and a class
of Securities of the Series with an Interest Rate that varies inversely with
changes in an index (an "Inverse Floating Rate Class") may be exchangeable for a
class of Exchangeable Securities of the Series with a fixed Interest Rate. Under
another Combination, a class of Securities of the Series that is a principal
only class and a class of Securities of the Series that is an interest only
class may be exchangeable for a class of Exchangeable Securities of the Series
that pays both principal and interest. Further, a class of Securities of the
Series that accretes all of its interest for a period (such accreted interest
being added to the principal of such class) (an "Accrual Class") and a class of
Securities of the Series that receives principal payments from such accretions
on the Accrual Class may be exchangeable for a class of Exchangeable Securities
of the Series that receives payments of principal continuously from the first
Distribution Date on which it receives principal until it is retired. Under
another Combination, a class of Securities of the Series that is designed to
receive principal payments in accordance with a predetermined schedule derived
by assuming two constant prepayment rates for the underlying Mortgage Loans ( a
"Planned Amortization Class") and a class of Securities of the Series that
receives principal payments on any Distribution Date only if scheduled payments
have been made on the Planned Amortization Class may be exchangeable for a class
of Exchangeable Securities of the Series that receives payments of principal
continuously from the first Distribution Date on which it receives principal
until it is retired and that also receives a coupon. The foregoing examples
describe only some of the Combinations that are possible. Additional examples
are set forth below.
In some cases two or more classes of Securities may be exchangeable for a
single class of Exchangeable Securities, and vice versa. The following
illustrates such a Combination in which Securities of a principal only class and
Securities of an interest bearing class are exchanged for Exchangeable
Securities of a class that has the aggregate characteristics of the two original
classes of Securities:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $20,000,000 50% 10% ES-1 $40,000,000 100% 5%
P* 20,000,000 50 0
</TABLE>
--------------
* Class P is a principal only class and will receive no interest.
The following example illustrates a Combination of a Floating Rate Class
and an Inverse Floating Rate Class which are exchangeable for a class of
Exchangeable Securities with a fixed interest rate:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C> <C> <C>
A-2 $9,333,330 82.352936% LIBOR+ 0.75% ES-2 $11,333,330 100% 7%
A-3 2,000,000 17.647064% 36.16666 -
(LIBOR x
4.666667)
</TABLE>
In some cases one class of Securities may be exchangeable for two or more
classes of Exchangeable Securities, and vice versa. The following illustrates
such a Combination:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM ORIGINAL
ORIGINAL PRINCIPAL OR
PRINCIPAL EXCHANGE INTEREST NOTIONAL PRINCIPAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C> <C>
A-1 $20,000,000 100% 10% ES-P* $20,000,000 100% 0%
ES-X** 20,000,000 (notional) *** 10
</TABLE>
--------------
* Class EX-P is a principal only class and will receive no interest.
** Class ES-X is an interest only class and will receive no principal.
*** Not applicable. Notional principal amount of ES-X Class being exchanged
equals principal amount of ES-P Class being exchanged.
Finally, in some cases a class or classes of Securities may be exchangeable
for various combinations of "ratio-stripping" ES Classes, and such ES Classes
may be exchangeable for Securities or for other ES Classes. In such cases,
subject to the constraints listed above, numerous subcombinations are permitted.
The following illustrates a "ratio-stripping" Combination:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
ORIGINAL MAXIMUM ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL OR NOTIONAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS PRINCIPAL AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C>
A-4 $20,000,000 100% 7.00% ES-X* $20,000,000 (notional) N/A 7.00%
ES-3 20,000,000 N/A 6.00
ES-4 20,000,000 N/A 6.25
ES-5 20,000,000 N/A 6.50
ES-6 20,000,000 N/A 6.75
ES-7 19,310,344 N/A 7.25
ES-8 18,666,666 N/A 7.50
ES-9 18,064,516 N/A 7.75
ES-10 17,500,000 N/A 8.00
ES-P** 20,000,000 N/A 0.00
</TABLE>
--------------
* Class ES-X is an interest only class and will receive no principal.
** Class ES-P is a principal only class and will receive no interest.
The foregoing table shows the maximum amount of each ES Class that can be
created from the related Security. Such amounts could not exist concurrently, as
any combination is limited to the amount of principal and interest distributable
on the related Security to be exchanged. One method of calculating the maximum
amount that can be created in a specific combination is to determine the Annual
Interest Amount applicable to the Security to be exchanged, and divide such
interest amount by the coupon of the desired Exchangeable Security. The
resulting principal amount can in no case be greater than the principal amount
of Securities to be exchanged. For example, using the foregoing table, if Class
ES-8 is desired, the maximum original principal amount of the Class ES-8
Exchangeable Securities that could be created would be $18,666,666, an amount
arrived at by dividing the Annual Interest Amount of the Class A-4 Securities
($1,400,000) by the Interest Rate of the Class ES-8 Exchangeable Securities
(7.50%). Since all of the available Annual Interest Amount with respect to the
Class A-4 Securities would be used to create the Class ES-8 Exchangeable
Securities, principal only Class ES-P Exchangeable Securities would be created
to receive the remainder of the Class A-4 principal in the amount of $1,333,334
(calculated by subtracting the Class ES-8 Exchangeable Securities original
principal amount from the Class A-4 Securities original principal amount).
Similarly, if Class ES-5 Exchangeable Securities are desired, dividing the
Annual Interest Amount of the Class A-4 Securities ($1,400,000) by the Interest
Rate of the Class ES-5 Exchangeable Securities (6.50%) would indicate an
original principal amount of $21,538,461. However, since the Class A-4
Securities have a principal balance of $20,000,000, only $20,000,000 of the
Class ES-5 Exchangeable Securities could be created. The Annual Interest Amount
applicable to the Class ES-5 Exchangeable Securities would be $20,000,000
multiplied by 6.50% or $1,300,000. Since the Annual Interest Amount of the Class
A-4 Securities is $1,400,000, the interest only Class ES-X Exchangeable
Securities would be created to receive the remaining $100,000 of interest. The
notional amount of such securities would be calculated by dividing the Annual
Interest Amount ($100,000) by the Interest Rate applicable to Class ES-X
Exchangeable Securities (7.00%) to determine the notional amount ($1,428,571).
Within this Combination, a Securityholder could, for example, exchange any
one of the first four subcombinations of classes shown in the following table
for any other such subcombination, or any one of the last three subcombinations
shown for any other such subcombination. Numerous other subcombinations are
possible.
SUBCOMBINATIONS
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL OR ANNUAL
SUBCOMBINATION CLASS NOTIONAL PRINCIPAL AMOUNT INTEREST RATE INTEREST AMOUNT
- -------------- ----- ------------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
1 A-4 $20,000,000 7.00% $1,400,000
2 ES-X $20,000,000 (notional) 7.00% $1,400,000
ES-P 20,000,000 0.00 0
---------- ---------
$20,000,000 $1,400,000
=========== ==========
3 ES-X $ 2,857,142 (notional) 7.00% $ 200,000
ES-3 20,000,000 6.00 1,200,000
------------ ----------
$20,000,000 $1,400,000
=========== ==========
4 ES-4 $ 3,200,000 6.25% $ 200,000
ES-10 15,000,000 8.00 1,200,000
ES-P ___1,800,000 0.00 0
--------- ---------
$20,000,000 $ 1,400,000
=========== ===========
5 ES-8 $ 10,000,000
ES-5 __10,000,000
$20,000,000 7.50% $750,000
===========
6.50% 650,000
---------
$1,400,000
6 ES-8 $ 17,500,000 8.00% $1,400,000
ES-P 2,500,000 0.00 __ 0
---------------- -----------
$ 20,000,000 $1,400,000
============== ==========
7 ES-3 $ 10,000,000 6.00% $600,000
ES-4 10,000,000 6.25 625,000
ES-X 2,500,000 (notional) 7.00 175,000
-------------- ---------
$ 20,000,000 $1,400,000
============ ==========
</TABLE>
The foregoing examples set forth various combinations and subcombinations
of Securities and Exchangeable Securities which differ in interest
characteristics (i.e., interest only classes, principal only classes and coupon
paying classes). A Securityholder may also exchange its Securities for
Exchangeable Securities that have different principal payment characteristics.
For example, an exchange of two or more classes of Securities for a single class
of Exchangeable Securities may result in an Exchangeable Security with the
aggregate principal payment characteristics of the multiple classes of
Securities for which it was exchanged.
In addition, Exchangeable Securities may be created that combine Securities
with different credit characteristics. For example, a class that is senior in
priority of payment may be combined with a subordinated class, to create a new
class with the aggregate credit characteristics of the two classes of
Securities. The related Agreement will require that any such combination, to the
extent it results in an Exchangeable Security which is intended to be publicly
registered, be assigned a rating of BBB- or better by a nationaly recognized
statistical rating organization at the time such Securities are exchanged.
At any given time, a Securityholder's ability to exchange Securities for
Exchangeable Securities or to exchange Exchangeable Securities for Securities or
for different Exchangeable Securities will be limited by a number of factors. A
Securityholder must, at the time of the proposed exchange, own the appropriate
class or classes in the appropriate proportions in order to effect a desired
exchange. A Securityholder that does not own the appropriate class or classes or
the appropriate amounts of such class or classes may not be able to obtain the
necessary class or classes of Securities or Exchangeable Securities. The
Securityholder of a needed class may refuse or be unable to sell at a reasonable
price or at any price, or certain classes may have been purchased and placed
into other financial structures. ERISA or other transfer restrictions may apply
to certain of the Securities or Exchangeable Securities in a combination, but
not to others. In addition, principal payments and prepayments will, over time,
diminish the amounts available for exchange.
PROCEDURES
A Securityholder proposing to effectuate an exchange must notify the
Trustee through the [_________]. Such notice must be given in writing or by
telefax not later than five business days before the proposed exchange date
(which date, subject to the Trustee's approval, can be any business day other
than the first or last business day of the month) or as otherwise specified in
the related Prospectus Supplement. The notice must include the outstanding
principal (or notional principal) amount of both the securities to be exchanged
and the securities to be received, and the proposed exchange date. Promptly
after the receipt of a Securityholder's notice, the Trustee will telephone the
[_________] to provide instructions for delivering the securities and the
administrative fee to the Trustee by wire transfer. A Securityholder's notice
becomes irrevocable on the second business day before the proposed exchange date
or as otherwise specified in the related Prospectus Supplement.
An administrative fee will be payable to the Trustee in connection with
each exchange as specified in the related Prospectus Supplement. Any exchanges
will be subject to the rules, regulations and procedures applicable to DTC's
book-entry securities, in the case of ES Classes issued in book-entry form.
The first payment on a Security or an Exchangeable Security received in an
exchange transaction will be made on the Distribution Date in the month
following the month of the exchange or as specified in the related Prospectus
Supplement. Such payment will be made to the Securityholder of record as of the
applicable record date.
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 assets in the related Trust Fund.
Credit enhancement may be in the form of (i) the subordination of one or more
classes of the Securities of such Series, (ii) the use of a Pool Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, FHA Insurance, VA
Guarantees, Reserve Accounts, a letter of credit, a limited financial guaranty
insurance policy, other third party guarantees, interest rate or other swap
agreements, caps, collars or floors, 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. In general, any credit
enhancement will not provide protection against all risks of loss and generally
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 Current Principal Amounts 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 generally may be canceled or reduced by the Master Servicer
or the Seller if such cancellation or reduction would not adversely affect the
rating or ratings of the related Securities.
SUBORDINATION
If so specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
classes of Subordinated Securities of a Series will instead be payable to
holders of one or more classes of Senior Securities under the circumstances and
to the extent specified in the related Prospectus Supplement. If specified in
the related Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans will be borne first by
the various classes of Subordinated Securities and thereafter by the various
classes of Senior Securities, in each case under the circumstances and subject
to the limitations specified in the related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Loans over the
lives of the Securities or at any time, the aggregate losses in respect of
defaulted Mortgage Loans which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securityholders that will be distributable to
Senior Securityholders on any Distribution Date may be limited as specified in
the related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Loans or aggregate losses in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Securities or, if applicable, were to
exceed the specified maximum amount, holders of Senior Securities would
experience losses on such Securities.
In addition to or in lieu of the foregoing, if so specified in the related
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Securities on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee. If so
specified in the related Prospectus Supplement, such deposits may be made on
each Distribution Date, on each Distribution Date for specified periods or until
the balance in the Reserve Account has reached a specified amount and, following
payments from the Reserve Account to holders of Senior Securities 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 related 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 related Prospectus Supplement at the times and under
the circumstances specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the same class of
Securities may be Senior Securities with respect to certain types of payments or
certain types of losses or delinquencies and Subordinated Securities with
respect to other types of payment or types of losses or delinquencies. If
specified in the related Prospectus Supplement, various classes of Senior
Securities and Subordinated Securities may themselves be subordinate in their
right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross support mechanism or
otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to a Mortgage Pool of
Single Family Loans or Cooperative Loans, a separate Pool Insurance Policy will
be obtained for the Mortgage Pool and issued by the insurer (the "Pool Insurer")
named in such related Prospectus Supplement. Each Pool Insurance Policy will,
subject to the limitations described below, cover loss by reason of default in
payment on Single Family Loans or Cooperative Loans in the Mortgage Pool in an
amount specified in such Prospectus Supplement. As more fully described below,
the Master Servicer will present claims thereunder to the Pool Insurer on behalf
of itself, the Trustee and the holders of the Securities. 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. A Pool
Insurance Policy generally will not cover losses due to a failure to pay or
denial of a claim under a Primary Insurance Policy.
In general, each Pool Insurance Policy will provide that no claims may be
validly presented unless (i) any required Primary Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase the
Mortgaged Property at a price equal to the principal balance thereof plus
accrued and unpaid interest at the Mortgage Rate to the date of purchase and
certain expenses incurred by the Master Servicer on behalf of the Trustee and
Securityholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Insurance Policy. If any Mortgaged Property
securing a defaulted Mortgage Loan is damaged and proceeds, if any, from the
related hazard insurance policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged Mortgaged Property to a condition
sufficient to permit recovery under the Pool Insurance Policy, the Master
Servicer will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it determines that (i) such restoration will increase
the proceeds to Securityholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) such expenses
will be recoverable by it through proceeds of the sale of the Mortgaged Property
or proceeds of the related Pool Insurance Policy or any related Primary
Insurance Policy.
A Pool Insurance Policy generally will not insure (and many Primary
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 Prospectus supplement, an endorsement to the 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 related Lender's
representations described above and, in such event, might give rise to an
obligation on the part of such Lender to purchase the defaulted Mortgage Loan if
the breach cannot be cured by such Lender. No Pool Insurance Policy will cover
(and many Primary 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 Pool Insurance Policy generally
will be reduced over the life of the related Securities by the aggregate dollar
amount of claims paid less the aggregate of the net dollar amounts realized by
the Pool Insurer upon disposition of all foreclosed properties covered thereby.
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 Pool
Insurance Policy reach the original policy limit, coverage under that Pool
Insurance Policy will be exhausted and any further losses will be borne by 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 Mortgage 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 Agreements-Hazard
Insurance." Special Hazard Insurance Policies will not 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.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
Special Hazard Insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement and certain
expenses incurred by the Master Servicer with respect to such property. If the
unpaid principal balance of a Mortgage Loan plus accrued interest and certain
expenses is paid by the Special Hazard Insurer, the amount of further coverage
under the related Special Hazard Insurance Policy will be reduced by such amount
less any net proceeds from the sale of the property. Any amount paid as the cost
of repair of the property will further reduce coverage by such amount. So long
as a Pool Insurance Policy remains in effect, the payment by the Special Hazard
Insurer of the cost of repair or of the unpaid principal balance of the related
Mortgage Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Securityholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy.
Since each Special Hazard Insurance Policy generally will be designed to
permit full recovery under a Pool Insurance Policy relating to the Mortgage
Loans backing the Series of Securities 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 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.
To the extent specified in the related 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 a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of the
deposit to the special trust account in lieu thereof relating to such Securities
may be reduced so long as any such reduction will not result in a downgrading of
the rating of such Securities by any such rating agency.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a Bankruptcy Bond for
proceedings under the federal Bankruptcy Code will be issued by an insurer named
in such Prospectus Supplement. Each Bankruptcy Bond will cover certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition. The required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. To the extent specified
in an applicable Prospectus Supplement, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each
nationally recognized rating agency rating the Securities of the related Series
in the Trust Fund 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."
To the extent specified in the related 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 a special trust account to provide
protection in lieu of or in addition to that provided by a Bankruptcy Bond. The
amount of any Bankruptcy Bond or of the deposit to the special trust account in
lieu thereof relating to such Securities may be reduced so long as any such
reduction will not result in a downgrading of the rating of such Securities by
any such rating agency.
The terms of any Bankruptcy Bond relating to a pool of Contracts will be
described in the related Prospectus Supplement.
FHA INSURANCE; VA GUARANTEES
Single Family Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Mortgage Loans will be insured
under various FHA programs including the standard FHA 203(b) program to finance
the acquisition of one- to four-family housing units and the FHA 245 graduated
payment mortgage program. These programs generally limit the principal amount
and interest rates of the mortgage loans insured. Mortgage Loans insured by the
FHA generally require a minimum down payment of approximately 5% of the original
principal amount of the loan. No FHA-insured Mortgage Loan relating to a Series
may have an interest rate or original principal amount exceeding the applicable
FHA limits at the time of origination of such loan.
The insurance premiums for Mortgage Loans insured by the FHA are collected
by lenders approved by HUD or by the Master Servicer or any Sub-Servicers and
are paid to the FHA. The regulations governing FHA single-family mortgage
insurance programs provide that insurance benefits are payable either upon
foreclosure (or other acquisition of possession) and conveyance of the mortgaged
premises to HUD or upon assignment of the defaulted Mortgage Loan to HUD. With
respect to a defaulted FHA-insured Mortgage Loan, the Master Servicer or any
Sub-Servicer is limited in its ability to initiate foreclosure proceedings. When
it is determined, either by the Master Servicer or any Sub-Servicer or HUD, that
default was caused by circumstances beyond the mortgagor's control, the Master
Servicer or any Sub-Servicer is expected to make an effort to avoid foreclosure
by entering, if feasible, into one of a number of available forms of forbearance
plans with the mortgagor. Such plans may involve the reduction or suspension of
regular mortgage payments for a specified period, with such payments to be made
up on or before the maturity date of the mortgage, or the recasting of payments
due under the mortgage up to or beyond the maturity date. In addition, when a
default caused by such circumstances is accompanied by certain other criteria,
HUD may provide relief by making payments to the Master Servicer or any
Sub-Servicer in partial or full satisfaction of amounts due under the Mortgage
Loan (which payments are to be repaid by the mortgagor to HUD) or by accepting
assignment of the loan from the Master Servicer or any Sub-Servicer. With
certain exceptions, at least three full monthly installments must be due and
unpaid under the Mortgage Loan, and HUD must have rejected any request for
relief from the mortgagor before the Master Servicer or any Sub-Servicer may
initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such debenture
issued in satisfaction of such Mortgage Loan upon default for an amount equal to
the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or Sub-Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Single Family Loan,
bears interest from a date 30 days after the mortgagor's first uncorrected
failure to perform any obligation to make any payment due under the Mortgage
and, upon assignment, from the date of assignment, to the date of payment of the
claim, in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
Mortgage Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended. The Serviceman's Readjustment
Act of 1944, as amended, permits a veteran (or in certain instances the spouse
of a veteran) to obtain a mortgage loan guarantee by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no Mortgage Loan guaranteed by the VA will
have an original principal amount greater than five times the partial VA
guarantee for such Mortgage Loan.
The maximum guarantee that may be issued by the VA under a VA-guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 3703(a), as amended. As of
April, 1998, the maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $50,750. The liability on the
guarantee is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guarantee
exceed the amount of the original guarantee. The VA may, at its option and
without regard to the guarantee, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA-guaranteed Single Family Loan, the Master
Servicer or Sub-Servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guarantee is submitted after
liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guarantee will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of the Mortgaged Property. The amount payable under the guarantee
may in no event exceed the amount of the original guarantee.
FHA INSURANCE ON MULTIFAMILY LOANS
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to
insure mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for co-insurance of such mortgage loans made under Sections 221(d)(3)
and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the term of such
a mortgage loan may be up to 40 years and the ratio of loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans made
for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, a dollar amount per apartment unit established from time to time by
HUD or, at the discretion of the Secretary of HUD, 25% of the value of the
property. In general the loan term may not exceed 35 years and a loan to value
ratio of no more than 85% is required for the purchase of a project and 70% for
the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. Such insurance does not cover 100% of the mortgage
loan but is instead subject to certain deductions and certain losses of interest
from the date of the default.
RESERVE AND OTHER ACCOUNTS
If specified in the related Prospectus Supplement, cash, U.S. Treasury or
comparable securities, instruments evidencing ownership of principal or interest
payments thereon, demand notes, certificates of deposit or a combination thereof
in the aggregate amount specified in the related Prospectus Supplement will be
deposited by the Master Servicer or Seller on the date specified in the related
Prospectus Supplement with the Trustee or in one or more Reserve Accounts
established with the Trustee. Such cash and the principal and interest payments
on such other instruments will be used to pay, or to enhance the likelihood of
timely payment of, principal of, and interest on, or, if so specified in the
related Prospectus Supplement, to provide additional protection against losses
in respect of, the assets of the related Trust Fund, to pay the expenses of the
Trust Fund or for such other purposes specified in the related Prospectus
Supplement. Whether or not the Master Servicer or Seller has any obligation to
make such a deposit, certain amounts to which the Subordinated Securityholders,
if any, will otherwise be entitled may instead be deposited into a Reserve
Account from time to time and in the amounts as specified in the related
Prospectus Supplement. Any cash in the Reserve Account and the proceeds of any
other instrument upon maturity 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"). Instruments held by the Trustee and/or
deposited in the Reserve Account generally will name the Trustee, in its
capacity as trustee for the holders of the Securities, as beneficiary and
generally will be issued by an entity acceptable to the applicable Rating
Agency. Additional information with respect to such instruments will be set
forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for distribution to the holders of Securities for the purposes, in the
manner and at the times specified in the related Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may include
in lieu of some or all of the foregoing or in addition thereto letters of
credit, financial guaranty insurance policies, third party guarantees, U.S.
Government Securities and other arrangements for providing for or maintaining
timely payments or providing additional protection against losses on the assets
included in such Trust Fund, paying administrative expenses, or accomplishing
such other purpose as may be described in the related Prospectus Supplement. The
Trust Fund 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 Fund may
include an interest rate swap contract, an interest rate cap agreement or
similar contract providing limited protection against interest rate risks.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund 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 Fund. The
Prospectus Supplement for a Series which includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
separate Trust Fund. If applicable, the related Prospectus Supplement will
identify the Trust Fund to which such credit support relates and the manner of
determining the amount of the coverage provided hereby and of the application of
such coverage to the identified Trust Fund.
YIELD AND PREPAYMENT 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 Trust Funds, the allocation of available funds to various Classes of
Securities, the Interest Rate for various Classes of Securities and the purchase
price paid for the Securities.
The original terms to maturity of the Mortgage Loans in a given Mortgage
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 Mortgage Pool. Single Family
Loans, Cooperative Loans and Contracts generally may be prepaid without penalty
in full or in part at any time. Multifamily Loans may prohibit prepayment for a
specified period after origination, may prohibit partial prepayments entirely,
and may require the payment of a prepayment penalty upon prepayment in full or
in part.
Conventional Single Family Loans, Cooperative 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 mortgagor or obligor of the underlying Mortgaged
Property. As described in the related Prospectus Supplement, conventional
Multifamily Loans may contain due-on-sale provisions, due-on-encumbrance
provisions, or both. Mortgage Loans insured by the FHA, and Single Family Loans
and Contracts partially guaranteed by the VA, are assumable with the consent of
the FHA and the VA, respectively. Thus, the rate of prepayments on such Mortgage
Loans may be lower than that of conventional Mortgage Loans bearing comparable
interest rates. Unless otherwise provided in the related Prospectus Supplement,
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 Agreements-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.
When a full prepayment is made on a Single Family Loan or Cooperative Loan,
the Mortgagor is 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. Similarly, upon liquidation
of a Mortgage Loan, interest accrues on the principal amount of the Mortgage
Loan only for the number of days in the month actually elapsed up to the date of
liquidation rather than for a full month. The effect of prepayments in full and
liquidations generally will be to reduce the amount of interest passed through
in the following month to holders of Securities because interest on the
principal amount of any Mortgage Loan so prepaid will be paid only to the date
of prepayment or liquidation. In connection with certain Series, as described in
the related Prospectus Supplement, the Master Servicer or a Lender will be
required to use some or all of its servicing compensation to pay compensating
interest to cover such shortfalls. Interest shortfalls also could result from
the application of the Solders' and Sailors' Civil Relief Act of 1940, as
amended, as described under "Certain Legal Aspects of the Mortgage
Loans-Soldiers' and Sailors' Civil Relief Act" herein. Partial prepayments in a
given month may be applied to the outstanding principal balances of the Mortgage
Loans so prepaid on the first day of the month of receipt or the month following
receipt. In the latter case, partial prepayments will not reduce the amount of
interest passed through in such month. Prepayment penalties collected with
respect to Multifamily Loans will be distributed to the holders of Securities,
or to other persons entitled thereto, as described in the related Prospectus
Supplement.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or a FASIT or another person specified in the
related Prospectus Supplement may have the option to purchase the assets of a
Trust Fund, thereby effecting earlier retirement of the related Series of
Securities. See "The Agreements-Termination; Optional Termination." The yield to
investors in a Callable Class will depend on whether and, if so, when a
redemption of such Securities occurs.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, such
Mortgage Loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above such Mortgage Rates. Conversely, if
prevailing interest rates rise appreciably above the Mortgage Rates borne by the
Mortgage Loans, such Mortgage Loans are likely to experience a lower prepayment
rate than if prevailing rates remain at or below such Mortgage Rates. However,
there can be no assurance that such will be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayment on Single Family
Loans, Cooperative Loans and Contracts may be affected by changes in a
mortgagor's housing needs, job transfers, unemployment, a borrower's net equity
in the mortgage properties, the enforcement of due-on-sale clauses and other
servicing decisions. Adjustable rate mortgage loans, bi-weekly mortgage loans,
graduated payment mortgage loans, growing equity mortgage loans, reverse
mortgage loans, buy-down mortgage loans and mortgage loans with other
characteristics may experience a rate of principal prepayments which is
different from that of fixed rate, monthly pay, fully amortizing mortgage loans.
The rate of prepayment on Multifamily Loans may be affected by other factors,
including Mortgage Loan terms (E.G., the existence of lockout periods,
due-on-sale and due-on-encumbrance clauses and prepayment penalties), relative
economic conditions in the area where the Mortgaged Properties are located, the
quality of management of the Mortgaged Properties and the relative tax benefits
associated with the ownership of income-producing real property.
The timing of payments on the Mortgage Assets may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Mortgage Assets, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Securities will not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments.
The effective yield to Securityholders generally will be slightly lower
than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price, because while interest generally will accrue on each Mortgage
Loan from the first day of the month, the distribution of such interest will not
be made earlier than a specified date in the month following the month of
accrual.
In the case of any Securities purchased at a discount, a slower than
anticipated rate of principal payments could result in an actual yield that is
lower than the anticipated yield. In the case of any Securities purchased at a
premium, a faster than anticipated rate of principal payments could result in an
actual yield that is lower than the anticipated yield. A discount or premium
would be determined in relation to the price at which a Security will yield its
Interest Rate, after giving effect to any payment delay.
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 relative contribution of the various factors
affecting prepayment may also vary from time to time. There can be no assurance
as to the rate of payment of principal of the Mortgage Assets at any time or
over the lives 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 (including, but not limited to, any Exchangeable Securities in
such Series).
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. Concurrently with the assignment of the Trust Assets to the related
Trust Fund, the Trustee will execute and deliver the Securities.
ASSIGNMENT OF MORTGAGE ASSETS
ASSIGNMENT OF THE MORTGAGE LOANS. At the time of issuance of the Securities
of a Series, the Seller will cause the Mortgage Loans comprising the Trust Fund
to be sold and assigned to the Trustee, together with all principal and interest
received by or on behalf of the Seller on or with respect to such Mortgage Loans
after the Cut-off Date, other than principal and interest due on or before the
Cut-off Date and other than any Retained Interest specified in the related
Prospectus Supplement. If Notes are issued in a Series, such assets will be
pledged to the Trustee pursuant to the terms of the Indenture. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Mortgage Loan after application of payments due on the
Cut-off Date, as well as information regarding the Mortgage Rate or APR, the
current scheduled monthly payment of principal and interest, the maturity of the
loan, the Loan-to-Value Ratio at origination and certain other information.
In addition, the Seller generally will deliver or cause to be delivered to
the Trustee (or to the custodian hereinafter referred to) as to each Mortgage
Loan, among other things, (i) the mortgage note or Contract endorsed without
recourse in blank or to the order of the Trustee, (ii) in the case of Single
Family Loans or Multifamily Loans, the mortgage, deed of trust or similar
instrument (a "Mortgage") with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Seller will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was or will be
delivered to such recording office), (iii) an assignment of the Mortgage or
Contract to the Trustee, which assignment will be in recordable form in the case
of a Mortgage assignment, and (iv) such other security documents as may be
specified in the related Prospectus Supplement. In the case of Single Family
Loans or Multifamily Loans, the Seller or Master Servicer generally will
promptly cause the assignments of the related Mortgage Loans to be recorded in
the appropriate public office for real property records, except in the
discretion of the Seller in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such loans against the claim of any subsequent transferee
or any successor to or creditor of the Seller or the originator of such loans.
In the case of Contracts, the Seller or Master Servicer generally will promptly
make or cause to be made an appropriate filing of a UCC-1 financing statement in
the appropriate states to give notice of the Trustee's ownership of the
Contracts.
With respect to any Mortgage Loans which are Cooperative Loans, the Seller
will cause to be delivered to the Trustee (or to the custodian hereinafter
referred to), the related original cooperative note endorsed without recourse in
blank or to the order of the Trustee, the original security agreement, the
proprietary lease or occupancy agreement, the recognition agreement, an executed
financing agreement and the relevant stock certificate and related blank stock
powers. The Seller will cause to be filed in the appropriate office an
assignment and a financing statement evidencing the Trustee's security interest
in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold such
documents in trust for the benefit of the Securityholders. In general, if any
such document is found to be missing or defective in any material respect, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Seller or in certain circumstances the related Lender, or the Master
Servicer will notify the related Lender. If the Lender or an entity which sold
the Mortgage Loan to the Lender cannot cure the omission or defect within 60
days after receipt of such notice (or such other period as is specified in the
related Prospectus Supplement), the Lender or such entity generally will be
obligated to purchase the related Mortgage Loan from the Trustee at the Purchase
Price. There can be no assurance that a Lender or such entity will fulfill this
purchase obligation. Although the Master Servicer may be obligated to enforce
such obligation to the extent described above under "The Mortgage
Loans-Representations by Lenders; Repurchases," neither the Master Servicer nor
the Seller will be obligated to purchase such Mortgage Loan if the Lender or
such entity defaults on its purchase obligation, unless such breach also
constitutes a breach of the representations or warranties of the Master Servicer
or the Seller, as the case may be. This purchase obligation generally will
constitute the sole remedy available to the Securityholders or the Trustee for
omission of, or a material defect in, a constituent document. Certain rights of
substitution for defective Mortgage Loans may be provided with respect to a
Series in the related Prospectus Supplement.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
ASSIGNMENT OF AGENCY SECURITIES. The Seller will cause Agency Securities to
be registered in the name of the Trustee or its nominee. Each Agency Security
will be identified in a schedule appearing as an exhibit to the Agreement, which
will specify as to each Agency Security the original principal amount and
outstanding principal balance as of the Cut-off Date, the annual pass-through
rate (if any) and the maturity date.
ASSIGNMENT OF PRIVATE MORTGAGE-BACKED SECURITIES. The Seller will cause
Private Mortgage-Backed Securities to be registered in the name of the Trustee
on behalf of the Trust Fund. The Trustee (or the custodian) will have possession
of any certificated Private Mortgage-Backed Securities. The Trustee generally
will not be in possession of or be assignee of record of any underlying assets
for a Private Mortgage-Backed Security. See "The Trust Fund-Private
Mortgage-Backed Securities" herein. Each Private Mortgage-Backed Security will
be identified in a schedule appearing as an exhibit to the related Agreement
which will specify the original principal amount, outstanding principal balance
as of the Cut-off Date, annual pass-through rate or interest rate and maturity
date for each Private Mortgage-Backed Security conveyed to the Trustee.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO ACCOUNTS
In general, each Master Servicer and Sub-Servicer servicing the Mortgage
Loans will be required to establish and maintain for one or more Series of
Securities a separate account or accounts for the collection of payments on the
related Mortgage Loans (the "Protected Account"), which must be either (i)
maintained with a depository institution the debt obligations of which (or in
the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of such holding company) are rated in one of
the two highest rating categories by each Rating Agency rating the Series of
Securities, (ii) an account or accounts the deposits in which are fully insured
by the FDIC, (iii) an account or accounts the deposits in which are insured by
the FDIC (to the limits established by the FDIC), and the uninsured deposits in
which are invested in Permitted Investments held in the name of the Trustee, or
(iv) an account or accounts otherwise acceptable to each Rating Agency. A
Protected Account may be maintained as an interest bearing account or the funds
held therein may be invested pending each succeeding Distribution Date in
Permitted Investments. The related Master Servicer or Sub-Servicer or its
designee or another person specified in the Prospectus supplement will be
entitled to receive any such interest or other income earned on funds in the
Protected Account as additional compensation and will be obligated to deposit or
deliver for deposit in the Protected Account the amount of any loss immediately
as realized. The Protected Account may be maintained with the Master Servicer or
Sub-Servicer or with a depository institution that is an affiliate of the Master
Servicer or Sub-Servicer, provided it meets the standards set forth above.
Each Master Servicer and Sub-Servicer generally will be required to deposit
or cause to be deposited in the Protected Account for each Trust Fund on a daily
basis the following payments and collections received or advances made by or on
behalf of it subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date and exclusive of any amounts representing Retained
Interest):
(i) all payments on account of principal, including Principal Prepayments
and, if specified in the related Prospectus Supplement, prepayment penalties, on
the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) to the extent specified in the related Agreement, all proceeds (net
of unreimbursed payments of property taxes, insurance premiums and similar items
("Insured Expenses") incurred, and unreimbursed advances made, by the related
Master Servicer or Sub-Servicer, if any) of the title insurance policies, the
hazard insurance policies and any Primary Insurance Policies, to the extent such
proceeds are not applied to the restoration of the property or released to the
Mortgagor in accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts (net of
unreimbursed expenses incurred in connection with liquidation or foreclosure
("Liquidation Expenses") and unreimbursed advances made, by the related Master
Servicer or Sub-Servicer, if any) received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds"), together with any net proceeds received with respect
to any properties acquired on behalf of the Securityholders by foreclosure or
deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased as described under "The Mortgage Loans-Representations by Lenders;
Repurchases" or "-Assignment of Mortgage Assets" above;
(v) all payments required to be deposited in the Protected Account with
respect to any deductible clause in any blanket insurance policy described under
"-Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer or
Sub-Servicer in connection with losses realized on investments for the benefit
of the Master Servicer or Sub-Servicer of funds held in any Accounts; and
(vii) all other amounts required to be deposited in the Protected Account
pursuant to the Agreement.
If acceptable to each Rating Agency rating the Series of Securities, a
Protected Account maintained by a Master Servicer or Sub-Servicer may commingle
funds from the Mortgage Loans deposited in the Trust Fund with similar funds
relating to other mortgage loans which are serviced or owned by the Master
Servicer or Sub-Servicer. The Agreement may require that certain payments
related to the Mortgage Assets be transferred from a Protected Account
maintained by a Master Servicer or Sub-Servicer into another account maintained
under conditions acceptable to each Rating Agency.
The Trustee will be required to establish in its name as Trustee for one or
more Series of Securities a trust account or another account acceptable to each
Rating Agency (the "Securities Account"). The Securities Account may be
maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Permitted Investments. If
there is more than one Master Servicer for the rated Series of Securities, there
may be a separate Securities Account or a separate subaccount in a single
Securities Account for funds received from each Master Servicer. The related
Master Servicer or its designee or another person specified in the related
Prospectus Supplement may be entitled to receive any interest or other income
earned on funds in the Securities Account or subaccount of the Securities
Account as additional compensation and, if so entitled, will be obligated to
deposit or deliver for deposit in the Securities Account or subaccount the
amount of any loss immediately as realized. The Trustee will be required to
deposit into the Securities Account on the business day received all funds
received from the Master Servicer for deposit into the Securities Account and
any other amounts required to be deposited into the Securities Account pursuant
to the Agreement. In addition to other purposes specified in the Agreement, the
Trustee will be required to make withdrawals from the Securities Account to make
distributions to Securityholders. If the Series includes one Trust Fund which
contains a beneficial ownership interest in another Trust Fund, funds from the
Trust Assets may be withdrawn from the Securities Account included in the latter
Trust Fund and deposited into another Account included in the former Trust Fund
prior to transmittal to Securityholders with a beneficial ownership interest in
the former Trust Fund. If specified in the related Prospectus Supplement, the
Protected Account and the Securities Account may be combined into a single
Securities Account. With respect to a Series backed by Agency Securities and/or
Private Mortgage-Backed Securities there would only be one or more Securities
Accounts.
SUB-SERVICING BY LENDERS
Each Lender with respect to a Mortgage Loan or any other servicing entity
may act as the Master Servicer or the Sub-Servicer for such Mortgage Loan
pursuant to an agreement (each, a "Sub-Servicing Agreement"), which will not
contain any terms inconsistent with the related Agreement. While in general each
Sub-Servicing Agreement will be a contract solely between the Master Servicer
and the Sub-Servicer, the Agreement pursuant to which a Series of Securities is
issued will provide that, if for any reason the Master Servicer for such Series
of Securities is no longer the Master Servicer of the related Mortgage Loans,
the Trustee or any successor Master Servicer must recognize the Sub-Servicer's
rights and obligations under such Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate its
servicing obligations to third-party servicers. Such Sub-Servicer will remain
obligated, or will be released from its obligations, under the related
Sub-Servicing Agreement, as provided in the related Prospectus Supplement. Each
Sub-Servicer will be required to perform the customary functions of a servicer
of mortgage loans. Such functions generally include collecting payments from
mortgagors or obligors and remitting such collections to the Master Servicer;
maintaining hazard insurance policies as described herein and in the related
Prospectus Supplement, and filing and settling claims thereunder, subject in
certain cases to the right of the Master Servicer to approve in advance any such
settlement; maintaining escrow or impound accounts of mortgagors or obligors for
payment of taxes, insurance and other items required to be paid by the mortgagor
or obligor pursuant to the related Mortgage Loan; processing assumptions or
substitutions, although the Master Servicer is generally required to exercise
due-on-sale clauses to the extent such exercise is permitted by law and would
not adversely affect insurance coverage; attempting to cure delinquencies;
supervising foreclosures; inspecting and managing Mortgaged Properties under
certain circumstances; maintaining accounting records relating to the Mortgage
Loans; and, to the extent specified in the related Prospectus Supplement,
maintaining additional insurance policies or credit support instruments and
filing and settling claims thereunder. A Sub-Servicer will also be obligated to
make advances in respect of delinquent installments of principal and interest on
Mortgage Loans, as described more fully above under "-Payments on Mortgage
Loans; Deposits to Accounts," and in respect of certain taxes and insurance
premiums not paid on a timely basis by mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on the
related Mortgage Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer will generally be entitled to collect
and retain, as part of its servicing compensation, any prepayment or late
charges provided in the mortgage note or related instruments. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under the Agreement. The Master Servicer may purchase the servicing of Mortgage
Loans if the Sub-Servicer elects to release the servicing of such Mortgage Loans
to the Master Servicer. See "-Servicing and Other Compensation and Payment of
Expenses."
Each Sub-Servicer may be required to agree to indemnify the Master Servicer
for any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Sub-Servicer in its servicing capacity.
Each Sub-Servicer will be required to maintain a fidelity bond and an errors and
omissions policy with respect to its officers, employees and other persons
acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan pursuant
to the terms of the Sub-Servicing Agreement for the entire term of such Mortgage
Loan, unless the Sub-Servicing Agreement is earlier terminated by the Master
Servicer or unless servicing is released to the Master Servicer. The Master
Servicer generally may terminate a Sub-Servicing Agreement without cause, upon
written notice to the Sub-Servicer.
The Master Servicer may agree with a Sub-Servicer to amend a Sub-Servicing
Agreement or, upon termination of the Sub-Servicing Agreement, the Master
Servicer may act as servicer of the related Mortgage Loans or enter into new
Sub-Servicing Agreements with other sub-servicers. If the Master Servicer acts
as servicer, it will not assume liability for the representations and warranties
of the Sub-Servicer which it replaces. Each Sub-Servicer must be a Lender or
meet the standards for becoming a Lender or have such servicing experience as to
be otherwise satisfactory to the Master Servicer and the Seller. The Master
Servicer will make reasonable efforts to have the new Sub-Servicer assume
liability for the representations and warranties of the terminated Sub-Servicer,
but no assurance can be given that such an assumption will occur. In the event
of such an assumption, the Master Servicer may in the exercise of its business
judgment release the terminated Sub-Servicer from liability in respect of such
representations and warranties. Any amendments to a Sub-Servicing Agreement or
new Sub-Servicing Agreements may contain provisions different from those which
are in effect in the original Sub-Servicing Agreement. However, each Agreement
will provide that any such amendment or new agreement may not be inconsistent
with or violate such Agreement.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Mortgage
Loans and will, consistent with each Agreement and any Pool Insurance Policy,
Primary Insurance Policy, FHA Insurance, VA Guaranty, Special Hazard Insurance
Policy, Bankruptcy Bond or alternative arrangements, follow such collection
procedures as are customary with respect to mortgage loans that are comparable
to the Mortgage Loans. Consistent with the above, the Master Servicer may, in
its discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with the
coverage of such Mortgage Loan by a Pool Insurance Policy, Primary Insurance
Policy, FHA Insurance, VA Guaranty, Special Hazard Insurance Policy, Bankruptcy
Bond or alternative arrangements, if applicable, arrange with a Mortgagor a
schedule for the liquidation of delinquencies running for no more than 125 days
after the applicable due date for each payment or such other period as is
specified in the Agreement. Both the Sub-Servicer and the Master Servicer remain
obligated to make advances during any period of such an arrangement.
In any case in which property securing a conventional Mortgage Loan has
been, or is about to be, conveyed by the mortgagor or obligor, the Master
Servicer generally will, to the extent it has knowledge of such conveyance or
proposed conveyance, exercise or cause to be exercised its rights to accelerate
the maturity of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by applicable law
and will not impair or threaten to impair any recovery under any related Primary
Insurance Policy. If these conditions are not met or if such Mortgage Loan is
insured by the FHA or partially guaranteed by the VA, the Master Servicer will
enter into or cause to be entered 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 for repayment of the Mortgage Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon; provided, however, that the Master Servicer will not enter into such an
agreement if it would jeopardize the tax status of the Trust Fund. Any fee
collected by or on behalf of the Master Servicer for entering into an assumption
agreement will be retained by or on behalf of the Master Servicer as additional
servicing compensation. In the case of Multifamily Loans, the Master Servicer
generally will agree to exercise any right it may have to accelerate the
maturity of a Multifamily Loan to the extent it has knowledge of any further
encumbrance of the related Mortgaged Property effected in violation of any
due-on-encumbrance clause applicable thereto. See "Certain Legal Aspects of the
Mortgage Loans--Due-on-Sale Clauses." In connection with any such assumption,
the terms of the related Mortgage Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Loans." This approval is usually based on the purchaser's income and
net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
HAZARD INSURANCE
The Master Servicer will require the mortgagor or obligor on each Single
Family Loan, Multifamily Loan or Contract to maintain a hazard insurance policy
providing for no less than the coverage of the standard form of fire insurance
policy with extended coverage customary for the type of Mortgaged Property in
the state in which such Mortgaged Property is located. Such coverage will be in
an amount not less than the replacement value of the improvements or
Manufactured Home securing such Mortgage Loan or the principal balance owing on
such Mortgage Loan, whichever is less. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the mortgagor or
obligor in accordance with the Master Servicer's normal servicing procedures)
will be deposited in the related Protected Account. In the event that the Master
Servicer maintains a blanket policy insuring against hazard losses on all the
Mortgage Loans comprising part of a Trust Fund, it will conclusively be deemed
to have satisfied its obligation relating to the maintenance of hazard
insurance. Such blanket policy may contain a deductible clause, in which case
the Master Servicer will be required to deposit from its own funds into the
related Protected Account the amounts which would have been deposited therein
but for such clause. Any additional insurance coverage for Mortgaged Properties
in a Mortgage Pool of Multifamily Loans will be specified in the related
Prospectus Supplement.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements or Manufactured Home
securing a Mortgage Loan by fire, lightning, explosion, smoke, windstorm and
hail, riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Although the policies relating to the Mortgage
Loans may have been underwritten by different insurers under different state
laws in accordance with different applicable forms and therefore may not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. If the Mortgaged Property
securing a Mortgage Loan is located in a federally designated special flood area
at the time of origination, the Master Servicer will require the mortgagor or
obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a clause which in effect requires the insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the insured property in order to recover the full
amount of any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss, without
deduction for depreciation, as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements. Since
the amount of hazard insurance the Master Servicer may cause to be maintained on
the improvements securing the Mortgage Loans declines as the principal balances
owing thereon decrease, and since improved real estate generally has appreciated
in value over time in the past, the effect of this requirement in the event of
partial loss may be that hazard insurance proceeds will be insufficient to
restore fully the damaged property. If specified in the related Prospectus
Supplement, a special hazard insurance policy or an alternative form of credit
enhancement will be obtained to insure against certain of the uninsured risks
described above. See "Credit Enhancement-Special Hazard Insurance Policies."
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
PRIMARY INSURANCE POLICIES. The Master Servicer will be required to
maintain or cause each Sub-Servicer to maintain, as the case may be, in full
force and effect, to the extent specified in the related Prospectus Supplement,
a Primary Insurance Policy with regard to each Single Family Loan for which such
coverage is required. The Master Servicer will be required not to cancel or
refuse to renew any such Primary Insurance Policy in effect at the time of the
initial issuance of a Series of Securities that is required to be kept in force
under the applicable Agreement unless the replacement Primary Insurance Policy
for such canceled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of Securities of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a Primary Insurance Policy covering a
Mortgage Loan generally will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Insurance Policy (the "Primary Insurer"), (iv) claim payments
previously made by the Primary Insurer and (v) unpaid premiums.
Primary Insurance Policies reimburse certain losses sustained by reason of
defaults in payments by borrowers. Primary Insurance Policies will not insure
against, and exclude from coverage, a loss sustained by reason of a default
arising from or involving certain matters, including (i) fraud or negligence in
origination or servicing of the Mortgage Loans, including misrepresentation by
the originator, borrower or other persons involved in the origination of the
Mortgage Loan; (ii) failure to construct the Mortgaged Property subject to the
Mortgage Loan in accordance with specified plans; (iii) physical damage to the
Mortgaged Property; and (d) the related Master Servicer not being approved as a
servicer by the Primary Insurer.
RECOVERIES UNDER A PRIMARY INSURANCE POLICY. As conditions precedent to the
filing of or payment of a claim under a Primary Insurance Policy covering a
Mortgage Loan, the insured generally will be required to (i) advance or
discharge (a) all hazard insurance policy premiums and (b) as necessary and
approved in advance by the Primary Insurer, (1) real estate property taxes, (2)
all expenses required to maintain the related Mortgaged Property in at least as
good a condition as existed at the effective date of such Primary Insurance
Policy, ordinary wear and tear excepted, (3) Mortgaged Property sales expenses,
(4) any outstanding liens (as defined in such Primary Insurance Policy) on the
Mortgaged Property and (5) foreclosure costs, including court costs and
reasonable attorneys' fees; (ii) in the event of any physical loss or damage to
the Mortgaged Property, have restored and repaired the Mortgaged Property to at
least as good a condition as existed at the effective date of such Primary
Insurance Policy, ordinary wear and tear excepted; and (iii) tender to the
Primary Insurer good and merchantable title to and possession of the Mortgaged
Property.
In those cases in which a Single Family Loan is serviced by a Sub-Servicer,
the Sub-Servicer, on behalf of itself, the Trustee and Securityholders, will
present claims to the Primary Insurer, and all collections thereunder will be
deposited in the Protected Account maintained by the Sub-Servicer. In all other
cases, the Master Servicer, on behalf of itself, the Trustee and the
Securityholders, will present claims to the Primary Insurer under each Primary
Insurance Policy, and will take such reasonable steps as are necessary to
receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Primary Insurance Policy and, when the Mortgaged
Property has not been restored, the hazard insurance policy, are to be deposited
in the Protected Account, subject to withdrawal as heretofore described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property to a condition sufficient to permit
recovery under the related Primary Insurance Policy, if any, the Master Servicer
is not required to expend its own funds to restore the damaged Mortgaged
Property unless it determines (i) that such restoration will increase the
proceeds to Securityholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary
Insurance Policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted Mortgage Loan is not covered by a Primary
Insurance Policy, the Master Servicer will be obligated to follow or cause to be
followed such normal practices and procedures as it deems necessary or advisable
to realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property securing the defaulted Mortgage Loan are less than the
principal balance of such Mortgage Loan plus interest accrued thereon that is
payable to Securityholders, the Trust Fund will realize a loss in the amount of
such difference plus the aggregate of expenses incurred by the Master Servicer
in connection with such proceedings and which are reimbursable under the
Agreement.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Mortgage Loan plus interest accrued thereon that is payable to
Securityholders, the Master Servicer will be entitled to withdraw or retain from
the Protected Account amounts representing its normal servicing compensation
with respect to such Mortgage Loan. In the event that the Master Servicer has
expended its own funds to restore the damaged Mortgaged Property and such funds
have not been reimbursed under the related hazard insurance policy, it will be
entitled to withdraw from the Protected Account out of related Liquidation
Proceeds or Insurance Proceeds an amount equal to such expenses incurred by it,
in which event the Trust Fund may realize a loss up to the amount so charged.
See "Credit Enhancement."
RECOVERIES UNDER FHA INSURANCE AND VA GUARANTEES. The Master Servicer, on
behalf of itself, the Trustee and the Securityholders, will present claims under
any FHA Insurance or VA Guarantees with respect to the Mortgage Loans. See
"Credit Enhancement--FHA Insurance; VA Guarantees."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
A Master Servicer's primary servicing compensation with respect to a Series
of Securities will come from the monthly payment to it, out of each interest
payment on a Mortgage Loan, of an amount equal to the percentage per annum
described in the related Prospectus Supplement of the outstanding principal
balance thereof or from such other source as is specified in the related
Prospectus Supplement. If the Master Servicer's primary compensation is a
percentage of the outstanding principal balance of each Mortgage Loan, such
amounts will decrease as the Mortgage Loans amortize. In addition to primary
compensation, the Master Servicer or the Sub-Servicers generally will be
entitled to retain all assumption fees and late payment charges, to the extent
collected from Mortgagors, and any prepayment penalties and, to the extent
provided in the related Prospectus Supplement, any interest or other income
which may be earned on funds held in any Accounts. Sub-Servicers generally will
receive a portion of the Master Servicer's primary compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, to the extent specified
in the related Agreement, the Master Servicer may pay from its servicing
compensation certain expenses incurred in connection with its servicing of the
Mortgage Loans, including, without limitation, payment in certain cases of
premiums for insurance policies, guarantees, sureties or other forms of credit
enhancement, payment of the fees and disbursements of the Trustee and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Securityholders, and payment of certain other
expenses. The Master Servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of Sub-Servicers and Lenders under certain
limited circumstances. In addition, as indicated in the preceding section, the
Master Servicer will be entitled to reimbursement for certain expenses incurred
by it in connection with any defaulted Mortgage Loan as to which it has
determined that all recoverable Liquidation Proceeds and Insurance Proceeds have
been received.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers, the Audit Program for Mortgages serviced for Freddie Mac or a
program certified by such firm to be comparable, the servicing by or on behalf
of the Master Servicer of mortgage loans, agency securities or private
mortgage-backed securities, under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with such agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Uniform single Audit Program
for Mortgage Bankers, the Audit Program for Mortgages serviced for Freddie Mac
or such comparable program requires it to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of mortgage
loans, agency securities or private mortgage-backed securities by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers, the Audit
Program for Mortgages serviced for Freddie Mac or such comparable program
(rendered within one year of such statement) of firms of independent public
accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by an officer of
each Master Servicer to the effect that such Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of each Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Master Servicer at the address set
forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE SELLER
One or more Master Servicers under each Agreement will be named in the
related Prospectus Supplement. Each entity serving as Master Servicer may have
normal business relationships with the Seller or the Seller's affiliates.
The Agreement will provide that a Master Servicer may not resign from its
obligations and duties under the Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law or as otherwise
specified in the related Prospectus Supplement. No such resignation will become
effective until the Trustee or a successor servicer has assumed the Master
Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer, in
certain instances, the Seller nor any director, officer, employee, or agent of
the Master Servicer or the Seller will be under any liability to the Trustee,
the related Trust Fund or Securityholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer, the
Seller nor any such person will be protected against any breach of warranties or
representations made in the Agreement or any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, in certain instances, the Seller and any director, officer,
employee or agent of the Master Servicer or the Seller will be entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Agreement or the Securities, other than any loss, liability or expense
related to any specific Mortgage Loan or Mortgage Loans (except any such loss,
liability or expense otherwise reimbursable pursuant to the Agreement) and any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Agreement will provide that neither the Master Servicer nor, in certain
instances, the Seller will be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. The Master Servicer or the Seller may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Securityholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Fund and the Master Servicer or the
Seller, as the case may be, will be entitled to be reimbursed therefor out of
funds otherwise distributable to Securityholders.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement,
provided that such person is qualified to sell mortgage loans to, and service
mortgage loans on behalf of, Fannie Mae or Freddie Mac and further provided that
such merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of Securities of such Series
that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT; MASTER SERVICING
AGREEMENT, "Events of Default" under a Pooling and Servicing Agreement, a Trust
Agreement or a Master Servicing Agreement generally will include (i) any failure
by the Master Servicer to cause to be deposited in the Securities Account any
amount so required to be deposited pursuant to the Agreement, and such failure
continues unremedied for two business days or such other time period as is
specified in the Agreement; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any of its other covenants or
agreements in the Agreement which continues unremedied for 60 days or such other
time period as is specified in the Agreement after the giving of written notice
of such failure to the Master Servicer by the Trustee, or to the Master Servicer
and the Trustee by the holders of Securities of any class evidencing not less
than 25% of the aggregate principal amount or interests ("Percentage Interests")
evidenced by such class; and (iii) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
actions by or on behalf of the Master Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement, the Trust Agreement or Master Servicing Agreement will
permit the Trustee to sell the assets of the Trust Fund in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
In general, so long as an Event of Default under an Agreement remains
unremedied, the Trustee may, and at the direction of holders of Securities
evidencing Percentage Interests aggregating not less than 25% of the principal
of the related Trust Fund and under such circumstances as may be specified in
such Agreement, the Trustee shall, terminate all of the rights and obligations
of the Master Servicer under the Agreement relating to such Trust Fund and in
and to the Mortgage Loans, whereupon the Trustee generally will succeed to all
of the responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a Mortgage Loan servicing institution with a net worth of at least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
In general, no Securityholder, solely by virtue of such holder's status as
a Securityholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Securities of any class of such Series evidencing not less than 25% of the
aggregate Percentage Interest constituting such class have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
INDENTURE. "Events of Default" under the Indenture for each Series of Notes
will include: In general, (i) a default for 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 Trust Fund in the Indenture which continues for a
period of 60 days or such other time period as is specified in the Indenture
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by 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 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 Seller 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 Securityholders
of a majority of the then aggregate outstanding amount of the Notes of such
Series may declare the principal amount (or, if the Notes of that Series are
entitled to payment of principal only, such portion of the principal amount as
may be specified in the related Prospectus Supplement) 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 Securityholders 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 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 30 days or more, unless
(a) the Securityholders 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 Securityholders 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 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 Securityholders of Notes
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 Securityholders of Notes after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Securityholder 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 Securityholders of Notes of such Series, unless such Securityholders have
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.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Securities will be set forth in
the related Prospectus Supplement. The entity serving as Trustee may have normal
banking relationships with the Seller and its affiliates. In addition, for the
purpose of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint co-trustees or separate trustees of all
or any part of the Trust Fund relating to a Series of Securities. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the applicable Agreement will be conferred or
imposed upon the Trustee and each such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the Trustee shall be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
will exercise and perform such rights, powers, duties and obligations solely at
the direction of the Trustee. The Trustee may also appoint agents to perform any
of the responsibilities of the Trustee, which agents will have any or all of the
rights, powers, duties and obligations of the Trustee conferred on them by such
appointment; provided that the Trustee will continue to be responsible for its
duties and obligations under the Agreement. In the event a Series includes both
Notes and Certificates, a separate Trustee identified in the related Prospectus
Supplement will serve as Trustee for the Certificates and for the Notes.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any assets or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the
Securityholders or the Master Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure to
act, or for its own misconduct; provided, however, that the Trustee will not be
personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Securityholders following an Event of Default. The Trustee is not required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the Agreement, or in the exercise of any
of its rights or powers, if it has reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Seller, resign at any time, in
which event the Seller will be obligated to use its best efforts to appoint a
successor Trustee. If no successor Trustee has been appointed and has accepted
the appointment within the period specified in the Agreement after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for appointment of a successor Trustee. The Trustee may
also be removed at any time (i) if the Trustee ceases to be eligible to continue
as such under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by
the Securityholders evidencing over 50% of the aggregate voting rights of the
Securities in the Trust Fund upon written notice to the Trustee and to the
Seller. 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.
AMENDMENT
In general, each Agreement may be amended by the parties thereto, without
the consent of any of the Securityholders, (i) to cure any ambiguity; (ii) to
correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein; or (iii) to make any other
revisions with respect to matters or questions arising under the Agreement which
are not inconsistent with the provisions thereof, provided that such action will
not adversely affect in any material respect the interests of any
Securityholder. In addition, to the extent provided in the related Agreement, an
Agreement may be amended without the consent of any of the Securityholders, to
change the manner in which the Securities Account, the Protected Account or any
other Accounts are maintained, provided that any such change does not adversely
affect the then current rating on the class or classes of Securities of such
Series that have been rated. In addition, if a REMIC election is made with
respect to a Trust Fund, the related Agreement may be amended to modify,
eliminate or add to any of its provisions to such extent as may be necessary to
maintain the qualification of the related Trust Fund as a REMIC, provided that
the Trustee has received an opinion of counsel to the effect that such action is
necessary or helpful to maintain such qualification. In general, each Agreement
may also be amended by the parties thereto with consent of holders of Securities
of such Series evidencing not less than 51% of the aggregate Percentage
Interests of each class affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement or of modifying in any manner the rights of the holders of the
related Securities; provided, however, that no such amendment may (i) reduce in
any manner the amount of or delay the timing of, payments received on Trust
Assets which are required to be distributed on any Security without the consent
of the holder of such Security, or (ii) reduce the aforesaid percentage of
Securities of any class of holders which are required to consent to any such
amendment without the consent of the holders of all Securities of such class
covered by such Agreement then outstanding. If a REMIC election is made with
respect to a Trust Fund, the Trustee will not be entitled to consent to an
amendment to the related Agreement without having first received an opinion of
counsel to the effect that such amendment will not cause such Trust Fund to fail
to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
The obligations created by each Agreement for a Series of Securities
generally will terminate upon the payment to the related Securityholders of all
amounts held in any Accounts or by the Master Servicer and required to be paid
to them pursuant to such Agreement following the later of (i) the final payment
or other liquidation of the last of the Trust Assets subject thereto or the
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Assets remaining in the Trust Fund and (ii) the
purchase by the Seller, the Master Servicer or other entity specified in the
related Prospectus Supplement including, if REMIC or FASIT treatment has been
elected, by the holder of the residual interest in the REMIC or FASIT (see
"Certain Federal Income Tax Consequences" below), from the related Trust Fund of
all of the remaining Trust Assets and all property acquired in respect of
Mortgage Assets remaining in the Trust Fund.
Any such purchase of Trust Assets and property acquired in respect of
Mortgage Assets evidenced by a Series of Securities will be made at the option
of the Seller or other entity identified in the related Prospectus Supplement,
at a price, and in accordance with the procedures, specified in the related
Prospectus Supplement. The exercise of such right will effect early retirement
of the Securities, but the right of the Seller or such other entity to so
purchase will generally be subject to the principal balance of the related Trust
Assets being less than the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Trust Assets at the Cut-off
Date for the Series. There may not be sufficient proceeds to pay off the then
current balance of and accrued unpaid interest on Securities of such Series
outstanding. The foregoing is subject to the provision that if a REMIC or FASIT
election is made with respect to a Trust Fund, any repurchase pursuant to clause
(ii) above will be made only in connection with a "qualified liquidation" of the
REMIC or the FASIT within the meaning of Section 860F(g)(4) of the Code.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Mortgage Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state, or to encompass the laws of all states in which
the security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the appropriate laws of the states in which
Mortgage Loans may be originated.
GENERAL
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS. The Single Family Loans and
Multifamily Loans will be secured by mortgages, deeds of trust, security deeds
or deeds to secure debt, depending upon the prevailing practice in the state in
which the property subject to the loan is located. A mortgage creates a lien
upon the real property encumbered by the mortgage, which lien is generally not
prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage, the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. The mortgagor delivers to the mortgagee a note or bond and the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
formally has three parties, the borrower-property owner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
CONDOMINIUMS. Certain of the Mortgage Loans may be loans secured by
condominium units. The condominium building may be a multi-unit building or
buildings, or a group of buildings whether or not attached to each other,
located on property subject to condominium ownership. Condominium ownership is a
form of ownership of real property wherein each owner is entitled to the
exclusive ownership and possession of his or her individual condominium unit and
also owns a proportionate undivided interest in all parts of the condominium
building (other than the other 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 property 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 Fund 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 typically 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. Under the Agreement, the
Seller generally will transfer or cause the transfer of physical possession of
the Contracts to the Trustee or its custodian. In addition the Seller will make
or cause to be made an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the Contracts.
Under the laws of most states, manufactured housing constitutes personal
property and is subject to the motor vehicle registration laws of the state or
other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for Manufactured Homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department (or a similar entity) of such state. In the states which
have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law. The Master Servicer generally
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 Seller.
The Seller will assign or cause to be assigned a security interest in the
Manufactured Homes to the Trustee, on behalf of the Securityholders. In general,
neither the Seller, 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 Seller or the Lender 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 Seller'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
Seller or Lender.
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 Seller 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.
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
Seller will obtain the representation of the Lender 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 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 sale takes 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.
In some states, including California, the borrower-trustor has the right to
reinstate the loan at any time following default until shortly before the
trustee's sale. In general, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recoverable by a lender.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties. When the
mortgagee's right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the mortgage is not reinstated, a
notice of sale must be posted in a public place and, in most states, published
for a specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
COOPERATIVE LOANS. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's Certificate of Incorporation and
Bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the Cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
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 and existing shareholders and
tenants are entitled to remain in the building pursuant to such laws.
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 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 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.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have adopted statutory prohibitions restricting the right of
the beneficiary or mortgagee to obtain a deficiency judgment against borrowers
financing the purchase of their residence or following sale under a deed of
trust or certain other foreclosure proceedings. A deficiency judgment is a
personal judgment against the 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.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states the lender, following judgment on such personal
action, may be deemed to have elected a remedy and may be precluded from
exercising remedies with respect to the security. Consequently, the practical
effect of the election requirement, when applicable, is that lenders will
usually proceed first against the security rather than bringing a personal
action against the borrower.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a 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.
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 Lender had or should have had knowledge of such claim or
defense, the Master Servicer will have the right to require the Lender to
repurchase the Contract because of a breach of its 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
Each conventional Mortgage Loan generally will contain a due-on-sale clause
which will generally provide that if the mortgagor or obligor sells, transfers
or conveys the Mortgaged Property, the loan or contract may be accelerated by
the 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 or may result in a
Mortgage bearing an interest rate below the current market rate being assumed by
a new home buyer, which may affect the average life of the Mortgage Loan.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following origination of Single Family Loans, Cooperative
Loans or Contracts 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 Single Family Loans, Cooperative
Loans and Contracts. The absence of such a restraint on prepayment, particularly
with respect to fixed rate Single Family Loans, Cooperative Loans or Contracts
having higher Mortgage Rates or APR's, may increase the likelihood of
refinancing or other early retirement of such loans or contracts. Legal
restrictions, if any, on prepayment of Multifamily Loans will be described in
the related Prospectus Supplement.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayment, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels will be included in
any Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. In general,
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. In general, the successful assertion of such claim
constitutes a breach of a representation or warranty of the Lender, and the
Securityholders would suffer a loss only to the extent that (i) the Lender
breached its obligation to repurchase the Contract in the event an obligor is
successful in asserting such a claim, and (ii) the Lender, the Seller 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 related 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 the Trust Fund.
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, petroleum
substances (including heating oil and gasoline), radon and other materials which
may affect the property securing the Mortgage Assets. For example, under the
Federal Comprehensive Environmental Response Compensation and Liability Act, as
amended, and possibly under state law in certain states, a secured party which
takes a deed in lieu of foreclosure or purchases a mortgaged property at a
foreclosure sale may become liable in certain circumstances for the costs of a
remedial action ("Cleanup Costs") if hazardous wastes or hazardous substances
have been released or disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such costs could become a liability of the
Trust Fund and reduce the amounts otherwise distributable to the Securityholders
if a Mortgaged Property securing a Mortgage Loan became the property of the
Trust Fund in certain circumstances and if such Cleanup Costs were incurred.
Moreover, certain states by statute impose a priority lien for any Cleanup Costs
incurred by such state on the property that is the subject of such Cleanup Costs
(a "Superlien"). In such states, even prior recorded liens are subordinated to
such Superliens. In these states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth (i) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Seller ("Federal Tax Counsel"),
and (ii) a summary, based on the advice of Federal Tax Counsel, of the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. The summary focuses primarily upon
investors who will hold Securities as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"), but much of the discussion is applicable to
other investors as well. Because tax consequences may vary based on the status
or tax attributes of the owner of a Security, prospective investors are advised
to consult their own tax advisers concerning the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
Securities. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), any reference
to the "holder" means the beneficial owner of a Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences with respect to a Series of Securities
to holders will vary depending on whether: (i) an election is made to treat the
Trust Fund (or certain assets of the Trust Fund) relating to a particular Series
of Securities as a real estate mortgage investment conduit ("REMIC") under the
Code; (ii) an election is made to treat the Trust Fund (or certain assets of the
Trust Fund) as a financial asset securitization investment trust ("FASIT") under
the Code; (iii) for federal income tax purposes the Trust Fund is classified as
a grantor trust; (iv) for federal income tax purposes the Trust Fund is
classified as a partnership or is disregarded as an entity separate from its
owner; (v) the Securities represent an ownership interest for federal income tax
purposes in some or all of the assets included in the Trust Fund for a Series
and/or (vi) the Securities of a Series are classified as indebtedness for
federal income tax purposes. The Prospectus Supplement for each Series of
Securities will specify how the Securities will be treated for federal income
tax purposes and will discuss whether a REMIC or FASIT election, if any, will be
made with respect to such Series.
REMIC AND FASIT ELECTIONS
Under the Code, an election may be made with respect to each Trust Fund
related to a Series of Securities to treat such Trust Fund or certain assets of
such Trust Fund as a REMIC or a FASIT. The Prospectus Supplement for each Series
of Securities will indicate whether a REMIC or a FASIT election will be made
with respect to the related Trust Fund. To the extent provided in the Prospectus
Supplement for a Series, holders 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 or under the Yield Supplement
Agreement in the event that interest accrued on the Mortgage Loans at their
Mortgage Rates is insufficient to pay interest on the Securities of such Series
(a "Basis Risk Shortfall").
REMIC SECURITIES
GENERAL. The term "REMIC Securities" denotes Securities (or the interests
composing Securities) of a Series with respect to which a REMIC election will be
made. If a REMIC election with respect to a Trust Fund is to be made, the
Prospectus Supplement will designate the Securities of such Series or the
interests composing such Securities as "regular interests" ("REMIC Regular
Securities"), which where the context so requires includes a reference to each
interest composing a Security where such interest has been designated as a
regular interest, in lieu of such Securities, in the REMIC (within the meaning
of Section 860G(a)(l) of the Code) or as the REMIC Residual Certificates in the
REMIC (within the meaning of Section 860G(a)(2) of the Code). With respect to
each Series of REMIC Securities, the Trustee will agree in the Agreement to
elect to treat the related Trust Fund or certain assets of such Trust Fund as a
REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of REMIC Securities, Federal Tax
Counsel will deliver its opinion generally to the effect that, with respect to
each Series of REMIC Securities 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 Fund or certain
assets of such Trust Fund will be a REMIC and the REMIC Securities will be
considered to evidence ownership of "regular interests" or "residual interests"
within the meaning of the REMIC provisions of the Code.
ALLOCATION OF PURCHASE PRICE. To the extent provided in the Prospectus
Supplement for a Series, holders of REMIC Regular Securities 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 Security. However, a portion of the
purchase price of a REMIC Regular Security 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 Securities or at any time thereafter. Holders of REMIC
Regular Securities are advised to consult their own tax advisors concerning the
determination of such fair market values. Under the applicable Agreement,
holders of applicable REMIC Regular Securities will agree that, for federal
income tax purposes, they will be treated as owners of the respective regular
interests and of the corresponding Yield Supplement Agreement.
STATUS OF REMIC SECURITIES. REMIC Securities 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 Securities will be qualifying assets. Similarly, income on the REMIC
Securities 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 the Mortgage
Assets, the REMIC's assets will include payments on the Mortgage Assets held
pending distribution to holders of REMIC Securities, amounts in Reserve Accounts
(if any), other credit enhancements (if any), and possibly buydown funds
("Buydown Funds"). The Mortgage Assets will be qualifying assets under the
foregoing sections of the Code except to the extent provided in the Prospectus
Supplement. The regulations under Sections 860A through 860G of the Code (the
"REMIC Regulations") treat credit enhancements as part of the mortgages 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 the Mortgage Assets and held pending
distribution to holders of REMIC Securities ("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. The Prospectus
Supplement for each Series will indicate (if applicable) that it has Buydown
Funds. The REMIC Securities will not be "residential loans" for purposes of the
residential loan requirement of Section 593(g)(4)(B) of the Code.
TIERED REMIC STRUCTURES
For certain Series of Securities, two or more separate elections may be
made to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such Series
of Securities, Federal Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related 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 Securities 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 Securities 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 whether the income
on such Securities is interest described in Section 856(c)(3)(B) of the Code,
the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR SECURITIES
CURRENT INCOME ON REMIC REGULAR SECURITIES-GENERAL. Except as otherwise
indicated herein, the REMIC Regular Securities 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 Securities and not as beneficial interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Securities who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Securities under an accrual method.
Payments of interest on REMIC Regular Securities 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 Security 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 "--Current Income on
REMIC Regular Securities--Original Issue Discount" and "--Variable Rate REMIC
Regular Securities" 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
"--Current Income on REMIC Regular Securities--Original Issue Discount" and
"--Variable Rate REMIC Regular Securities" below for 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 Security may
also 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 Security 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 Security, 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 Security 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 Securities of certain Series may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Holders of REMIC Regular Securities 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 Security be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Securities.
Each Trust Fund will report original issue discount, if any, to the holders
of REMIC Regular Securities based on the OID Regulations. OID Regulations
concerning contingent payment debt instruments do not apply to the REMIC Regular
Securities.
The OID Regulations provide that, in the case of debt instruments such as
REMIC Regular Securities, (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 Securities
will be the rate used in pricing the initial offering of the securities. The
Prospectus Supplement for each Series of REMIC Regular Securities will specify
the Prepayment Assumption, but no representation is made that the REMIC Regular
Securities will, in fact, prepay at a rate based on the Prepayment Assumption or
at any other rate.
In general, a REMIC Regular Security 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
Securities; Initial Period Considerations," and "--Qualified Stated Interest,"
and in the case of certain Variable Rate REMIC Regular Securities (as defined
below) and accrual Securities, the stated redemption price at maturity of a
REMIC Regular Security is its principal amount. The issue price of a REMIC
Regular Security is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the class of REMIC Regular
Securities is 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 Security 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 Security 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 Security, 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
Security'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 Securities.
The holder of a REMIC Regular Security 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 Security. In the case of an original holder of a REMIC Regular Security,
the daily portions of original issue discount are determined first by
calculating the portion of the original issue discount that accrued during each
period (an "accrual period") that begins on the day following a Distribution
Date (or in the case of the first such period, begins on the Closing Date) and
ends on the next succeeding Distribution Date. The original issue discount
accruing during each accrual period is then allocated ratably to each day during
such period to determine the daily portion of original issue discount for that
day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Security, if any, in future periods and (B) the distributions
made on the REMIC Regular Security during the accrual period that are included
in such REMIC Regular Security's stated redemption price at maturity, over (ii)
the adjusted issue price of such REMIC Regular Security 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
Securities 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 Securities. For these purposes,
the original yield to maturity of the REMIC Regular Securities will be
calculated based on their issue price and assuming that the REMIC Regular
Securities will be prepaid in accordance with the Prepayment Assumption. The
adjusted issue price of a REMIC Regular Security at the beginning of any accrual
period will equal the issue price of such REMIC Regular Security, 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 Security in prior accrual periods that were included in such REMIC
Regular Security's stated redemption price at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Security in future accrual
periods. Although not entirely free from doubt, 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 Security issued with
original issue discount at a cost that is 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 Security, the daily
portions of original issue discount with respect to the REMIC Regular Security,
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 Security, then such daily portions
will be reduced proportionately in determining the income of such holder.
QUALIFIED STATED INTEREST. Interest payable on a REMIC Regular Security
which qualifies as "qualified stated interest" for purposes of the OID
Regulations will not be includable in the stated redemption price at maturity of
the REMIC Regular Security. Accordingly, if the interest on a REMIC Regular
Security does not constitute "qualified stated interest," the REMIC Regular
Security 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 Securities or the terms and conditions of the REMIC Regular
Securities 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.
PREMIUM. A purchaser of a REMIC Regular Security that purchases such REMIC
Regular Security at a cost greater than its remaining stated redemption price at
maturity will be considered to have purchased such REMIC Regular Security 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 Security. The
Prepayment Assumption is probably taken into account in determining the life of
the REMIC Regular Security for this purpose. Except as provided in regulations,
amortizable premium will be treated as an offset to interest income on the REMIC
Regular Security.
PAYMENT LAG REMIC REGULAR SECURITIES; INITIAL PERIOD CONSIDERATIONS.
Certain REMIC Regular Securities will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues prior
to the Closing Date may be treated under the OID Regulations either (i) as part
of the issue price and the stated redemption price at maturity of the REMIC
Regular Securities 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 SECURITIES. Under the OID Regulations, REMIC
Regular Securities paying interest at a variable rate (a "Variable Rate REMIC
Regular Security") are subject to special rules. A Variable Rate REMIC Regular
Security 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 Security 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 Securities
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 Security 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 Security
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 Security'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 Security or the
restriction is not reasonably expected as of the issue date to significantly
affect the yield of the Variable Rate REMIC Regular Security.
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
Security 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 Security 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 Security'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 Security'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 Security 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 Security'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 Security's issue
date, the variable rate will be conclusively presumed to approximate the fixed
rate.
For Variable Rate REMIC Regular Securities 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 Security"), original issue discount is
computed as described above in "--Current Income on REMIC Regular
Securities--Original Issue Discount" based on the following: (i) stated interest
on the Single Variable Rate REMIC Regular Security which is unconditionally
payable in cash or property (other than debt instruments of the issuer) at least
annually will constitute qualified stated interest; (ii) by assuming that the
variable rate on the Single Variable Rate REMIC Security is a fixed rate equal
to: (a) in the case of a Single Variable Rate REMIC Regular Security with a
qualified floating rate or a qualified inverse floating rate, the value, 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 Security 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 Security; 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 Security other than a Single
Variable Rate REMIC Regular Security(a "Multiple Variable Rate REMIC Regular
Security") 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 Security. The OID Regulations generally
require that such a Multiple Variable Rate REMIC Regular Security 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 Security 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 Security'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 Security is
converted into a fixed rate that reflects the yield that is reasonably expected
for the Multiple Variable Rate REMIC Regular Security. (A Multiple Variable Rate
REMIC Regular Security may not bear more than one objective rate.) In the case
of a Multiple Variable Rate REMIC Regular Security 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 Security 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 Security as of the Multiple Variable Rate
REMIC Regular Security'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 Security is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Security is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amounts 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 above in "--Current Income on REMIC Regular
Securities--Original Issue Discount." A holder of the Multiple Variable Rate
REMIC Regular Security 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 Security during the accrual
period.
If a Variable Rate REMIC Regular Security does not qualify as a "variable
rate debt instrument" under the OID Regulations, then the Variable Rate REMIC
Regular Security would be treated as a contingent payment debt obligation. It is
not clear under current law how a Variable Rate REMIC Regular Security would be
taxed if such REMIC Regular Security 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 SECURITIES. The Trust Fund intends to report
income from interest-only REMIC Regular Securities to the Internal Revenue
Service and to holders of interest-only REMIC Regular Securities based on the
assumption that the stated redemption price at maturity is equal to the sum of
all payments determined under the Prepayment Assumption. As a result, such
interest-only REMIC Regular Securities will be treated as having original issue
discount.
MARKET DISCOUNT. A holder that acquires a REMIC Regular Security 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 holder of a REMIC Regular Security will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Security that has accrued but has not previously been includable
in income, and will recognize ordinary income to that extent. In general terms,
unless Treasury regulations when issued provide otherwise, market discount on a
REMIC Regular Security may be treated, at the election of the holder of the
REMIC Regular Security, 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 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 Security purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Security 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 Security. 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 Securities.
Notwithstanding the above rules, market discount on a REMIC Regular
Security 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 Security
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 Securities--Original
Issue Discount"), taking into account distributions (including prepayments)
prior to the date of acquisition of such REMIC Regular Security by the
subsequent purchaser. If market discount on a REMIC Regular Security is treated
as zero under this rule, the actual amount of such discount must be allocated to
the remaining principal distributions on such REMIC Regular Security in
proportion to the amounts of such principal distributions, 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 the holder of a debt instrument issued after April 4,
1994 may elect to include in gross income all interest that accrues on such debt
instrument 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 of REMIC Regular Securities
should consult their own tax advisors regarding the availability or advisability
of such an election.
SINGLE-CLASS REMICS. In the case of "single-class REMICs," certain expenses
of the REMIC will be allocated to the holders of the REMIC Regular Securities.
The deductibility of such expenses may be subject to certain limitations. See
"--Deductibility of Trust Fund Expenses" below.
SALES OF REMIC REGULAR SECURITIES. If a REMIC Regular Security 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 Security. A
holder's adjusted basis in a REMIC Regular Security generally equals the cost of
the REMIC Regular Security to the holder, increased by income reported by the
holder with respect to the REMIC Regular Security and reduced (but not below
zero) by distributions on the REMIC Regular Security 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
Security is held as a capital asset.
Gain from the sale of a REMIC Regular Security 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
includable in the seller's income with respect to the REMIC Regular Security 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 Security, over (ii) the amount
actually includable in the seller's income. In addition, gain recognized on the
sale of a REMIC Regular Security by a seller who purchased the REMIC Regular
Security at a market discount would be taxable as ordinary income in an amount
not exceeding the portion of such discount that accrued during the period the
REMIC Regular Security was held by such seller, reduced by any market discount
includable in income under the rules described above under "--Current Income on
REMIC Regular Securities--Market Discount."
REMIC Regular Securities 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 Security by a bank or other financial institution to
which such section applies would be ordinary income or loss.
TERMINATION. The REMIC will terminate, if not earlier, shortly following
the REMIC's receipt of the final payment in respect of the underlying qualified
mortgages. The last distribution on a REMIC Regular Security should be treated
as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a holder of a REMIC Regular Security 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 holder of a REMIC Residual Certificate 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 Security 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 Security is uncertain. As a result,
the timing of recognition of the related REMIC taxable income is also uncertain.
Although not entirely free from doubt, the related REMIC taxable income may be
recognized when the adjusted issue price of such REMIC Regular Security would
exceed the maximum amount of future payments with respect to such REMIC Regular
Security. It is unclear whether the Prepayment Assumption is taken into account
for this purpose.
A REMIC Residual Certificate has a tax basis in its holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (I.E., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce its share of the
REMIC's taxable income.
MISMATCHING OF INCOME AND DEDUCTIONS. 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 qualified mortgages, on the one hand, and the timing of deductions
for interest (including original issue discount) on the REMIC Regular
Securities, on the other. In the case of multiple classes of REMIC Regular
Securities 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 Securities, will increase over time as the shorter term, lower yielding
classes of REMIC Regular Securities 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 Fund will calculate the taxable
income of Tiered REMICs by treating the Lower Tier REMIC regular interests as a
single debt instrument.
EXCESS INCLUSIONS. 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 Section 1274(d)(1) and (B) of the Code 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 Securities plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Securities prior to the
beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a holder's
return.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular taxable
income computed without regard to the rule that taxable income cannot be less
than the amount of excess inclusions, (ii) the alternative minimum taxable
income of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions. While
these provisions are generally effective for tax years beginning after December
31, 1986, a taxpayer may elect to have these provisions apply only with respect
to tax years beginning after August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Section 511 of the Code, the
excess inclusions will be treated as unrelated business taxable income of such
holder for purposes of Section 511 of the Code. 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.
PROHIBITED TRANSACTIONS. A 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 qualified mortgage other
than pursuant to specified exceptions, the receipt of income as compensation for
services, the receipt of income from a source other than a qualified mortgage or
certain other permitted investments, or gain from the disposition of an asset
representing a temporary investment of payments on the qualified mortgages
pending distribution on the REMIC Securities. In addition, a tax is imposed on a
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 a REMIC's ability in accordance with the Agreement to
accept substitute Mortgage Assets or to sell defective Mortgage Assets.
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 a
Trust Fund initially would be borne by the REMIC Residual Certificates in the
related REMIC rather than by the REMIC Regular Securities, 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 are not securities and cannot be marked to market pursuant to
Section 475 of the Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
TAX ON DISPOSITION OF REMIC RESIDUAL CERTIFICATES. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Section 582(c) of the Code, 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 the tax treatment with respect to a REMIC Residual Certificate
that has unrecovered basis after all funds of the Trust Fund have been
distributed is unclear, the holder presumably would 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 for periods after such transfer with respect to the interest
transferred 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. 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 or
segregated pool of assets cannot qualify as a REMIC absent reasonable
arrangements designed to ensure that (1) residual interests in such entity or
segregated pool 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 Fund will contain
provisions designed to ensure the foregoing, and any transferee of a REMIC
Residual Certificate must execute and deliver an affidavit stating that neither
the transferee nor any person for whose account such transferee is acquiring the
REMIC Residual Certificate is a disqualified organization. In addition, as to
the requirement that reasonable arrangements be made to ensure that disqualified
organizations do not hold a residual interest in the REMIC, the REMIC
Regulations require that notice of the prohibition be provided either through a
legend on the certificate that evidences ownership, or through a conspicuous
statement in the prospectus or other offering document used to offer the
residual interest for sale. As to the requirement that sufficient information be
made available to calculate the tax on transfers to disqualified organizations
(or the tax, discussed below, on pass-through entities, interests in which are
held by disqualified organizations), the REMIC Regulations further require that
such information also be provided to the Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
For taxable years beginning after December 31, 1997, all partners of
certain "electing large partnerships" having 100 or more number of partners will
be treated as disqualified organizations for purposes of the tax imposed on
pass-through entities if such partnerships hold residual interests in a REMIC.
In addition, 70 percent of an electing large partnership's miscellaneous
itemized deductions will be disallowed, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
will not be subject to the 2 percent floor applicable to individual partners.
See "--Deductibility of Trust Fund Expenses" below.
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, 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. Any transferee of a REMIC
Residual Certificate must execute and deliver to the transferor an affidavit
containing the representations described in (ii) above. A different formulation
of this rule applies to transfers of REMIC Residual Certificates by or to
foreign transferees. See "--Foreign Investors in REMIC Securities" below.
DEDUCTIBILITY OF TRUST FUND EXPENSES
A holder of REMIC Securities that is an individual, estate or trust will be
subject to the limitation with respect to certain itemized deductions described
in Section 67 of the Code, 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" ($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. Such deductions will include servicing, guarantee, and
administrative fees paid to the Master Servicer of the Mortgage Assets. These
deductions will be allocated entirely to the holders of the REMIC Residual
Certificates in the case of REMIC Trust Funds with multiple classes of REMIC
Regular Securities that do not pay their principal amounts ratably. As a result,
the REMIC will report additional taxable income to holders of REMIC Residual
Certificates in an amount equal to their allocable share of such deductions, and
individuals, estates, or trusts holding an interest in such REMIC Residual
Certificates may have taxable income in excess of the cash received. In the case
of a "single-class REMIC," the expenses will be allocated, under Treasury
regulations, among the holders of the REMIC Regular Securities and the REMIC
Residual Certificates on a daily basis in proportion to the relative amounts of
income accruing to each holder on that day. In the case of a holder of a REMIC
Regular Security who is an individual or a "pass-through interest holder"
(including certain pass-through entities, but not including REITs), 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 Securities to such a holder. In general
terms, a single-class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt for
federal income tax purposes) or (ii) is similar to such a trust and which is
structured with the principal purpose of avoiding the single-class REMIC rules.
FOREIGN INVESTORS IN REMIC SECURITIES
REMIC REGULAR SECURITIES. Except as discussed below, a holder of a REMIC
Regular Security 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 Security, 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 Security under penalties of perjury, certifying that the
holder of the REMIC Regular Security 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 Section 871(h)(3)(B) of the Code, which could
be interpreted to apply to a holder of a REMIC Regular Security 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 Security. For these purposes, the term "United States person"
means (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate whose income
is includable in gross income for United States federal income taxation
regardless of its source, and (iv) 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 (iv) above, unless the trust elects to have its United
States status determined under the criteria set forth in (iv) 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, 1999, 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 in REMIC Securities--REMIC
Regular Securities") or to the extent a tax treaty reduces or eliminates the
tax. Treasury regulations provide that amounts paid with respect to residual
interests qualify as portfolio interest only if interest on the qualified
mortgages held by the REMIC qualifies as portfolio interest. Generally, interest
on the Mortgage Assets held by a Trust Fund 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 Fund 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.
BACKUP WITHHOLDING ON REMIC SECURITIES
Distributions made on the REMIC Securities and proceeds from the sale of
REMIC Securities 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 Securities complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Securities
would be refunded by the Internal Revenue Service or allowable as a credit
against the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust Fund (Form 1066 and Schedules Q
thereto) must be filed as if the Trust Fund 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 Fund'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 Fund. The Trust Fund 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. Holders of REMIC Residual
Certificates will have certain rights and obligations with respect to any
administrative or judicial proceedings involving the Internal Revenue Service.
Under the Code and Regulations, a REMIC generally is required to designate a tax
matters person. Generally, subject to various limitations, the tax matters
person has authority to act on behalf of the REMIC and the holders of the REMIC
Residual Certificates in connection with administrative determinations and
judicial review respecting returns of taxable income of the REMIC. Treasury
regulations exempt from certain of these procedural rules REMICs having no more
than one residual interest holder.
Unless otherwise indicated in the Prospectus Supplement, and to the extent
allowable, the Trustee 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 Trustee 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.
FASIT SECURITIES
If a FASIT election with respect to a Trust Fund is to be made, the
Prospectus Supplement will designate the Securities of such Series or the
interests composing such Securities as "regular interests" ("FASIT Regular
Securities") which, where the context so requires, includes a reference to each
interest composing a Security where such interest has been designated as a
regular interest, in lieu of such Securities, in the FASIT (within the meaning
of Section 860L(b)(1)(A) of the Code) or an "ownership interest" ("FASIT
Ownership Certificate") in the FASIT (within the meaning of Section 860L(b)(2)
of the Code). Each class of FASIT Regular Securities which are "high-yield
interests" within the meaning of Section 860L(b)(1)(B) of the Code ("High-Yield
Interests") will be identified as such in the Prospectus Supplement. The term
"FASIT Securities" denotes Securities (or the interests composing Securities) of
a Series with respect to which a FASIT election will be made.
With respect to each Series of FASIT Securities, the Trustee will agree in
the Agreement to elect to treat the related Trust Fund or certain assets of such
Trust Fund as a FASIT. Qualification as a FASIT requires ongoing compliance with
certain conditions which are generally described below. Upon the issuance of
each Series of FASIT Securities, Federal Tax Counsel will deliver its opinion
generally to the effect that, with respect to each Series of FASIT Securities
for which a FASIT election is to be made, under then existing law, and assuming
a proper and timely FASIT election and ongoing compliance with the provisions of
the Agreement and applicable provisions of the Code and applicable Treasury
regulations, if any, the related Trust Fund or certain assets of such Trust Fund
will be a FASIT and the FASIT Securities will be considered to evidence
ownership of "regular interests" or an "ownership interest" within the meaning
of the FASIT provisions of the Code.
QUALIFICATION AS A FASIT
The following is a general description of the requirements under the
applicable provisions of Sections 860H through 860L of the Code for the Trust
Fund or certain assets of each Trust Fund to qualify as a FASIT. Treasury
regulations have not yet been proposed or issued with respect to FASITs. A FASIT
must fulfill an assets test, which requires that substantially all the assets of
the FASIT, as of the close of the third calendar month beginning after the
Startup Day and at all times thereafter, must consist of cash or cash
equivalents, certain permitted debt instruments (other than debt instruments
issued by the holder of the FASIT Ownership Certificate or a related party) and
hedges (including contracts to acquire hedges), foreclosure property and regular
interests in another FASIT or in a REMIC. By analogy to the REMIC provisions, it
appears that the "substantially all" requirements should be met if at all times
the aggregate adjusted basis of the nonqualified assets is less than one percent
of the aggregate adjusted basis of all the FASIT's assets. The FASIT Ownership
Certificate and "High-Yield Interests" (described below) may be held only by
certain fully taxable, domestic corporations ("eligible corporations" described
below). The Agreement for each Trust Fund will provide that no legal or
beneficial interests in the FASIT Ownership Certificate or in any Class of FASIT
Regular Securities which the Seller determines to be a High-Yield Interest may
be transferred or registered unless certain conditions, designed to prevent
violation of this requirement, are met.
For purposes of the assets test, permitted debt instruments must bear
interest, if any, at a fixed or qualified variable rate. Permitted hedges
include interest rate or foreign currency notional principal contracts, letters
of credit, insurance, guarantees of payment default and similar instruments as
provided in regulations, and which are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on interests issued
by the FASIT. Foreclosure property is real property acquired by the FASIT in
connection with the default or imminent default of a qualified mortgage,
provided the Seller had no knowledge or reason to know as of the date such asset
was acquired by the FASIT that such a default had occurred or would occur.
Foreclosure property may generally not be held beyond the close of the third
taxable year after the taxable year in which the FASIT acquired such property,
with one extension available from the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a FASIT
also must meet the following requirements. All of the interests in a FASIT must
be: (i) one or more classes of FASIT regular interests or (ii) a single FASIT
ownership interest. A FASIT regular interest is an interest that is issued on or
after the Startup Day with fixed terms, is designated as a FASIT regular
interest, and (i) unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), (ii) provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or on a qualified variable rate that would be permitted
under the REMIC Regulations, (iii) has a stated maturity of generally not longer
than 30 years, (iv) has an issue price not greater than 125% of its stated
principal amount, and (v) has a yield to maturity not greater than 5 percentage
points higher that the related applicable federal rate (as defined in Section
1274(d) of the Code). A FASIT regular interest that is described in the
preceding sentence except that it fails to meet one or more of requirements (i),
(ii) (iv) or (v) is a "High-Yield Interest." In order for a FASIT to issue a
High-Yield Interest that fails requirement (ii), such High-Yield Interest must
consist of a specified, nonvarying portion of the interest payments on the
permitted assets (as provided in the REMIC rules). A FASIT ownership interest is
an interest in a FASIT other than a regular interest that is issued on the
Startup Day, is designated a FASIT ownership interest and is held by an
"eligible corporation". An "eligible corporation" is a taxable C corporation
which is not a RIC, REIT, REMIC or cooperative and, therefore, would not include
tax-exempt entities (including pension funds).
If an entity fails to comply with one or more of the ongoing requirements
of the Code for status as a FASIT during any taxable year, the entity or
applicable portion thereof will not be treated as a FASIT thereafter. In this
event, any entity that holds Mortgage Assets and is the obligor with respect to
debt obligations with two or more maturities may be treated as a separate
taxable mortgage pool (I.E, as an association taxable as a corporation; see
"--Tax Characterization of the Trust as a Partnership--Taxable Mortgage
Pools."), and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history of the FASIT provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all FASIT regular interests and their reissuance. If the resulting interests
would be treated as equity under general tax principles, cancellation of debt
income may result.
TIERED FASIT STRUCTURES
For certain Series of Securities, two or more separate elections may be
made to treat designated portions of the related Trust Fund as FASITs ("Tiered
FASITs") for federal income tax purposes. Upon the issuance of any such Series
of Securities, Federal Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement
and applicable provisions of the Code and applicable Treasury regulations and
rulings, the Tiered FASITs will each qualify under then existing law as a FASIT
and the FASIT Securities issued by the Tiered FASITs, respectively, will be
considered to evidence ownership of "regular interests" or "ownership interests"
in the related FASIT within the meaning of the FASIT provisions of the Code.
Solely for purposes of determining whether the FASIT Regular Securities
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 whether
the income on such Securities is interest described in Section 856(c)(3)(B) of
the Code, the Tiered FASITs will be treated as one FASIT.
FASIT REGULAR SECURITIES
CURRENT INCOME ON FASIT REGULAR SECURITIES-GENERAL. Except as otherwise
indicated herein, the FASIT Regular Securities will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the FASIT on the date of issuance of the
FASIT Regular Securities and not as beneficial interests in the FASIT or the
FASIT's assets. Holders of FASIT Regular Securities who would otherwise report
income under a cash method of accounting will be required to report income with
respect to FASIT Regular Securities under an accrual method.
As FASIT Regular Securities will be treated as debt instruments, they are
subject to the same original issue discount, premium and market discount
provisions that apply to REMIC regular interests and which are described above
in "--REMIC Regular Securities--Current Income on REMIC Regular
Securities--Original Issue Discount," "--Premium" and "--Market Discount,"
except that those FASIT Regular Securities which are High-Yield Interests are
subject to additional provisions set forth below.
HIGH-YIELD INTERESTS. The taxable income of the holder of any High-Yield
Interest for any tax year will in no event be less than the sum of that holder's
taxable income determined solely with respect to that interest (including gains
and losses from sales and exchanges of those interests) and the "excess
inclusions," if any, as defined under the REMIC rules relating to REMIC Residual
Certificates for such tax year (see "REMIC Residual Certificates--Excess
Inclusions"). Therefore, holders of High-Yield Interests may not use net
operating losses to offset any FASIT income derived from the High-Yield
Interest. This rule is coordinated with the rule that limits a taxpayer's
ability to offset REMIC excess inclusion income against net operating losses.
Any net operating loss carryover is computed by disregarding any income from the
disallowed loss. For purposes of the alternative minimum tax, the taxable income
of the holder of any High-Yield Interest is determined without regard to the
above rules with respect to net operating losses. However, the alternative
minimum taxable income of the holder of any High-Yield Interest may not be less
than the holder's taxable income from the FASIT. In addition, the alternative
tax net operating loss deduction is computed without regard to any increase in
taxable income to the holder referred to above. For purposes of these rules, all
members of an affiliated group filing a consolidated return will be treated as
one taxpayer.
A transfer of a High-Yield Interest to a "disqualified holder" is not
recognized for income tax purposes. A "disqualified holder" is any holder other
than a FASIT or an "eligible corporation" (described above). The transferor will
continue to be taxed on the income from the High-Yield Interest, and the
disqualified holder will not include in its income earnings (other than gain)
from the High-Yield Interest, unless the transferee provides the transferor with
an affidavit that the transferee is not a disqualified holder or the Internal
Revenue Service determines that the High-Yield Interest is no longer held by a
disqualified holder and a corporate tax has been paid on the income from the
High-Yield Interest while it was held by a disqualified holder. Under this rule,
no High-Yield Interests will be treated as issued where the FASIT directly
issues these interests to a disqualified holder other than certain securities
dealers.
An excise tax computed at the highest corporate income tax rate is imposed
on a securities dealer (in addition to other taxes) if it ceases to be a dealer
in securities or subsequently holds the High-Yield Interest for investment. A
securities dealer will not be treated as having changed his intent for holding
High-Yield Interests to investment for the first 31 days after it acquires the
interests unless the holding is a part of a plan to avoid the restriction on the
holding of High-Yield Interests by disqualified holders.
Where a pass-through entity, other than a FASIT, issues either debt or
equity interests that are supported (i.e., secured by FASIT regular interests
and those interests bear a yield to maturity greater than that held on the FASIT
regular interests or the applicable federal rate plus 5 percentage points), then
an excise tax is imposed on the pass-through entity at a rate equal to the
highest corporate income tax rate on the income of any holder of that instrument
attributable to the FASIT regular interests, unless the pass-through entity did
not issue the debt or equity with the principal purpose of avoiding the rule
that High-Yield Interests not be owned by disqualified holders.
SALE OF FASIT REGULAR SECURITIES. If a FASIT Regular Security 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 FASIT Regular Security. A
holder's adjusted basis in a FASIT Regular Security generally equals the cost of
the FASIT Regular Security to the holder, increased by income reported by the
holder with respect to the FASIT Regular Security and reduced (but not below
zero) by distributions on the FASIT Regular Security received by the holder and
by amortized premium. Any such gain or loss generally will be capital gain or
loss, provided the FASIT Regular Security is held as a capital asset.
FASIT Regular Securities 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 FASIT Regular Security by a bank or other financial institution to
which such section applies would be ordinary income or loss.
TERMINATION. The FASIT will terminate, if not earlier, shortly following
the FASIT's receipt of the final payment in respect of the underlying qualified
mortgages. The last distribution on a FASIT Regular Security should be treated
as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a holder of a FASIT Regular Security of a Series will have a
separate contractual right to payments under a Yield Supplement Agreement (which
may require an allocation of the purchase price between the FASIT Regular
Securities and the Yield Supplement Agreements) and the tax treatment of such
payments, if any, will be addressed in the related Prospectus Supplement.
FASIT OWNERSHIP CERTIFICATE
GENERALLY. All assets, liabilities and items of income, gain, deduction
loss and credit of a FASIT are treated as assets, liabilities and items of
income, gain, deduction, loss and credit of the holder of the FASIT Ownership
Certificate (the "FASIT Owner") in determining the FASIT Owner's taxable income.
The FASIT Owner does not take into account any item of income, gain or deduction
allocable to prohibited transactions as discussed below and must treat
tax-exempt interest accrued by the FASIT as ordinary income. The FASIT Owner
must use the constant yield method, applied under an accrual method of
accounting, in determining all interest, original issue discount, market
discount and premium deductions with respect to debt instruments held by the
FASIT. Like the holder of a High-Yield Interest, the FASIT Owner is not allowed
to offset any net taxable income derived from its FASIT Ownership Certificate
(including gains and losses from sales and exchanges of such Security) with
losses, including net operating losses. See above discussion under "--FASIT
Regular Securities--Income on FASIT Regular Securities--High-Yield Interests."
NET INCOME FROM PROHIBITED TRANSACTIONS. The FASIT Owner is required to pay
a tax equal to 100 percent of the net income derived from prohibited
transactions. Prohibited transactions include (i) the receipt of income from an
asset that is not a permitted asset; (ii) the disposition of a permitted asset,
other than a permitted disposition as described below; (iii) the receipt of
income derived from any loan originated by the FASIT; and (iv) compensation for
services (other than any fee for a waiver, amendment or consent with respect to
permitted assets, other than foreclosure property). A permitted disposition of a
permitted asset includes a disposition pursuant to the complete liquidation of
any class of regular interests, even if the FASIT itself is not liquidated.
Further, a disposition of a permitted debt instrument is not a prohibited
transaction if the disposition is (i) incident to the foreclosure, default or
imminent default of the instrument; (ii) pursuant to the bankruptcy or
insolvency of the FASIT; (iii) pursuant to a qualified liquidation; (iv)
required to prevent default on a FASIT regular interest where the threatened
default is attributable to a default on one or more debt instruments held by the
FASIT; (v) to facilitate a clean-up call or (vi) to substitute one permitted
debt instrument for another or to reduce overcollateralization of the FASIT by
distributing a debt instrument contributed by the holder of the ownership
interest to such holder (but only if a principal purpose of acquiring the debt
instrument which is disposed of was not the recognition of gain (or the
reduction of loss) as a result of an increase in the market value of the debt
instrument after its acquisition by the FASIT.
TAX ON DISPOSITION OF FASIT OWNERSHIP CERTIFICATE. The sale of a FASIT
Ownership Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the holder's adjusted
basis in the FASIT Ownership Certificate.
If the seller of a FASIT Ownership Certificate held the FASIT Ownership
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Section 582(c) of the Code, the sale of a FASIT
Ownership 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 the tax treatment with respect to a FASIT Ownership
Certificate that has unrecovered basis after all funds of the Trust Fund have
been distributed is unclear, the holder presumably would 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 been issued), if a holder sells a FASIT Ownership Certificate and
acquires the same or other FASIT Ownership Certificates in another FASIT or any
similar interests in a "taxable mortgage pool" (see "--Tax Characterization of
the Trust as a Partnership--Taxable Mortgage Pools" below) 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 sales" 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.
STATUS OF FASIT SECURITIES. The FASIT Regular Securities (but not FASIT
Ownership 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 FASIT's assets
are qualifying assets, but not to the extent that the FASIT's assets consist of
Yield Supplement Agreements. However, if at least 95 percent of the FASIT's
assets are qualifying assets, then 100 percent of the FASIT Securities will be
qualifying assets. Similarly, income on the FASIT Securities 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 Fasit's assets will
include payments on the Mortgage Assets held pending distribution to holders of
FASIT Securities, amounts in Reserve Accounts (if any), other credit
enhancements (if any), and possibly buydown funds ("Buydown Funds"). The
Mortgage Assets will be qualifying assets under the foregoing sections of the
Code except to the extent provided in the Prospectus Supplement. The REMIC
regulations treat credit enhancements as part of the mortgage or pool of
mortgages to which they relate and, therefore, by analogy to the REMIC
Regulations, credit enhancements generally should be qualifying assets.
Similarly, by analogy to the REMIC Regulations, amounts paid on the Mortgage
Assets and held pending distribution to holders of FASIT Securities ("cash flow
investments") should be treated as qualifying assets. It is unclear whether
amounts in a Reserve Account or Buydown Funds would also constitute qualifying
assets. The Prospectus Supplement for each Series will indicate (if applicable)
that it has Buydown Funds. The FASIT Securities will not be "residential loans"
for purposes of the residential loan requirement of Section 593(g)(4)(B) of the
Code.
FOREIGN INVESTORS IN FASIT SECURITIES. FASIT Regular Securities are subject
to the same United States income tax and withholding tax rules as those that
apply to a REMIC Regular Security as described in "Foreign Investors in REMIC
Securities" and "Backup Withholding on REMIC Securities" herein.
FASIT Ownership Certificates and FASIT Regular Securities which are
High-Yield Interests may not be sold or transferred to holders who are not U.S.
persons, and such securities will be subject to transfer restrictions as
described in the Agreement for the Series.
GRANTOR TRUSTS
The discussion under this heading applies only to a Series of Securities
with respect to which neither a REMIC nor a FASIT election is made
("Non-Electing Securities") and which are issued by a grantor trust.
TAX STATUS OF THE TRUST FUND. Upon the issuance of each Series of
Non-Electing Securities, Federal Tax Counsel will deliver its opinion to the
effect that, under then current law, assuming compliance with the Agreement, the
related Trust Fund 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 (see"--Tax Characterization of the Trust as a Partnership--Taxable
Mortgage Pools"). Accordingly, each holder of a Non-Electing Security will be
treated for federal income tax purposes as the owner of an undivided interest in
the Mortgage Assets included in the Trust Fund. As further described below, each
holder of a Non-Electing Security 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-Electing Security and may deduct the portion of the
expenses incurred by the Trust Fund that is allocable to such Non-Electing
Security, 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 Fund when those amounts are received or incurred by the Trust Fund.
A holder of a Non-Electing Security 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. A holder of a Non-Electing Security 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 Assets. As a
result, individuals, estates, or trusts holding Non-Electing Securities may have
taxable income in excess of the cash received.
STATUS OF THE NON-ELECTING SECURITIES. The Non-Electing Securities
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-Electing Securities 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-Electing Securities may not be qualifying assets under
the foregoing sections of the Code to the extent that the Trust Fund's assets
include Buydown Funds, amounts in a Reserve Account, or payments on mortgages
held pending distribution to holders. The Non-Electing Securities 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-ELECTING SECURITIES UNDER STRIPPED BOND RULES. The federal
income tax treatment of the Non-Electing Securities will depend on whether they
are subject to the rules of section 1286 of the Code (the "stripped bond
rules"). The Non-Electing Securities will be subject to those rules if stripped
interest-only Securities are issued. In addition, whether or not stripped
interest-only Securities are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the Master Servicer's
servicing fee, or other amounts, if any, paid to (or retained by) the Master
Servicer or its affiliates, as specified in the applicable Prospectus
Supplement, represent greater than an arm's length consideration for servicing
the Mortgage Assets. In Revenue Ruling 91-46, the Internal Revenue Service
concluded that retained interest in excess of reasonable compensation for
servicing is treated as a "stripped coupon" under the rules of Section 1286 of
the Code.
If interest retained for the Master Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Non-Electing Securities will
either be subject to the original issue discount rules or the market discount
rules. A holder of a Non-Electing Securities will account for any discount on
the Non-Electing Security (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-Electing Security
was treated as zero under the original issue discount DE MINIMIS rule when the
Non-Electing Security 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 Assets. If neither of the above exceptions
applies, the original issue discount rules will apply to the Non-Electing
Securities. See "--REMIC Regular Securities--Current Income on REMIC Regular
Securities--Original Issue Discount and --Market Discount" above.
If the original issue discount rules apply, the holder of a Non-Electing
Security (whether a cash or accrual method taxpayer) will be required to report
interest income from the Non-Electing Security in each taxable year equal to the
income that accrues on the Non-Electing Security in that year calculated under a
constant yield method based on the yield of the Non-Electing Security (or,
possibly, the yield of each Mortgage Loan underlying such Non-Electing Security)
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-Electing Security. The Taxpayer Relief Act of 1997 amended the
original issue discount provisions to provide that for "any pool of debt
instruments, the yield on which may be affected by reason of prepayments,"
original issue discount shall be accrued based on a prepayment assumption
determined in a manner prescribed by forthcoming regulations. This might require
the use of the pricing prepayment assumption instead of the prepayment
assumptions used in the underlying transactions. The Prospectus Supplement for
each Series of Non-Electing Securities 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-Electing Security acquired at a price equal to the
principal amount of the Mortgage Assets allocable to the Non-Electing Security,
the use of a reasonable prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Non-Electing Security 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-Electing
Security 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-Electing
Security and the portion of the adjusted basis of the Non-Electing Security (see
"Sales of Non-Electing Securities" below) that is allocable to the Mortgage
Loan.
Non-Electing Securities of certain Series ("Variable Rate Non-Electing
Securities") may provide for an Interest Rate based on the weighted average of
the interest rates of the Mortgage Assets held by the Trust Fund, which interest
rates may be fixed or variable. In the case of a Variable Rate Non-Electing
Security that is subject to the original issue discount rules, the daily
portions of original issue discount generally will be calculated in the same
manner as discussed above except the principles discussed in "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Original Issue
Discount--Variable Rate REMIC Regular Securities" will be applied.
TAXATION OF NON-ELECTING SECURITIES IF STRIPPED BOND RULES DO NOT APPLY. If
the stripped bond rules do not apply to a Non-Electing Security, 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-Electing Security at a discount or premium, the
holder will be required to account for such discount or premium in the manner
described below, as if it had purchased the Mortgage Assets directly. The
treatment of any discount will depend on whether the discount with respect to
the Mortgage Assets 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
principals discussed in "--REMIC Regular Securities--Current Income on REMIC
Regular Securities--Original Issue Discount" and "--Variable Rate REMIC Regular
Securities."
If discount on the Mortgage Assets 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 Loan, to the
amount of principal on such Mortgage Loan received by the Trust Fund 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 (and, under certain circumstances, faster) 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-Electing Security 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-Electing Security 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-Electing Security and (ii) the weighted
average life (determined using complete years) of the Mortgage Assets remaining
at the time of purchase of the Non-Electing Security. See "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Market Discount."
If a holder purchases a Non-Electing Security at a premium, such holder may
elect under Section 171 of the Code to amortize, as an offset to interest
income, 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 Assets or taking
account of a reasonable prepayment assumption.
If a Mortgage Loan is prepaid in full, the holder of a Non-Electing
Security 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-Electing Security and the
portion of the adjusted basis of the Non-Electing Security (see "Sales of
Non-Electing Securities" below) that is allocable to the Mortgage Loan.
SALES OF NON-ELECTING SECURITIES. A holder that sells a Non-Electing
Security will recognize gain or loss equal to the difference between the amount
realized in the sale and its adjusted basis in the Non-Electing Security. In
general, such adjusted basis will equal the holder's cost for the Non-Electing
Security, increased by the amount of any income previously reported with respect
to the Non-Electing Security and decreased by the amount of any losses
previously reported with respect to the Non-Electing Security 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-Electing Security were
held as capital assets, except that, for a Non-Electing Security 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-Electing Securities 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-Electing Security and that was not previously included in income.
FOREIGN INVESTORS. A holder of a Non-Electing Security 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-Electing Security will not be subject to United States income
or withholding tax in respect of payments of interest or original issue discount
on a Non-Electing Security to the extent attributable to Mortgage Assets 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-Electing Security under penalties
of perjury, certifying that such holder is not a United States person and
providing the name and address of such holder). Recently issued Treasury
regulations (the "Final Withholding Regulations"), which are generally effective
with respect to payments made after December 31, 1999, 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. Interest or original issue discount on a Non-Electing
Security attributable to Mortgage Assets 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.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
If a Trust Fund is intended to be a partnership for federal income tax
purposes the applicable Agreement will provide that the nature of the income of
the Trust Fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the Securities will
be structured as a private placement under an IRS safe harbor, so that the Trust
Fund will not be characterized as a publicly traded partnership taxable as a
corporation, and that no action will be taken that is inconsistent with the
treatment of the Trust Fund as a partnership (such as election to treat the
Trust Fund as a corporation for federal income tax purposes). If, however, the
Trust Fund 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 no election
will be made to treat the Trust Fund as a corporation for federal income tax
purposes.
TAXABLE MORTGAGE POOLS. 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, (ii) substantially all
of the assets of the entity are debt obligations, and more than 50 percent of
such debt obligations 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 IRS 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 Fund 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 Fund 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 Fund will not be a taxable mortgage pool. This opinion
will be based on the assumption that the terms of the related Agreement and
related documents will be complied with, and on Federal Tax Counsel's conclusion
that either the number of classes of debt obligations issued be the Trust Fund,
or the nature of the assets held by the Trust Fund will exempt the Trust Fund
from treatment as a taxable mortgage pool.
TAX CONSEQUENCES TO HOLDERS OF DEBT SECURITIES ISSUED BY A PARTNERSHIP
GENERAL. Certain Non-Electing Securities ("Debt Securities") may be issued
with the intention to treat them, for federal income tax purposes, either as (i)
nonrecourse debt of the Seller secured by the related Mortgage Assets, in which
case the related Trust Fund will constitute only a security device which
constitutes a collateral arrangement for the issuance of secured debt and not an
entity for federal income tax purposes or (ii) debt of a partnership, in which
case the related Trust Fund will constitute a partnership for federal income tax
purposes, Federal Tax Counsel is of the opinion that (unless otherwise limited
in the related Prospectus Supplement), for federal income tax purposes, assuming
compliance with all the provisions of the related Indenture, (i) Debt Securities
will be characterized as debt issued by, and not equity in, the related Trust
Fund and (ii) the related Trust Fund will not be characterized as an association
(or publicly traded partnership within the meaning of Code Section 7704) taxable
as a corporation or as a taxable mortgage pool. Since different criteria are
used to determine the non-tax accounting treatment of the issuance of Debt
Securities, however, the Seller expects to treat such transactions, for
financial accounting purposes, as a transfer of an ownership interest in the
related Mortgage Assets to the related Trust Fund and not as the issuance of
debt obligations. In this regard, it should be noted that the IRS has issued a
notice stating that, upon examination, it will scrutinize instruments treated as
debt for federal income tax purposes but as equity for regulatory, rating agency
or financial accounting purposes to determine if their purported status as debt
for federal income tax purposes is appropriate. Assuming, as Federal Tax Counsel
advises, that Debt Securities will be treated as indebtedness for federal income
tax purposes, holders of Debt Securities, using their method of tax accounting,
will follow the federal income tax treatment hereinafter described.
ORIGINAL ISSUE DISCOUNT. If interest payments on the Debt Securities may,
in the event of certain shortfalls, be deferred for periods exceeding one year,
it is likely that the Debt Securities will be treated as having been issued with
"original issue discount" within the meaning of Section 1273(a) of the Code. As
a result, interest payments may not be considered "qualified stated interest"
payments.
In general, a holder of a Debt Security having original issue discount must
include original issue discount in ordinary income as it accrues in advance of
receipt of the cash attributable to the discount, regardless of the method of
accounting otherwise used. The amount of original issue discount on a Debt
Security will be computed generally as described under "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Original Issue Discount"
and "--Variable Rate Regular Securities." The Seller intends to report any
information required with respect to the Debt Securities based on the OID
Regulations.
MARKET DISCOUNT. A purchaser of a Debt Security may be subject to the
market discount rules of Code Sections 1276 through 1278. In general, "market
discount" is the amount by which the stated redemption price at maturity (or, in
the case of a Debt Security issued with original issue discount, the adjusted
issue price) of the Debt Security exceeds the purchaser's basis in a Debt
Security. The holder of a Debt Security that has market discount generally will
be required to include accrued market discount in ordinary income to the extent
payments includible in the stated redemption price at maturity of such Debt
Security are received. The amount of market discount on a Debt Security will be
computed generally as described under "--REMIC Regular Securities--Current
Income on REMIC Regular Securities--Market Discount."
PREMIUM. A Debt Security purchased at a cost greater than its currently
outstanding stated redemption price at maturity is considered to be purchased at
a premium. A holder of a Debt Security which holds a Debt Security as a "capital
asset" within the meaning of Section 1221 of the Code may elect under Section
171 of the Code to amortize the premium under the constant interest method. That
election will apply to all premium obligations that the holder of a Debt
Security acquires on or after the first day of the taxable year for which the
election is made, unless the IRS permits the revocation of the election. In
addition, it appears that the same rules that apply to the accrual of market
discount on installment obligations are intended to apply in amortizing premium
on installment obligations such as the Debt Securities. The treatment of premium
incurred upon the purchase of a Debt Security will be determined generally as
described above under "--REMIC Regular Securities--Premium."
SALE OR EXCHANGE OF DEBT SECURITIES. If a holder of a Debt Security sells
or exchanges a Debt Security, the holder of a Debt Security will recognize gain
or loss equal to the difference, if any, between the amount received and the
holder of a Debt Security's adjusted basis in the Debt Security. The adjusted
basis in the Debt Security generally will equal its initial cost, increased by
any original issue discount or market discount previously included in the
seller's gross income with respect to the Debt Security and reduced by the
payments previously received on the Debt Security, other than payments of
qualified stated interest, and by any amortized premium.
In general, except as described above with respect to market discount, and
except for certain financial institutions subject to Code Section 582(c), any
gain or loss on the sale or exchange of a Debt Security recognized by an
investor who holds the Debt Security as a capital asset (within the meaning of
Code Section 1221), will be capital gain or loss and will be long-term or
short-term depending on whether the Debt Security has been held for more than
one year. For corporate taxpayers, there is no preferential rate afforded to
long-term capital gains. For individual taxpayers, net capital gains are subject
to varying tax rates depending upon the holding period of the Debt Securities.
BACKUP WITHHOLDING. Holders of Debt Securities will be subject to backup
withholding rules identical to those applicable to REMIC Regular Securities. See
"--REMIC Regular Securities--Backup Withholding on REMIC Securities."
TAX TREATMENT OF FOREIGN INVESTORS. Holders of Debt Securities who are
foreign investors will be subject to taxation in the same manner as foreign
holders of REMIC Regular Securities. See"--REMIC Regular Securities--Foreign
Investors in REMIC Securities."
TAX CONSEQUENCES TO HOLDERS OF NOTES ISSUED BY A PARTNERSHIP
The Trust Fund will agree, and the holders of Notes 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 Seller that the Notes will be classified as debt for
federal income tax purposes. If, contrary to the opinion of Federal Tax 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 Fund. If so treated, the Trust Fund would likely 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 investors generally would be subject to U.S. federal income tax and
federal income tax return filing and withholding requirements, income to certain
tax-exempt entities would be "unrelated business taxable income," and individual
holders might be subject to certain limitations on their ability to deduct their
share of the Trust Fund's expenses.
With respect to those Securities issued as Notes, no regulations, published
rulings or judicial decisions exist that discuss the characterization for
federal income tax purposes of instruments with terms substantially the same as
the Notes. However, Federal Tax Counsel is of the opinion that (unless otherwise
limited in the related Prospectus Supplement), for federal income tax purposes,
assuming compliance with all the provisions of the related Indenture, (i) Notes
will be characterized as debt issued by, and not equity in, the related Trust
Fund and (ii) the related Trust Fund will not be characterized as an association
(or publicly traded partnership within the meaning of Section 7704 of the Code)
taxable as a corporation or as a taxable mortgage pool. Assuming, as Federal Tax
Counsel advises, that Notes are treated as indebtedness for federal income tax
purposes, holders of Notes, using their method of tax accounting, will follow
the same federal income tax treatment as Debt Securities, as described above
under "--Tax Consequences for Holders of Debt Securities Issued by a
Partnership."
For federal income tax purposes, (i) Notes held by a thrift institution
taxed as a domestic building and loan association will not constitute "loans . .
. secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code; (ii) interest on Notes held by a real estate
investment trust will not be treated as "interest on obligations secured by
mortgages on real property or on interests in real property "within the meaning
of Code Section 856(c)(3)(B); (iii) Notes held by a real estate investment trust
will not constitute "real estate assets" or "Government securities" within the
meaning of Section 856(c)(4)(A) of the Code; and (v) Notes held by a regulated
investment company will not constitute "Government securities" within the
meaning of Section 851(b)(3)(A)(i) of the Code.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST FUND AS A PARTNERSHIP. In the case of a Trust Fund
intended to qualify as a partnership for federal income tax purposes, the Trust
Fund and the Seller will agree, and the holders of Certificates will agree by
their purchase of Certificates, to treat the Trust Fund as a partnership for
purposes of 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 Fund, the partners of the partnership being the
holders of Certificates, and the Notes, if any, being debt of the partnership,
or if there is a single holder of Certificates for federal income tax purposes,
to disregard the Trust Fund as an entity separate from the holder of
Certificates. However, the proper characterization of the arrangement involving
the Certificates, the Notes, the Trust Fund 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 Fund. Generally, provided
such Certificates are issued at or close to face value, any such
characterization would not result in materially adverse tax consequences to
holders of Certificates 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. The following discussion also assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates have
interest rates which would qualify as contingent interest under the OID
regulations, and that a Series of Securities includes a single Class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each holder of Certificates will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Mortgage Assets
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Mortgage Assets. The Trust Fund's
deductions will consist primarily of interest and OID accruing with respect to
the Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Mortgage Assets.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Agreement). The Agreement will provide, in general, that the holders of
Certificates will be allocated taxable income of the Trust Fund for each month
equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Interest Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust Fund income attributable to
discount on the Mortgage Assets that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (iii) prepayment
premium payable to the holders of Certificates for such month; and (iv) any
other amounts of income payable to the holders of Certificates for such month.
Such allocation will be reduced by any amortization by the Trust Fund of premium
on the Mortgage Assets that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust Fund will be allocated to the Seller. Based on the economic arrangement of
the parties, this approach for allocating Trust Fund 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 holders of Certificates. Moreover, even under the foregoing method of
allocation, holders of Certificates may be allocated income equal to the entire
Interest Rate plus the other items described above even though the Trust Fund
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 holders of Certificates may
become liable for taxes on Trust Fund income even if they have not received cash
from the Trust Fund to pay such taxes. In addition, because tax allocations and
tax reporting will be done on a uniform basis for all holders of Certificates
but holders may be purchasing Certificates at different times and at different
prices, such holders 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
Fund.
If Notes are also issued, all of the taxable income allocated to a holder
of Certificates 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 Fund (including
fees to the Master 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 Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to holders of Certificates on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust Fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on such holders.
DISCOUNT AND PREMIUM. It is believed that the Mortgage Assets will not have
been issued with OID and, therefore, the Trust Fund should not have original
issue discount income. However, the purchase price paid by the Trust Fund for
the Mortgage Assets may be greater or less than the remaining principal balance
of the Mortgage Assets 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 Fund 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 Fund acquires the Mortgage Assets at a market discount or
premium, the Trust Fund will elect to include any such discount in income
currently as it accrues over the life of the Mortgage Assets or to offset any
such premium against interest income on the Mortgage Assets. As indicated above,
a portion of such market discount income or premium deduction may be allocated
to holders of Certificates.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust Fund will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust Fund are sold or exchanged within a
12-month period. If such a termination occurs, the Trust Fund will be considered
to distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust Fund as a new partnership. The Trust
Fund will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the Trust Fund may be
subject to certain tax penalties and may incur additional expenses if it is
required to comply with those requirements. Furthermore, the Trust Fund might
not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates issued by a partnership in an amount equal
to the difference between the amount realized and the seller's tax basis in the
Certificates sold. The tax basis of a holder in a Certificate will generally
equal the holder's cost increased by the holder's share of Trust Fund 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 Fund. 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 Assets would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust Fund 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 Fund will elect to include
market discount in income as it accrues.
If a holder of Certificates 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 SELLERS AND TRANSFEREES. In general, the Trust Fund's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the holders of Certificates
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. 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 Fund might be reallocated among the holders of Certificates. The
Trust Fund'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 holder sells its Certificates at
a profit (loss), the purchasing holder will have a higher (lower) basis in the
Certificates than the selling holder had. The tax basis of the Trust Fund's
assets will not be adjusted to reflect that higher (or lower) basis unless the
Trust Fund 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 Fund currently does not intend to make such election. As
a result, holders of Certificates might be allocated a greater or lesser amount
of Trust Fund 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 Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund 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 Fund and will report each holder's allocable share of items of Trust Fund
income and expense to holders and the IRS on Schedule K-1. The Trust Fund will
provide the Schedule K-1 information to nominees that fail to provide the Trust
Fund 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 Fund 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 Fund
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 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 Fund 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 Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Seller will be designated as the tax matters partner in the related
Agreement and, as such, will be responsible for representing the holders of
Certificates 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 Fund by the appropriate taxing authorities could result in an
adjustment of the returns of the holders of Certificates, and, under certain
circumstances, a holder of Certificates may be precluded from separately
litigating a proposed adjustment to the items of the Trust Fund. An adjustment
could also result in an audit of returns of a holder of Certificates and
adjustments of items not related to the income and losses of the Trust Fund.
TAX CONSEQUENCES TO FOREIGN HOLDERS OF CERTIFICATES. It is not clear
whether the Trust Fund would be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes with respect to
foreign investors 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 Fund would be engaged in a trade or business in the
United States for such purposes, the Trust Fund will withhold as if it were so
engaged in order to protect the Trust Fund from possible adverse consequences of
a failure to withhold. The Trust Fund expects to withhold pursuant to Section
1446 of the Code on the portion of its taxable income that is allocable to
holders of Certificates that are foreign investors, as if such income were
effectively connected to a U.S. 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 Fund to change its
withholding procedures.
Each holder of Certificates that is a foreign investor might be required to
file a U.S. individual or corporate income tax return (including, in the case of
a corporation, the branch profits tax) on its share of the Trust Fund'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 Fund taking the position that
no taxes were due because the Trust Fund was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a holder of
Certificates who is a foreign investor generally will be considered guaranteed
payments to the extent such payments are determined without regard to the income
of the Trust Fund. If these interest payments are properly characterized as
guaranteed payments, then the interest probably will not be considered
"portfolio interest." As a result, holders of Certificates will be subject to
United States federal income tax and withholding tax at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
investor would only be entitled to claim a refund for that portion of the taxes,
if any, in excess of the taxes that should be withheld with respect to the
guaranteed payments.
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 holder of Certificates fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code and, if necessary, adequately demonstrates
such status.
TAXATION OF CLASSES OF EXCHANGEABLE SECURITIES
GENERAL
This discussion of the taxation of Exchangeable Securities is applicable to
those ES Classes of a Series which are issued in the form of Certificates. In
the event that ES Classes of a Series are issued in the form of Notes, the
Prospectus Supplement will describe the federal income tax consequences of such
ES Classes of Notes. The arrangement pursuant to which the ES Classes of a
Series are created, sold and administered (an "ES Pool") will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code. The interests
in the classes of Securities that have been exchanged for ES Classes will be the
assets of the ES Pool and the ES Classes will represent beneficial ownership of
these interests in the classes of Securities.
TAX STATUS
The ES Classes should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A) and assets described in Section
7701(a)(19)(C) of the Code. Original issue discount and interest accruing on ES
Classes should be considered to represent "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. ES Classes will be "qualified mortgages" under Section 860G(a) (3) of the
Code for a REMIC.
TAX ACCOUNTING FOR EXCHANGEABLE SECURITIES
An ES Class will represent beneficial ownership of an interest in one or
more related classes of Securities. If it represents an interest in more than
one Class of Securities, a purchaser must allocate its basis in the ES Class
among the interests in classes of Securities in accordance with their relative
fair market values as of the time of acquisition. Similarly, on the sale of such
an ES Class, the holder must allocate the amount received on the sale among the
interests in the classes of Securities in accordance with their relative fair
market values as of the time of sale.
The holder of an ES Class must account separately for each interest in a
class of Securities (there may be only one such interest). Where the interest
represents a pro rata portion of a class of Securities, the holder of the ES
Class should account for such interest as described under "--Current Income on
REMIC Regular Securities" above. Where the interest represents beneficial
ownership of a disproportionate part of the principal and interest payments on a
class of Securities (a "Strip"), the holder will be treated as owning, pursuant
to Section 1286 of the Code, "stripped bonds" to the extent of its share of
principal payments and "stripped coupons" to the extent of its share of interest
payments on such class of Securities. Although the tax treatment of a Strip is
unclear, the Seller intends to treat each Strip as a single debt instrument for
purposes of information reporting. The Internal Revenue Service, however, could
take a different position. For example, the Internal Revenue Service could
contend that a Strip should be treated as a pro rata part of the class of
Securities to the extent that the Strip represents a pro rata portion thereof,
and "stripped bonds" or "stripped coupons" with respect to the remainder. An
investor should consult its tax advisor regarding this matter.
A holder of an ES Class should calculate original issue discount with
respect to each Strip and include it in ordinary income as it accrues, which may
be prior to the receipt of cash attributable to such income, in accordance with
a constant interest method that takes into account the compounding of interest.
See "--Current Income on REMIC Regular Securities--Original Issue Discount"
above. The holder should determine its yield to maturity based on its purchase
price allocated to the Strip and on a schedule of payments projected using a
prepayment assumption, and then make periodic adjustments to take into account
actual prepayment experience. With respect to a particular holder, it is not
clear whether the prepayment assumption used to calculate original issue
discount would be determined at the time of purchase of the Strip or would be
the original prepayment assumption with respect to the related class of
Securities. Further, if the related class of Securities is subject to redemption
as described in the applicable Prospectus Supplement, it is not clear the extent
to which such prepayment assumption should take into account the possibility of
the retirement of the Strip concurrently with the redemption of such class of
Securities. An investor should consult its tax advisor regarding these matters.
For purposes of information reporting relating to original issue discount, the
original yield to maturity of the Strip, determined as of the date of issuance
of the Series, will be calculated based on the original prepayment assumption.
If original issue discount accruing with respect to a Strip, computed as
described above, is negative for any period, the holder will be entitled to
offset such amount only against future positive original issue discount accruing
from such Strip, and income will be reported in all cases in this manner.
Although not entirely free from doubt, 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 the holder is entitled with respect to such Strip,
assuming no further prepayments of the Mortgages (or, perhaps, assuming
prepayments at a rate equal to the prepayment assumption). Although the issue is
not free from doubt, all or a portion of such loss may be treated as a capital
loss if the Strip is a capital asset in the hands of the holder.
A holder will realize gain or loss on the sale of a Strip in an amount
equal to the difference between the amount realized and its adjusted basis in
such Strip. The holder's adjusted basis generally is equal to the holder's
allocated cost of the Strip, increased by income previously included, and
reduced (but not below zero) by distributions previously received. Except as
described below, any gain or loss on such sale will be capital gain or loss if
the holder has held its interest as a capital asset and will be long-term if the
interest has been held for the long-term capital gain holding period (more than
one year). Such gain or loss will be ordinary income or loss (i) for a bank or
thrift institution or (ii) to the extent income recognized by the holder is less
than the income that would have been recognized if the yield on such interest
were 110% of the applicable federal rate under Section 1274(d) of the Code.
If a holder exchanges a class of Securities for several ES Classes and then
sells one of such ES Classes, the sale will subject the investor to the coupon
stripping rules of Section 1286 of the Code. The holder must allocate its basis
in the exchanged class of Securities between the part of the class of Securities
underlying the ES Class sold and the part of the class of Securities underlying
the ES Classes retained, in proportion to their relative fair market values as
of the date of such sale. The holder is treated as purchasing the interest
retained for the amount of basis allocated to such interest. The holder must
calculate original issue discount with respect to the retained interest as
described above.
Although the matter is not free from doubt, a holder that acquires in one
transaction a combination of ES Classes that may be exchanged for a class of
Securities should be treated as owning the class of Securities.
EXCHANGES OF EXCHANGEABLE SECURITIES
An exchange of an interest in one or more classes of Securities for an
interest in one or more ES Classes, or vice versa (or, if permitted, an exchange
of an interest in one or more ES Classes for an interest in one or more other ES
Classes), will not be a taxable exchange. After the exchange, the holder will be
treated as continuing to own the interests in the class or classes of Securities
that it owned immediately prior to the exchange.
TAX TREATMENT OF FOREIGN INVESTORS
A holder of an ES Class will be subject to taxation in the same manner as
foreign holders of REMIC Regular Securities. See "--REMIC Regular
Securities--Investors in REMIC Securities."
BACKUP WITHHOLDING
A holder of an ES Class will be subject to backup withholding rules to
those applicable to REMIC Regular Securities. See "--REMIC Regular
Securities--Backup Withholding on REMIC Securities."
REPORTING AND ADMINISTRATIVE MATTERS
Reports will be made to the Internal Revenue Service and to holders of
record of ES Classes that are not excepted from the reporting requirements.
CALLABLE CLASSES
Any amount received in redemption of a class of Securities that is a
Callable Class will be treated under the original issue discount rules and
market discount rules as a distribution with respect to such class of Securities
in the same manner as REMIC Regular Securities. See "--REMIC Regular
Securities--Original Issue Discount" and "--Market Discount."."
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local income tax consequences of the acquisition, ownership, and disposition
of the Securities. State and local income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
GENERAL. A fiduciary of a pension, profit-sharing, retirement or other
employee benefit plan subject to Title I of ERISA, should consider the fiduciary
standards under ERISA in the context of the plan's particular circumstances
before authorizing an investment of a portion of such plan's assets in the
Securities. Accordingly, pursuant to Section 404 of ERISA, such fiduciary should
consider among other factors (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the applicable diversification requirements; (iii) whether
the investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as 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 of ERISA and excise taxes are imposed upon such
persons by Section 4975 of the Code. The Seller, Bear, Stearns & Co. Inc., each
Master Servicer or other servicer, any Pool Insurer, any Special Hazard Insurer,
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, holding or disposition 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. Furthermore, if
an investing Plan's assets were deemed to include the Mortgage Loans and not
merely an interest in the Securities, transactions occurring in the management
of Mortgage Loans might constitute prohibited transactions and the fiduciary
investment standards of ERISA could apply to the assets of the Trust Fund,
unless an administrative exemption applies.
ERISA CONSIDERATIONS RELATING TO CERTIFICATES. In DOL Regulation
ss.2510.3-101 (the "Plan Asset Regulations"), the U.S. Department of Labor has
defined what constitutes Plan assets for purposes of ERISA and Section 4975 of
the Code. The Regulation provides that if a Plan makes an investment in an
"equity interest" in an entity, the assets of the entity will be considered the
assets of such Plan unless certain exceptions apply. The Seller can give no
assurance that the Securities will qualify for any of the exceptions under the
Regulation. As a result, the Mortgage Loans may be considered the assets of any
Plan which acquires Securities, unless some administrative exemption is
available.
The U.S. Department of Labor has issued an administrative exemption,
Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), which, under certain
conditions, exempts from the application of the prohibited transaction rules of
ERISA and the excise tax provisions of Section 4975 of the Code transactions
involving a Plan in connection with the operation of a "mortgage pool" and the
purchase, sale and holding of "mortgage pool pass-through certificates." A
"mortgage pool" is defined as an investment pool, consisting solely of interest
bearing obligations secured by first or second mortgages or deeds of trust on
single-family residential property, property acquired in foreclosure and
undistributed cash. A "mortgage pool pass-through certificate" is defined as a
certificate which represents a beneficial undivided interest in a mortgage pool
which entitles the holder to pass-through payments of principal and interest
from the Mortgage Loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Seller and the
Trustee maintain a system of insurance or other protection for the Mortgage
Loans and the property securing such Mortgage Loans, and for indemnifying
holders of 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 Seller; and (iii) the payments made to
and retained by the Seller in connection with the Trust Fund, together with all
funds inuring to its benefit for administering the Trust Fund, represent no more
than "adequate consideration" for selling the Mortgage Loans, plus reasonable
compensation for services provided to the Trust Fund.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Seller, the Special Hazard Insurer, the Pool Insurer,
the Master Servicer, or other servicer, or the Trustee is a party in interest if
the Plan does not pay more than fair market value for such Certificate and the
rights and interests evidenced by such Certificate are not subordinated to the
rights and interests evidenced by other Certificates of the same pool. PTCE 83-1
also exempts from the prohibited transaction rules any transactions in
connection with the servicing and operation of the Mortgage Pool, provided that
any payments made to the Master Servicer in connection with the servicing of the
Trust Fund 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 Seller, the Master
Servicer, the Special Hazard Insurer, the Pool Insurer, or the Trustee is a
fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
(i) the initial sale, exchange or transfer of Certificates is expressly approved
by an independent fiduciary who has authority to manage and control those plan
assets being invested in Certificates; (ii) the Plan pays no more for the
Certificates than would be paid in an arm's length transaction; (iii) no
investment management, advisory or underwriting fee, sale commission, or similar
compensation is paid to the Seller with regard to the sale, exchange or transfer
of Certificates to the Plan; (iv) the total value of the Certificates purchased
by such Plan does not exceed 25% of the amount issued; and (v) at least 50% of
the aggregate amount of Certificates is acquired by persons independent of the
Seller, the Trustee, the Master Servicer, and the Special Hazard Insurer or Pool
Insurer.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust Fund is a "mortgage pool," that the Certificates constitute "mortgage
pool pass-through certificates," and that the conditions set forth in PTCE 83-1
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in PTCE 83-1, the Plan fiduciary
should consider the availability of any other prohibited transaction exemptions.
The Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
In addition to PTCE 83-1, the U.S. Department of Labor has issued an
individual exemption, Prohibited Transaction Exemption 90-30 ("PTE 90-30"), to
Bear, Stearns & Co. Inc., which is applicable to Certificates which meet its
requirements whenever Bear, Stearns & Co. Inc. or its affiliate is the sole
underwriter, manager or co-manager of an underwriting syndicate, or is the
selling or placement agent. PTE 90-30 generally exempts certain transactions
from the application of certain of the prohibited transaction provisions of
ERISA and the Code provided that certain conditions set forth in PTE 90-30 are
satisfied. The exempted transactions include certain transactions relating to
the servicing and operation of investment trusts holding assets of the following
general categories: single and multifamily residential or commercial mortgages,
motor vehicle receivables, consumer or commercial receivables and guaranteed
government mortgage pool certificates and the purchase, sale and holding of
mortgage-backed or asset-backed pass-through certificates representing
beneficial ownership interests in the assets of such investment trusts.
PTE 90-30 sets forth seven general conditions which must be satisfied for a
transaction involving the purchase, sale and holding of the Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of Certificates
by certain Plans must be on terms that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party. Second,
the rights and interests evidenced by the Certificates must not be subordinated
to the rights and interests evidenced by other certificates of the same trust.
Third, the Certificates at the time of acquisition by the Plan must be rated in
one of the three highest generic rating categories by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc., Moody's Investors
Services, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc. ("Nationally
Recognized Rating Agencies"). Fourth, the Trustee cannot be an affiliate of any
member of the "Restricted Group" which consists of any underwriter as defined in
PTE 90-30, the Seller, the Master Servicer, each servicer, the Pool Insurer, the
Special Hazard Insurer and any obligor with respect to obligations or
receivables constituting more than 5% of the aggregate unamortized principal
balance of the obligations or receivables as of the date of initial issuance of
the Certificates. Fifth, the sum of all payments made to and retained by such
underwriters must represent not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained by
the Seller pursuant to the assignment of the obligations or receivables to the
related Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer and any servicer must represent not more than reasonable compensation
for such person's services under the Agreement and reimbursement of such
person's reasonable expenses in connection therewith. Sixth, (i) the investment
pool consists only of assets of the type enumerated in the exemption and which
have been included in other investment pools; (ii) certificates evidencing
interests in such other investment pools have been rated in one of the three
highest generic rating categories by one of the Nationally Recognized Rating
Agencies for at least one year prior to a Plan's acquisition of certificates;
and (iii) 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 certificates. Finally, the investing Plan must be an
accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933, as amended. The Seller assumes that
only Plans which are accredited investors under the federal securities laws will
be permitted to purchase the Certificates.
If the general conditions of PTE 90-30 are satisfied, such exemption may
provide an exemption from the restrictions imposed by ERISA and the Code in
connection with the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary market of the
Certificates by Plans. However, no exemption is provided from the restrictions
of ERISA for the acquisition or holding of 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 Certificates, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group. In addition, each Plan's
investment in each class of Certificates cannot exceed 25% of the outstanding
Certificates in the class, and after the Plan's acquisition of the Certificates,
no more than 25% of the assets over which the fiduciary has investment authority
are invested in Certificates of a trust containing assets which are sold or
serviced by the same entity. Finally, in the case of initial issuance (but not
secondary market transactions), at least 50% of each class of Certificates, and
at least 50% of the aggregate interests in the trust, must be 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
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to holders of Certificates and having
a principal amount equal to no more than 25% of the total principal amount of
the Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("DOL 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 Rating
Agency.
(3) The transfer of such Additional Loans to the Trust during the DOL
Pre-Funding Period must not result in the Certificates receiving a lower credit
rating from the Rating Agency upon termination of the DOL 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 Fund at the end of the DOL 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 Seller; or (ii) an independent accountant retained by the Seller must
provide the Seller with a letter (with copies provided to the Rating Agency, the
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 the 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 DOL 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 Agreement or an event of default occurs under the Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested only in
investments which are permitted by the 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 Rating Agency
("Acceptable Investments").
(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 DOL Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust Fund; and (iv) that
the amounts remaining in the Pre-Funding Account at the end of the DOL
Pre-Funding Period will be remitted to holders of Certificates (each a as
repayments of principal.
(9) The Agreement must describe the Acceptable Investments 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.
Before purchasing a Certificate in reliance on any of these exemptions or
any other exemption, a fiduciary of a Plan should itself confirm that
requirements set forth in such exemption would be satisfied.
One or more exemptions may be available, with respect to certain prohibited
transactions to which neither PTCE 83-1 nor PTE 90-30 is applicable, depending
in part upon the type of Plan fiduciary making the decision to acquire
Certificates 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
investments funds), PTCE 84-14 (regarding transactions effected by "qualified
professional asset managers"), PTCE 95-60 (regarding investments by insurance
company general accounts) and PTCE 96-23 (regarding transactions effected by
"in-house asset managers") (collectively, the "Investor Based Exemptions").
However, even if the conditions specified in either of these exemptions are met,
the scope of the relief provided by these exemptions might or might not cover
all acts which might be construed as prohibited transactions.
Each Prospectus Supplement will contain information concerning
considerations relating to ERISA and the Code that are applicable to the related
Certificates.
ERISA CONSIDERATIONS RELATING TO THE NOTES. Under the Plan Asset
Regulations, the assets of the Trust Fund would be treated as plan assets of a
Plan for the purposes of ERISA and the Code only if the Plan acquires an "Equity
Interest" in the Trust Fund and none of the exceptions contained in the Plan
Asset Regulations is applicable. An equity interest is defined under the Plan
Asset Regulations as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Assuming that a Series of Notes is treated as indebtedness without
substantial equity features for purposes of the Plan Asset Regulations, then
such Series of Notes will be eligible for purchase by Plans. However, without
regard to whether a Series of Notes is treated as an "equity interest" for such
purposes, the acquisition or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust Fund or any of
its affiliates is or becomes a party in interest or disqualified person with
respect to such Plan, or in the event that a Note is purchased in the secondary
market and such purchase constitutes a sale or exchange between a Plan and a
party in interest or disqualified person with respect to such Plan. There can be
no assurance that the Trust Fund or any of its affiliates will not be or become
a party in interest or a disqualified person with respect to a Plan that
acquires Notes. However, one or more of the Investor Based Exemptions described
above may apply to any potential prohibited transactions arising as a
consequence of the acquisition, holding and transfer of the Notes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
SECURITIES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT
TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE
ACQUISITION AND OWNERSHIP OF SUCH SECURITIES.
A governmental plan as defined in Section (32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such governmental plan may be subject to
federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for the availability of any exemptive relief under any Similar Law.
FASIT REGULAR CERTIFICATES WHICH ARE HIGH-YIELD INTERESTS OR FASIT
OWNERSHIP CERTIFICATES ARE NOT ELIGIBLE TO BE ACQUIRED BY A PURCHASER WHICH IS
ACQUIRING SUCH FASIT CERTIFICATES DIRECTLY OR INDIRECTLY FOR, ON BEHALF OF OR
WITH THE ASSETS OF, A PLAN OR A GOVERNMENTAL PLAN.
LEGAL INVESTMENT
SMMEA
In general, for so long as they are rated in one of the two highest rating
categories by a least one nationally recognized statistical rating organization,
the Securities will constitute "mortgage related securities" for purposes of
SMMEA, and as such, absent state legislation described below, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state (including the District of Columbia
and Puerto Rico) whose authorized investments are subject to state regulation to
the same extent that under applicable law obligations issued by or guaranteed as
to principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under SMMEA, if a state
enacted legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities," the Securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Certain states
adopted legislation which limits the ability of insurance companies domiciled in
these states to purchase mortgage-related securities, such as the Securities.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with Securities
without limitation as to the percentage of their assets represented thereby,
federal credit unions may invest in Securities, and national banks may purchase
Securities for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. ss. 24 (Seventh),
subject in each case to such regulations as the applicable federal regulatory
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which included guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703), (whether or not the class of Securities under consideration
for purchase constitutes a "mortgage related security").
FFIEC POLICY STATEMENT
The Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision have adopted the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on Securities Activities (the "Policy
Statement"). Although the National Credit Union Administration has not yet
adopted the Policy Statement, it has adopted other regulations affecting
mortgage-backed securities and is expected to consider adoption of the Policy
Statement. The Policy Statement, among other things, places responsibility on a
depository institution to develop and monitor appropriate policies and
strategies regarding the investment, sale and trading of securities and
restricts an institution's ability to engage in certain types of transactions.
The Policy Statement and any applicable modifications or supplements
thereto should be reviewed prior to the purchase of any Securities by a
depository institution. The summary of the Policy Statement contained herein
does not purport to be complete and should not be relied upon for purposes of
making any regulatory determinations. In addition, any regulator may adopt
modifications or supplements to the Policy Statement or additional restrictions
on the purchase of mortgage-backed or other securities. Investors are urged to
consult their own legal advisors prior to making any determinations with respect
to the Policy Statement or other regulatory requirements.
The Policy Statement provides that a "high-risk mortgage security" is not
suitable as an investment portfolio holding for a depository institution. A
high-risk mortgage security must be reported in the trading account at market
value or as an asset held for sale at the lower of cost or market value and
generally may only be acquired to reduce an institution's interest rate risk.
However, an institution with strong capital and earnings and adequate liquidity
that has a closely supervised trading department is not precluded from acquiring
high-risk mortgage securities for trading purposes.
A depository institution must ascertain and document prior to purchase and
no less frequently than annually thereafter that a nonhigh-risk mortgage
security held for investment remains outside the high-risk category. If an
institution is unable to make these determinations through internal analysis, it
must use information derived from a source that is independent of the party from
whom the product is being purchased. The institution is responsible for ensuring
that the assumptions underlying the analysis and resulting calculations are
reasonable. Reliance on analyses and documentation from a securities dealer or
other outside party without internal analyses by the institution is
unacceptable.
In general, a high-risk mortgage security is a mortgage derivative product
possessing greater price volatility than a benchmark fixed rate 30-year
mortgage-backed pass-through security. Mortgage derivative products include
CMOs, REMICs, CMO and REMIC residuals and stripped mortgage-backed securities. A
mortgage derivative product that, at the time of purchase or at a subsequent
testing date, meets any one of three tests will be considered a high-risk
mortgage security. When the characteristics of a mortgage derivative product are
such that the first two tests cannot be applied (such as interest-only strips),
the mortgage derivative product remains subject to the third test.
The three tests of a high-risk mortgage security are as follows: (i) the
mortgage derivative product has an expected weighted average life greater than
10.0 years; (ii) the expected weighted average life of the mortgage derivative
product: (a) extends by more than 4.0 years, assuming an immediate and sustained
parallel shift in the yield curve of plus 300 basis points, or (b) shortens by
more than 6.0 years, assuming an immediate and sustained parallel shift in the
yield curve of minus 300 basis points; and (iii) the estimated change in the
price of the mortgage derivative product is more than 17%, due to an immediate
and sustained parallel shift in the yield curve of plus or minus 300 basis
points.
When performing the price sensitivity test, the same prepayment assumptions
and same cash flows that were used to estimate average life sensitivity must be
used. The discount rate assumptions should be determined by (i) assuming that
the discount rate for the security equals the yield on a comparable average life
U.S. Treasury security plus a constant spread, (ii) calculating the spread over
Treasury rates from the bid side of the market for the mortgage derivative
product, and (iii) assuming the spread remains constant when the Treasury curve
shifts up or down 300 basis points. Discounting the cash flows by their
respective discount rates estimates a price in the plus or minus 300 basis point
environments. The initial price must be determined by the offer side of the
market and used as the base price from which the 17% price sensitivity test will
be measured.
Generally, a floating-rate debt class will not be subject to the average
life and average life sensitivity tests described above if it bears a rate that,
at the time of purchase or at a subsequent testing date, is below the
contractual cap on the instrument. An institution may purchase interest rate
contracts that effectively uncap the instrument. For purposes of the Policy
Statement, a CMO floating-rate debt class is a debt class whose rate adjusts at
least annually on a one-for-one basis with the debt class's index. The index
must be a conventional, widely-used market interest rate index such as the
London Interbank Offered Rate ("LIBOR"). Inverse floating rate debt classes are
not included in the definition of a floating rate debt class.
Securities and other products, whether carried on or off balance sheet
(such as CMO swaps but excluding servicing assets), having characteristics
similar to those of high-risk mortgage securities, will be subject to the same
supervisory treatment as high-risk mortgage securities. Long-maturity holdings
of zero coupon, stripped and deep discount OID products which are
disproportionately large in relation to the total investment portfolio or total
capital of a depository institution are considered an imprudent investment
practice. Long-maturity generally means a remaining maturity exceeding 10 years.
GENERALLY
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Securities, such as residual interests
or stripped mortgage-backed securities. Investors should consult their own legal
advisors in determining whether and to what extent the Securities constitute
legal investments for such investors and comply with any other applicable
requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplements
will be offered in Series. The distribution of the Securities may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Bear, Stearns & Co. Inc. ("Bear,
Stearns"), an affiliate of the Seller, acting as underwriter with other
underwriters, if any, named therein. In such event, the related Prospectus
Supplement may also specify that the underwriters will not be obligated to pay
for any Securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Seller. In connection with the sale of the
Securities, underwriters may receive compensation from the Seller or from
purchasers of the Securities in the form of discounts, concessions or
commissions. The related Prospectus Supplement will describe any such
compensation paid by the Seller.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by Bear, Stearns acting as agent or in some cases
as principal with respect to Securities that it has previously purchased or
agreed to purchase. If Bear, Stearns acts as agent in the sale of Securities,
Bear, Stearns will receive a selling commission with respect to each Series of
Securities, depending on market conditions, expressed as a percentage of the
aggregate principal balance of the Securities sold hereunder as of the Cut-off
Date. The exact percentage for each Series of Securities will be disclosed in
the related Prospectus Supplement. To the extent that Bear, Stearns elects to
purchase Securities as principal, Bear, Stearns may realize losses or profits
based upon the difference between its purchase price and the sales price. The
related Prospectus Supplement with respect to any Series offered other than
through underwriters 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 Seller will indemnify Bear, Stearns and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Bear, Stearns and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Bear, Stearns and the Seller may engage
in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Seller's Mortgage Loans pending
the sale of such Mortgage Loans or interests therein, including the Securities.
The Seller anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
The legality of the Securities of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the Seller
by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the related 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-backed securities address the likelihood of receipt by
Securityholders of all distributions on the underlying mortgage loans or other
assets. These ratings address the structural, legal and issuer-related aspects
associated with such Securities, the nature of the underlying mortgage loans or
other assets and the credit quality of the guarantor, if any. Ratings on
mortgage-backed 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 Securities under certain scenarios might fail to recoup their
underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
<PAGE>
GLOSSARY
Unless the context indicates otherwise, the following terms shall have the
meanings set forth on the page indicated below:
TERM PAGE
Accounts..................................................................35
Accrual Securities........................................................37
Agency Securities..........................................................1
APR........................................................................8
ARM......................................................................103
Available Funds...........................................................36
Bankruptcy Bond...........................................................15
Basis Risk Shortfall......................................................82
Bear, Stearns............................................................121
Buydown Funds........................................................82, 101
Buydown Loans..............................................................6
Call Class................................................................12
Call Securities............................................................1
Callable Class............................................................12
Callable Securities........................................................1
Capitalized Interest Account..............................................10
Cedel.....................................................................40
Certificates...............................................................1
Charter Act...............................................................26
Cleanup Costs.............................................................80
CMO........................................................................9
Code..................................................................16, 81
Collateral Value..........................................................22
Commission.................................................................3
Contracts..................................................................1
Cooperative...............................................................41
Cooperative Loans..........................................................1
Cooperatives...............................................................6
Current Principal Amount..................................................37
Cut-off Date..............................................................12
Debt Securities..........................................................105
Definitive Security.......................................................40
Detailed Description......................................................20
Distribution Date..........................................................3
DTC.......................................................................40
Equity Interest..........................................................117
ERISA.....................................................................19
ES Class..................................................................12
Euroclear.................................................................40
Euroclear Operator........................................................41
European Depositaries.....................................................40
Events of Default.....................................................67, 68
Exchangeable Security.....................................................12
Exchangeable Security Trust Fund..........................................43
Fannie Mae.................................................................1
Fannie Mae Certificates....................................................8
FASIT..................................................................3, 81
FASIT Owner..............................................................100
FASIT Ownership Security..................................................96
FASIT Ownership Security..................................................17
FASIT Regular Securities..............................................17, 96
FASIT Securities..........................................................96
FDIC......................................................................33
Federal Tax Counsel.......................................................81
FHA........................................................................6
FHA Insurance.............................................................35
FHA Loans.................................................................24
FHLMC Act.................................................................27
Freddie Mac................................................................1
Freddie Mac Certificate Group.............................................28
Freddie Mac Certificates...................................................8
FTC Rule..................................................................78
Garn-St Germain Act.......................................................78
GNMA.......................................................................1
GNMA Certificates..........................................................8
GNMA Issuer...............................................................25
Guaranty Agreement........................................................25
High-Yield Interests......................................................96
Holders of Securities.....................................................18
Housing Act...............................................................24
HUD.......................................................................30
Indenture.................................................................35
Insurance Proceeds........................................................59
Insured Expenses..........................................................59
Interest Rate.............................................................12
Investor Based Exemptions................................................117
Lender.....................................................................1
LIBOR....................................................................120
Liquidation Expenses......................................................60
Liquidation Proceeds......................................................60
Loan-to-Value Ratio.......................................................22
Lower Tier REMIC..........................................................91
Manufactured Homes........................................................24
Manufacturer's Invoice Price..............................................22
Master Servicer............................................................1
Master Servicing Agreement................................................23
Mortgage..................................................................58
Mortgage Assets............................................................1
Mortgage Loans.............................................................5
Mortgage Pool..............................................................5
Mortgage Rate..............................................................6
Mortgaged Properties......................................................20
Multifamily Loans..........................................................1
Multiple Variable Rate REMIC Regular Security.............................87
Nationally Recognized Rating Agencies....................................115
NCUA.....................................................................119
Non-Electing Securities...................................................18
Non-REMIC Certificates....................................................18
Notes......................................................................1
OID Regulations...........................................................83
Owners....................................................................40
Participants..............................................................40
Percentage Interests......................................................67
Permitted Investments.....................................................55
Plan.....................................................................114
Plan Asset Regulations...................................................114
PMBS Agreement............................................................29
PMBS Issuer................................................................9
PMBS Servicer..............................................................9
PMBS Trustee...............................................................9
Policy Statement.........................................................119
Pool Insurance Policy.....................................................14
Pool Insurer..............................................................50
Pooling and Servicing Agreement...........................................35
Pre-Funded Amount.........................................................10
Pre-Funding Account.......................................................10
Pre-Funding Period........................................................10
Prepayment Assumption.....................................................84
Presumed Single Qualified Floating Rate...................................86
Presumed Single Variable Rate.............................................87
Primary Insurance Policy..................................................20
Primary Insurer...........................................................64
Principal Prepayments.....................................................37
Private Mortgage-Backed Securities.........................................1
Protected Account.........................................................59
PTCE 83-1................................................................114
PTE 90-30................................................................115
Purchase Price............................................................34
Rating Agency.............................................................15
Record Date...............................................................36
Refinance Loan............................................................22
REIT......................................................................91
Relevant Depositary.......................................................40
Relief Act................................................................80
REMIC..................................................................3, 81
REMIC Regular Securities..........................................16, 17, 82
REMIC Regulations....................................................82, 101
REMIC Residual Securities.................................................17
REMIC Securities..........................................................82
Reserve Account............................................................3
Restricted Group.........................................................115
Retained Interest.........................................................35
RICs......................................................................92
Securities.................................................................1
Securities Account........................................................60
Securities Register.......................................................36
Securityholders............................................................1
Seller..................................................................1, 4
Senior Securities.........................................................11
Series.....................................................................1
Single Family Loans........................................................1
Single Variable Rate REMIC Regular Security...............................87
SMMEA.....................................................................16
Special Hazard Insurance Policy...........................................14
Special Hazard Insurer....................................................51
Strip....................................................................112
Subordinated Securities...................................................11
Sub-Servicer..............................................................16
Sub-Servicing Agreement...................................................61
Superlien.................................................................81
Terms and Conditions......................................................42
Tiered FASITs.............................................................98
Tiered REMICs.............................................................83
Title V...................................................................79
Trust Agreement...........................................................35
Trust Assets...............................................................1
Trust Fund.................................................................1
Trustee...................................................................35
U.S. Government Securities..............................................1, 5
United States person......................................................95
VA ........................................................................6
VA Guarantees.............................................................35
VA Loans..................................................................24
Variable Rate Non-Electing Securities....................................103
Variable Rate REMIC Regular Security......................................86
Yield Supplement Agreement................................................81
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee...................... $295.00
Printing and Engraving Expenses........... *
Trustee Fees and Expenses................. *
Legal Fees and Expenses................... *
Blue Sky Fees and Expenses................ *
Accounting Fees and Expenses.............. *
Rating Agency Fees........................ *
Miscellaneous Fees and Expenses........... *
------------
Total Expenses.................. *
============
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 7 of the form of Underwriting Agreement, the Underwriters
are obligated under certain circumstances to indemnify certain controlling
- --persons of the Registrant against certain liabilities, including liabilities
under the Securities Act of 1933.
The Registrant's By-Laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreements, Trust Agreements and Indentures
may provide that no director, officer, employee or agent or the Registrant is
liable to the Trust Fund or the Securityholders, except for such person's own
willful misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. Such agreements may provide
further that, with the exemptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expenses incurred in connection with legal actions relating to such
agreement and the related Securities, other than such expenses relating to
particular Mortgage Loans.
ITEM 16. EXHIBITS
1.1. Form of Underwriting Agreement.
3.1. Certificate of Incorporation of Registrant.*
3.2. By-laws of Registrant.*
4.1. Form of Pooling and Servicing Agreement.
4.2 Form of Certificate (included as part of Exhibit 4.1).
4.3 Form of Indenture.**
4.4 Form of Note (included as part of Exhibit 4.3).**
4.5 Form of Trust Agreement.**
4.6 Form of Trust Certificate (included as part of Exhibit 4.5).**
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect to
legality.**
8.1. Opinion of Stroock & Stroock & Lavan LLP with respect to federal
income tax matters (contained in Exhibit 5.1).**
10.1 Form of Master Servicing Agreement.**
23.1. Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1).**
24.1. Power of Attorney (included as part of signature page).
25.1 Statement of Eligibility and Qualification of Indenture Trustee
(Form T-1).**
- -------------------------
* Previously filed as an exhibit to the Registrant's Registration Statement
(No. 33-62710) on Form S-11 and incorporated herein by reference.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934, as amended,
hat is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(6) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3)
of the Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(7) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bear Stearns
Mortgage Securities Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, it believes that
the securities rating requirement for use of Form S-3 will be met by the time of
sale of the securities and it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the State
of New York on April 28, 1998.
BEAR STEARNS MORTGAGE SECURITIES INC.
By: /S/ JOSEPH T. JURKOWSKI, JR.
Name: Joseph T. Jurkowski, Jr.
Title: Vice President / Ass't. Sec'y.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned does hereby
constitute and appoint Jeffrey J. Mayer, William J. Montgoris, Paul M. Friedman
and Joseph T. Jurkowski, Jr. or any of them (with full power to each of them to
act alone), his or her true and lawful attorney-in-fact and agent with full
power of substitution, for him or her and on his or her behalf to sign, execute
and file this Registration Statement and any and all amendments (including,
without limitation, post-effective amendments and any amendments increasing the
amount of securities for which registration is being sought) to this
Registration Statement, with all exhibits and any and all documents to be filed
with respect thereto, with the Securities and Exchange Commission or any
regulatory authority, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he or she might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE Date
<S> <C> <C>
/S/ JEFFREY J. MAYER Chairman of the Board/ Chief April 28, 1998
Jeffrey J. Mayer Executive Office (Principal
Executive Officer), President
and Director
/S/ WILLIAM J. MONTGORIS Secretary / Treasurer (Principal April 28, 1998
William J. Mortgoris Financial and Accounting Officer
/S/ PAUL M. FRIEDMAN Vice President / Assistant April 28, 1998
Paul M. Friedman Secretary and Director
</TABLE>
<PAGE>
REGISTRATION NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
BEAR STEARNS MORTGAGE SECURITIES INC.
(Depositor)
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3633241
(State of incorporation) (I.R.S. Employer Identification Number)
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
WILLIAM J. MONTGORIS
TREASURER AND SECRETARY
BEAR STEARNS MORTGAGE SECURITIES INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copies to:
LOIS L. WEINROTH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
--------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER EXHIBIT
1.1. Form of Underwriting Agreement.
3.1. Certificate of Incorporation of Registrant.*
3.2. By-laws of Registrant.*
4.1. Form of Pooling and Servicing Agreement.
4.2. Form of Certificate (included as part of Exhibit 4.1).
4.3. Form of Indenture.**
4.4. Form of Note (included as part of Exhibit 4.3).**
4.5. Form of Trust Agreement.**
4.6. Form of Trust Certificate (included as part of Exhibit 4.5).**
5.1. Opinion of Stroock & Stroock & Lavan LLP with respect to
legality.**
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to
federal income tax matters (contained in Exhibit 5.1).**
10.1 Form of Master Servicing Agreement.**
23.1. Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit
5.1)**
24.1. Power of Attorney (included as part of signature page).
25.1. Statement of Eligibility and Qualification of Indenture
Trustee (Form T-1).**
- ---------------------
* Previously filed as an exhibit to the Registrant's Registration
Statement (No. 33-62710) on Form S-11 and incorporated herein by
reference.
** To be filed by amendment.
EXHIBIT 1.1
BEAR STEARNS MORTGAGE SECURITIES INC.
MORTGAGE-BACKED CERTIFICATES
UNDERWRITING AGREEMENT
_______________, 199_
[Name of Underwriter]
[Address]
Dear Sirs:
1. Introduction. Bear Stearns Mortgage Securities Inc., a
Delaware corporation (the "Company"), from time to time proposes to issue and
sell Mortgage-Backed Certificates ("Certificates") in various series (each a
"Series"), and, within each Series, in various classes, in one or more offerings
on terms determined at the time of sale. The Certificates of each series will be
issued pursuant to a pooling and servicing agreement (each, a "Pooling and
Servicing Agreement") among the Company, as depositor, one or more master
servicers which may include the Company and a third-party trustee (the
"Trustee"). Upon issuance, the Certificates of each series will evidence
undivided interests in the Trust Fund (as defined in the Pooling and Servicing
Agreement) established for such series containing mortgages or, in the event the
Trust Fund, or a portion thereof, constitutes the upper tier of a two-tier real
estate mortgage investment conduit ("REMIC"), the Trust Fund may contain
interests issued by a lower tier trust which will contain mortgages, all as
described in the Prospectus (as defined below). Terms not defined herein which
are defined in the Pooling and Servicing Agreement shall have the meanings
ascribed to them in the Pooling and Servicing Agreement.
Whenever the Company determines to make an offering of a
Series of Certificates (an "Offering") through you or an underwriting syndicate
managed or co-managed by you, it will offer to enter into an agreement ("Terms
Agreement") providing for the sale of such Certificates to, and the purchase and
offering thereof by, you and such other co-managers and underwriters, if any,
which have been selected by you and have authorized you to enter into such Terms
Agreement and other related documentation on their behalf (the "Underwriters,"
which term shall include you whether acting alone in the sale of Certificates or
as a co-manager or as a member of an underwriting syndicate). The Terms
Agreement relating to each Offering shall specify the principal amount of
Certificates to be issued and their terms not otherwise specified in the
Pooling and Servicing Agreement, the price at which the Certificates are to be
purchased by each of the Underwriters from the Company and the initial public
offering price or the method by which the price at which the Certificates are to
be sold will be determined. The Terms Agreement, which shall be substantially in
the form of Exhibit A hereto, may take the form of an exchange of any standard
form of written telecommunication between you and the Company. Each Offering
governed by this Agreement, as supplemented by the applicable Terms Agreement,
shall inure to the benefit of and be binding upon the Company and each of the
Underwriters participating in the Offering of such Certificates.
The Company hereby agrees with the Underwriters as follows:
2. Representations and Warranties of the Company.
The Company represents and warrants to you as of the date hereof, and to the
Underwriters named in the applicable Terms Agreement as of the date of such
Terms Agreement, as follows:
(a) A registration statement, including a prospectus, and such
amendments thereto as may have been required to the date hereof, relating to the
Certificates and the offering thereof from time to time in accordance with Rule
415 under the Securities Act of 1933, as amended ("Act"), have been filed with
the Securities and Exchange Commission ("Commission") and such registration
statement as amended has become effective. Such registration statement as
amended and the prospectus relating to the sale of Certificates constituting a
part thereof as from time to time amended or supplemented (including any
prospectus filed with the Commission pursuant to Rule 424 of the rules and
regulations of the Commission ("Rules and Regulations") under the Act, including
any documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act which were filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") on or before the Effective Date of the Registration
Statement or the date of the Prospectus Supplement, are respectively referred to
herein as the "Registration Statement" and the "Prospectus"; provided, however,
that a supplement to the Prospectus (a "Prospectus Supplement") prepared
pursuant to Section 5(a) hereof shall be deemed to have supplemented the
Prospectus only with respect to the Offering of the Series of Certificates to
which it relates. The conditions of Rule 415 under the Act have been satisfied
with respect to the Company and the Registration Statement.
(b) On the effective date of the Registration Statement, the
Registration Statement and the Prospectus conformed in all material respects to
the requirements of the Act and the Rules and Regulations, and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and on the date of each Terms Agreement, the Registration Statement
and the Prospectus will conform in all material respects to the requirements of
the Act and the Rules and Regulations, and the Prospectus will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading; provided,
however, that the foregoing does not apply to (i) statements or omissions in
such documents based upon written information furnished to the Company by any
Underwriter specifically for use therein or (ii) any Current Report (as defined
in Section 5(b) below) or in any amendment thereof or supplement thereto,
incorporated by reference in such Registration Statement or such Prospectus (or
any amendment thereof or supplement thereto).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus except as otherwise
stated therein, (A) there has been no material adverse change in the condition,
financial or otherwise, earnings, affairs, regulatory situation or business
prospects of the Company whether or not arising in the ordinary course of
business and (B) there have been no transactions entered into by the Company
which are material, other than those in the ordinary course of business.
(d) This Agreement has been, and the Pooling and Servicing
Agreement, when executed and delivered as contemplated hereby and thereby will
have been, duly executed and delivered by the Company and each constitutes, or
will constitute when so executed and delivered, a legal, valid and binding
instrument enforceable against the Company in accordance with its terms,
subject, as to the enforceability of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the rights of
creditors generally, and to general principles of equity and the discretion of
the court (regardless of whether enforceability of such remedies is considered
in a proceeding in equity or at law).
(e) At the applicable Closing Date, each applicable Terms
Agreement will have been duly authorized, executed and delivered by the Company
and will be a legal, valid and binding obligation of the Company enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance and other laws affecting the rights of
creditors generally, and to general principles of equity and the discretion of
the court (regardless of whether enforceability of such remedies is considered
in a proceeding in equity or at law).
(f) The issuance of the Certificates has been duly authorized
by the Company and, when such Certificates are executed and authenticated in
accordance with the Pooling and Servicing Agreement and delivered against
payment pursuant to this Agreement, such Certificates will be validly issued and
outstanding; and the Certificates will be entitled to the benefits provided by
the Pooling and Servicing Agreement. The Certificates are in all material
respects in the form contemplated by the Pooling and Servicing Agreement.
(g) Neither the Company nor the Trust Fund is or, as a result
of the offer and sale of the Certificates as contemplated in this Agreement will
become, an "investment company" as defined in the Investment Company Act of
1940, as amended (the "Investment Company Act"), or an "affiliated person" of
any such "investment company" that is registered or is required to be registered
under the Investment Company Act (or an "affiliated person" of any such
"affiliated person"), as such terms are defined in the Investment Company Act.
(h) The representations and warranties made by the Company in
the Pooling and Servicing Agreement and made in any Officer's Certificate of the
Company delivered pursuant to the Pooling and Servicing Agreement will be true
and correct at the time made and on the Closing Date.
3. Purchase, Sale and Delivery of Certificates. Delivery of
and payment for the Certificates shall be made at your office or at such other
location as you shall make known at such time as shall be specified in the
applicable Terms Agreement, each such time being herein referred to as a
"Closing Date." Delivery of the Certificates shall be made by the Company to the
Underwriters against payment of the purchase price specified in the applicable
Terms Agreement in Federal Funds by wire or check. Unless delivery is made
through the facilities of the Depository Trust Company, the Certificates so to
be delivered will be in definitive, fully registered form, in such denominations
and registered in such names as you request, and will be made available for
inspection and packaging at your office at least twenty-four hours prior to the
applicable Closing Date.
4. Offering by Underwriters. It is understood that the
Underwriters propose to offer the Certificates for sale to the public as set
forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees
with you and the several Underwriters participating in the Offering of any
Series of Certificates that:
(a) In connection with the execution of each Terms Agreement,
the Company will prepare a Prospectus Supplement to be filed under the Act
setting forth the principal amount of Certificates covered thereby and their
terms not otherwise specified in the Prospectus, the price at which the
Certificates are to be purchased by the Underwriters from the Company, either
the initial public offering price or the method by which the price at which the
Certificates are to be sold will be determined, the selling concession and
reallowance, if any, any delayed delivery arrangements, and such other
information as you and the Company deem appropriate in connection with
the offering of the Certificates, but the Company will not file any
amendments to the Registration Statement or any amendments or supplements to
the Prospectus, unless it shall first have delivered copies of such amendments
or supplements to you, and you shall not have objected thereto promptly after
receipt thereof. The Company will advise you or your counsel promptly (i) when
notice is received from the Commission that any post-effective amendment to the
Registration Statement has become or will become effective, and (ii) of any
order or communication suspending or preventing, or threatening to suspend or
prevent, the offer and sale of the Certificates, or of any proceedings or
examinations that may lead to such an order or communication, whether by or of
the Commission or any authority administering any state securities or Blue Sky
law, as soon as the Company is advised thereof, and will use its best efforts to
prevent the issuance of any such order or communication and to obtain as soon as
possible its lifting, if issued.
(b) The Company will cause any Computational Materials and any
Structural Term Sheets (each as defined in Section 8 below) with respect to each
Series of Certificates that are delivered by the Underwriters to the Company
pursuant to Section 8 to be filed with the Commission on a Current Report on
Form 8-K (a "Current Report") pursuant to Rule 13a-11 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") on the business day
immediately following the day on which such Computational Materials and
Structural Term Sheets are delivered to counsel for the Company by any of the
Underwriters prior to 10:30 a.m. (and will use its best efforts to cause such
Computational Materials and Structural Term Sheets to be so filed prior to 2:00
p.m., New York time, on such business day), and will promptly advise you when
such Current Report has been so filed. The Company will cause one Collateral
Term Sheet (as defined in Section 9 below) with respect to an Offering of a
Series that is delivered by any of the Underwriters to the Company in accordance
with the provisions of Section 9 to be filed with the Commission on a Current
Report pursuant to Rule 13a-11 under the Exchange Act on the business day
immediately following the day on which such Collateral Term Sheet is delivered
to counsel for the Company by any of the Underwriters prior to 10:30 a.m. In
addition, if at any time prior to the availability of the related Prospectus
Supplement, any of the Underwriters has delivered to any prospective investor a
subsequent Collateral Term Sheet that reflects, in the reasonable judgment of
such Underwriter and the Company, a material change in the characteristics of
the Mortgage Loans for the related Series from those on which a Collateral Term
Sheet with respect to the related Series previously filed with the Commission
was based, the Company will cause any such Collateral Term Sheet that is
delivered by such Underwriter to the Company in accordance with the provisions
of Section 9 to be filed with the Commission on a Current Report on the business
day immediately following the day on which such Collateral Term Sheet is
delivered to counsel for the Company by such Underwriter prior to 2:00 p.m. In
each case, the Company will promptly advise you when such Current Report has
been so filed. Notwithstanding the four preceding sentences, the Company shall
have no obligation to file any materials provided by any of the Underwriters
pursuant to Sections 8 and 9 which (i) in the reasonable determination of the
Company are not required to be filed pursuant to the Kidder Letters or the PSA
Letter (each as defined in Section 8 below), or (ii) contain erroneous
information or contain any untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus Supplement, omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; it being understood, however, that the Company shall
have no obligation to review or pass upon the accuracy or adequacy of, or to
correct, any Computational Materials or ABS Term Sheets (as defined in Section 9
below) provided by such Underwriter to the Company pursuant to Section 8 or
Section 9 hereof. The Company shall give notice to you and such Underwriter of
its determination not to file any materials pursuant to clause (i) of the
preceding sentence and agrees to file such materials if such Underwriter or you
reasonably object to such determination within one business day after receipt of
such notice.
(c) If at any time when a prospectus relating to the
Certificates is required to be delivered under the Act any event occurs as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company promptly will prepare
and file with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance;
provided, however, that the Company will not be required to file any such
amendment or supplement with respect to any Computational Materials, Structural
Term Sheets or Collateral Term Sheets incorporated by reference in the
Prospectus other than any amendments or supplements of such Computational
Materials or Structural Term Sheets that are furnished to the Company by the
Underwriter pursuant to Section 8(e) hereof or any amendments or supplements of
such Collateral Term Sheets that are furnished to the Company by the Underwriter
pursuant to Section 9(d) hereof which are required to be filed in accordance
therewith.
(d) With respect to each Series of Certificates, the Company
will make generally available to the holders of the Certificates and will
deliver to you, in each case as soon as practicable, an earnings statement
covering the twelve-month period beginning after the date of the Terms Agreement
in respect of such series of Certificates, which will satisfy the provisions of
Section 11(a) of the Act with respect to the Certificates.
(e) The Company will furnish to you copies of the Registration
Statement (two of which will be signed and will include all documents and
exhibits thereto or incorporated by reference therein), each related preliminary
prospectus, the Prospectus, and all amendments and supplements to such
documents, in each case as soon as available and in such quantities as you
request.
(f) The Company will arrange for the qualification of the
Certificates for sale and the determination of their eligibility for investment
under the laws of such jurisdictions as you reasonably designate and will
continue such qualifications in effect so long as reasonably required for the
distribution; provided, however, that the Company shall not be required to
qualify to do business in any jurisdiction where it is not qualified on the date
of the related Terms Agreement or to take any action which would subject it to
general or unlimited service of process in any jurisdiction in which it is not,
on the date of the related Terms Agreement, subject to such service of process.
(g) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement and any Terms Agreement and
will reimburse the Underwriters for any expenses (including fees and
disbursements of counsel and accountants) incurred by them in connection with
qualification of the Certificates and determination of their eligibility for
investment under the laws of such jurisdictions as you designate and the
printing of memoranda relating thereto, for any fees charged by the nationally
recognized statistical rating agencies for the rating of the Certificates, for
the filing fee of the National Association of Securities Dealers, Inc. relating
to the Certificates, if applicable, and for expenses incurred in distributing
preliminary prospectuses to the Underwriters.
(h) During the period when a prospectus is required by law to
be delivered in connection with the sale of the Certificates pursuant to this
Agreement, the Company will file or cause to be filed, on a timely and complete
basis, all documents that are required to be filed by the Company with the
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(i) So long as the Certificates of a Series shall be
outstanding, the Company will deliver to you the annual statement of compliance
delivered to the Trustee pursuant to the Pooling and Servicing Agreement and the
annual statement of a firm of independent public accountants furnished to the
Trustee pursuant to the Pooling and Servicing Agreement as soon as such
statements are furnished to the Trustee.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters named in any Terms Agreement to purchase and pay
for the Certificates will be subject to the accuracy of the representations and
warranties on the part of the Company as of the date hereof, the date of the
applicable Terms Agreement and the applicable Closing Date, to the accuracy of
the statements made in any officers' certificates (each an "Officer's
Certificate") pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:
(a) (i) At the time the applicable Terms Agreement is
executed, [ ] and/or any other firm of certified independent public accountants
acceptable to you shall have furnished to you a letter, addressed to you, and in
form and substance satisfactory to you in all respects, stating in effect that
using the assumptions and methodology used by the Company, all of which shall be
described in such letter or the Prospectus Supplement, they have recalculated
such numbers, percentages and weighted average lives set forth in the Prospectus
as you may reasonably request, compared the results of their calculations to the
corresponding items in the Prospectus, and found each such number, percentage,
and weighted average life set forth in the Prospectus to be in agreement with
the results of such calculations. To the extent historical financial delinquency
or related information is included with respect to one or more master servicers,
such letter or letters shall also relate to such information.
(a) (ii) At the Closing Date, ______________ and/or any other
firm of certified independent public accountants acceptable to you shall have
furnished to you a letter, addressed to you, and in form and substance
satisfactory to you in all respects, relating to the extent such information is
not covered in the letter or letters provided pursuant to clause (a)(i), to a
portion of the information set forth on the Mortgage Loan Schedule attached to
the Pooling and Servicing Agreement and the characteristics of the mortgage
loans, as presented in the Prospectus Supplement or the Form 8-K relating
thereto, or if a letter relating to the same information is provided to the
Trustee, indicating that you are entitled to rely upon its letter to the
Trustee.
(b) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its affiliates the effect of
which, in any case, is, in your judgment, so material and adverse as to make it
impracticable or inadvisable to proceed with the Offering or the delivery of the
Certificates as contemplated by the Registration Statement and the Prospectus.
All actions required to be taken and all filings required to be made by the
Company under the Act and the Exchange Act prior to the sale of the Certificates
shall have been duly taken or made; and prior to the applicable Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted, or
to the knowledge of the Company or you, shall be contemplated by the Commission
or by any authority administering any state securities or Blue Sky law.
(c) Unless otherwise specified in any applicable Terms
Agreement for a Series, the Certificates shall be rated in one of the four
highest grades by one or more nationally recognized statistical rating agencies
specified in said Terms Agreement.
(d) You shall have received the opinion of counsel for the
Company, dated the applicable Closing Date, to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its assets and conduct its business as
described in the Prospectus, and the Company is duly qualified as a foreign
corporation to transact business and is in good standing under the laws of the
State of New York. The Company has no subsidiaries.
(ii) Each of this Agreement and the applicable Terms Agreement have
been duly authorized, executed and delivered by the Company and assuming due and
valid authorization and execution by the other parties thereto, constitutes the
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and to the application
of equitable principles in any proceeding, whether at law or in equity. Such
counsel's opinion may be qualified, in the case of the indemnity provisions in
this Agreement, to applicable law or judicial policy.
(iii) The Pooling and Servicing Agreement has been duly and validly
authorized, executed and delivered by the Company and assuming due and valid
authorization and execution by the other parties thereto, constitutes the valid
and binding agreement of the Company, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and to the application of
equitable principles in any proceeding, whether at law or in equity.
(iv) The Certificates are in a form authorized by the Pooling and
Servicing Agreement, have been duly and validly authorized by all necessary
corporate action and, when executed and authenticated as specified in the
Pooling and Servicing Agreement and delivered against payment pursuant to this
Agreement and the related Terms Agreement, will be validly issued and
outstanding; and the Certificates will be entitled to the benefits of the
Pooling and Servicing Agreement.
(v) The Registration Statement has become effective under the Act,
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Act, and the Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the Act and the Rules
and Regulations thereunder; such counsel has no reason to believe that either
the Registration Statement as of its effective date contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, or the Prospectus as of the date of any Terms Agreement contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion as to
the financial statements or other financial data or notes thereto or any
statistical or tabular data contained or incorporated by reference in the
Registration Statement or the Prospectus).
(vi) The statements in the Prospectus and Prospectus Supplement under
the heading "Certain Federal Income Tax Consequences," to the extent that they
constitute matters of law or legal conclusions, have been prepared or reviewed
by such counsel and provide a fair summary of such law or conclusions; the
statements in the Prospectus to the extent modified by the statements in the
Prospectus Supplement under the headings "Summary of Terms," "Description of the
Certificates" and "The Pooling and Servicing Agreement" and such other headings
as you may request, insofar as such statements constitute a summary of the
proposed transaction and of the provisions of the Certificates or the Pooling
and Servicing Agreement, constitute a fair and accurate summary of such
transaction and provisions.
(vii) Neither the Company nor the Trust Fund is, or as a result of the
offer and sale of the Certificates as contemplated in the Prospectus and in this
Agreement will become, an "investment company" as defined in the Investment
Company Act, or an "affiliated person" of any such "investment company" that is
registered or is required to be registered under the Investment Company Act (or
an "affiliated person" of any such "affiliated person"), as such terms are
defined in the Investment Company Act.
(viii) The Certificates offered pursuant to the Registration Statement and
indicated as such in the Prospectus Supplement will be mortgage related
securities, as defined in Section 3(a)(41) of the Exchange Act, so long as such
Certificates are rated in one of the two highest grades by at least one
nationally recognized statistical rating agency.
(ix) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended.
Each opinion also shall relate to such other matters as may be
specified in the related Terms Agreement or as to which you reasonably may
request. In rendering any such opinion, counsel for the Company may rely on
certificates of responsible officers of the Company, the Trustee, and public
officials or, as to matters of law other than New York or Federal law, on
opinions of other counsel (copies of which opinions shall be delivered to you),
provided that, in cases of opinions of other counsel, counsel for the Company
shall include in its opinion a statement of its belief that both it and you are
justified in relying on such opinions.
(e) You shall have received from counsel for the Company a
letter, dated as of the Closing Date, stating that you may rely on the opinions
delivered by such firm under the Pooling and Servicing Agreement and to the
rating agency or agencies rating the Certificates as if such opinions were
addressed directly to you (copies of which opinions shall be delivered to you).
(f) You shall have received from counsel for the Underwriters,
if such counsel is different from counsel to the Company, such opinion or
opinions, dated as of the Closing Date, with respect to the validity of the
Certificates, the Registration Statement, the Prospectus and other related
matters as the Underwriters may require, and the Company shall have furnished to
such counsel such documents as they may have requested from it for the purpose
of enabling them to pass upon such matters.
(g) You shall have received Officer's Certificates signed by
such of the principal executive, financial and accounting officers of the
Company as you may request, dated as of the Closing Date, in which such
officers, to the best of their knowledge after reasonable investigation, shall
state that the representations and warranties of the Company in this Agreement
are true and correct; that the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
the Closing Date; that no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated; that, subsequent to the respective dates as
of which information is given in the Prospectus, and except as set forth or
contemplated in the Prospectus, there has not been any material adverse change
in the general affairs, business, key personnel, capitalization, financial
condition or results of operations of the Company; that except as otherwise
stated in the Prospectus, there are no material actions, suits or proceedings
pending before any court or governmental agency, authority or body or, to their
knowledge, threatened, affecting the Company or the transactions contemplated by
this Agreement; and that attached thereto are true and correct copies of a
letter or letters from the one or more nationally recognized statistical rating
agencies specified in the applicable Terms Agreement confirming that, unless
otherwise specified in said Terms Agreement, the Certificates have been rated
in one of the four highest grades by each of such agencies and that such rating
has not been lowered since the date of such letter.
The Company will furnish you with such conformed copies of
such opinions, certificates, letters and documents as you reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects with respect to a particular
Offering when and as provided in this Agreement and the related Terms Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement and the related Terms Agreement shall not be in all material respects
reasonably satisfactory in form and substance to you, this Agreement (with
respect to the related Offering) and the related Terms Agreement and all
obligations of the Underwriters hereunder (with respect to the related Offering)
and thereunder may be canceled at, or at any time prior to, the related Closing
Date by the Underwriter. Notice of such cancellation shall be given to the
Company in writing, or by telephone or telegraph confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any and all losses, claims, damages, liabilities and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
relating to the applicable Series of Certificates (the "Applicable Registration
Statement") as it became effective or in any amendment or supplement thereof, or
in the Applicable Registration Statement or the related Prospectus, or in any
amendment thereof, or arise out of or are based upon the omission or alleged
omission (in the case of any Computational Materials or ABS Term Sheets in
respect of which the Company agrees to indemnify the Underwriters, as set forth
below, when such are read in conjunction with the related Prospectus and
Prospectus Supplement) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that (i) the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein (A) in reliance upon and in conformity with written
information furnished to the Company as herein stated by or on behalf of the
Underwriters specifically for use in connection with the preparation thereof or
(B) in any Current Report or any amendment or supplement thereof, except to the
extent that any untrue statement or alleged untrue statement therein or omission
therefrom results (or is alleged to have resulted)
directly from an error (a "Mortgage Pool Error") in the information
concerning the characteristics of the Mortgage Loans furnished by the Company to
the Underwriters in writing or by electronic transmission that was used in the
preparation of either (x) any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) included in such Current Report (or amendment
or supplement thereof) or (y) any written or electronic materials furnished to
prospective investors on which the Computational Materials (or amendments or
supplements) were based, (ii) such indemnity with respect to any Corrected
Statement (as defined below) in such Prospectus (or Prospectus Supplement
thereto) shall not inure to the benefit of the Underwriters (or any person
controlling any Underwriter) from whom the person asserting any loss, claim,
damage or liability purchased the Certificates of the related Series that are
the subject thereof if such person did not receive a copy of a Prospectus
Supplement to such Prospectus at or prior to the confirmation of the sale of
such Certificates and the untrue statement or omission of a material fact
contained in such Prospectus (or Prospectus Supplement thereto) was corrected (a
"Corrected Statement") in such other supplement and such supplement was
furnished by the Company to the Underwriters prior to the delivery of such
confirmation, and (iii) such indemnity with respect to any Mortgage Pool Error
shall not inure to the benefit of the Underwriters (or any person controlling
any Underwriter) from whom the person asserting any loss, claim, damage or
liability received any Computational Materials (or any written or electronic
materials on which the Computational Materials are based) or ABS Term Sheets
that were prepared on the basis of such Mortgage Pool Error, if, prior to the
time of confirmation of the sale of the applicable Series of Certificates to
such person, the Company notified the Underwriters in writing of the Mortgage
Pool Error or provided in written or electronic form information superseding or
correcting such Mortgage Pool Error (in any such case, a "Corrected Mortgage
Pool Error"), and the Underwriters failed to notify such person thereof or to
deliver to such person corrected Computational Materials (or underlying written
or electronic materials) or ABS Term Sheets. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriters severally, and not jointly, agree to
indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company who shall have signed the
Applicable Registration Statement, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any losses, claims, damages, liabilities and expenses
whatsoever (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon (A) any untrue
statement or alleged untrue statement of a material fact contained in the
Applicable Registration Statement, as originally filed or any amendment thereof,
or any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, claim, damage, liability or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company, by or on
behalf of such Underwriter expressly for use therein; or (B) any Computational
Materials or ABS Term Sheets (or amendments or supplements thereof) furnished to
the Company by such Underwriter pursuant to Section 8 and incorporated by
reference in such Registration Statement or the related Prospectus, Prospectus
Supplement or any amendment or supplement thereof (except that no such indemnity
shall be available for any losses, claims, damages or liabilities, or actions in
respect thereof resulting from any Mortgage Pool Error, other than a Corrected
Mortgage Pool Error). This indemnity will be in addition to any liability which
the Underwriters may otherwise have. The Company acknowledges that, unless
otherwise set forth in the applicable Terms Agreement, the statements set forth
in the last paragraph of the cover page and under the caption "Method of
Distribution" and the stabilization legend required by Item 502(d)(1) under
Regulation S-K of the Act included in the Prospectus Supplement relating to a
Series of Certificates constitute the only information furnished in writing by
or on behalf of any Underwriter expressly for use in the Applicable Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be (other than any Computational Materials or ABS Term Sheets
(or amendments or supplements thereof) furnished to the Company by such
Underwriter), and each Underwriter confirms, on its behalf, that such statements
are correct.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable, on grounds of public policy or otherwise, from the
Company or the Underwriters or is insufficient to hold harmless a party
indemnified thereunder, the Company and the Underwriters shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company any contribution received by the Company from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, officers of the Company who signed the
Applicable Registration Statement and directors of the Company) to which the
Company and the Underwriters may be subject (i) in the case of any losses,
claims, damages and liabilities (or actions in respect thereof) which do not
arise out of or are not based upon any untrue statement or omission of a
material fact in any Computational Materials or ABS Term Sheets (or any
amendments or supplements thereof), in such proportions as is appropriate to
reflect the relative benefits received by the Company on one hand and the
Underwriters on the other from the Offering of the Certificates as to which such
loss, liability, claim, damage or expense is claimed to arise or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7(c) hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company on one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations
or (ii) in the case of any losses, claims, damages and liabilities (or actions
in respect thereof) which arise out of or are based upon any untrue statement or
omission of a material fact in any Computational Materials or ABS Term Sheets
(or any amendments or supplements thereof) or in any written or electronic
materials distributed to prospective investors on which the Computational
Materials are based, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Underwriter that furnished
such Computational Materials or ABS Term Sheets on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations; provided, however, that in no case shall such
Underwriter be responsible under this subparagraph (ii) for any amount in excess
of the aggregate Purchase Price for the Offered Certificates.
The relative benefits received by the Company on one hand and the
Underwriters on the other shall be deemed to be in the same proportion as
(x) the total proceeds from the Offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the Terms Agreement in respect of the
Offering of the Certificates as to which such loss, liability, claim, damage or
expense is claimed to arise. The relative fault of the Company on one hand and
the Underwriters on the other shall be determined by reference to, among other
things, (A) in the case of clause (i) of the preceding paragraph, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on one hand or the Underwriters on the other, (B) in the case of clause (ii) of
the preceding paragraph, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to any untrue statement or omission of a material fact in any
Computational Materials or ABS Term Sheets (or any amendments or supplements
thereof) or in any written or electronic materials distributed by the applicable
Underwriter to prospective investors on which the Computational Materials are
based, and (C) in the case of either clause (i) or clause (ii) of the preceding
paragraph, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this Section
7(d), (x) except as otherwise provided in Section 7(d)(ii), in no case shall the
Underwriters be liable or responsible for any amount in excess of the
underwriting discount set forth in the Terms Agreement relating to the
Certificates as to which such losses, claims, damages, liabilities or expenses
are claimed to arise, and (y) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent misrepre
sentation. For purposes of this Section 7(d), each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as such Underwriter,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Applicable Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to clauses (i) and (ii) of this Section 7(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7(d) or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
8. Computational Materials and Structural Term Sheets. (a) Not later
than 2:00 p.m., New York time, on the business day before the date on which
the Current Report relating to the Certificates of a Series is required to be
filed by the Company with the Commission pursuant to Section 5(b) hereof, you
and any other applicable Underwriter shall deliver to the Company, and unless
otherwise agreed to by the Company, in a form reasonably convertible to an EDGAR
filing format, a copy of all materials provided by the Underwriters to
prospective investors in such Certificates which constitute (i) "Computational
Materials", within the meaning of the no-action letter dated May 20, 1994 issued
by the Division of Corporation Finance of the Commission to Kidder, Peabody
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder
Structured Asset Corporation and the no-action letter dated May 27, 1994 issued
by the Division of Corporation Finance of the Commission to the Public
Securities Association (together, the "Kidder Letters") and the filing of such
material is a condition of the relief granted in such letter (such materials
being the "Computational Materials"), and (ii) "Structural Term Sheets" within
the meaning of the no-action letter dated February 17, 1995 issued by the
Division of Corporation Finance of the Commission to the Public Securities
Association (the "PSA Letter") and the filing of such material is a condition of
the relief granted in such letter (such materials being the "Structural Term
Sheets"). Each delivery of Computational Materials and Structural Term Sheets to
the Company by you and any other applicable Underwriter pursuant to this
paragraph (a) shall be effected by delivering a copy of such materials to
counsel for the Company on behalf of the Company at the address specified by the
Company and one copy of such materials to the Company.
(b) You and each other Underwriter, by virtue of its having executed
and delivered the related Terms Agreement, which shall incorporate this Section
8(b) by reference, represents and warrants to and agrees with the Company, as of
the date of the related Terms Agreement and as of the Closing Date, that:
(i) the Computational Materials
furnished to the Company pursuant to Section 8(a)
constitute (either in original, aggregated or
consolidated form) all of the materials furnished to
prospective investors by such Underwriter prior to
the time of delivery thereof to the Company that are
required to be filed with the Commission with respect
to the Offering of the Certificates in accordance
with the Kidder Letters, and such Computational
Materials comply with the requirements of the Kidder
Letters;
(ii) the Structural Term Sheets
furnished to the Company pursuant to Section 8(a)
constitute all of the materials furnished to
prospective investors by such Underwriter prior to
the time of delivery thereof to the Company that are
required to be filed with the Commission as
"Structural Term Sheets" with respect to the related
Offering of the Certificates in accordance with the
PSA Letter, and such Structural Term Sheets comply
with the requirements of the PSA Letter;
(iii) on the date any such
Computational Materials or Structural Term Sheets
with respect to the Offering of the Certificates (or
any written or electronic materials furnished to
prospective investors on which the Computational
Materials are based) were last furnished to each
prospective investor and on the date of delivery
thereof to the Company pursuant to Section 8(a) and
on the related Closing Date, such Computational
Materials (or such other materials) or Structural
Term Sheets did not and will not include any untrue
statement of a material fact or, when read in
conjunction with the related Prospectus and
Prospectus Supplement, omit to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading; and
(iv) all Computational Materials (or
underlying materials distributed to prospective
investors on which the Computational Materials were
based) or Structural Term Sheets furnished to
prospective investors contained and will contain a
legend, prominently displayed on the first page
thereof, to the effect that the Company has not
prepared, reviewed or participated in the preparation
of such materials and is not responsible for the
accuracy thereof.
Notwithstanding the foregoing, you and each such Underwriter make no
representation or warranty as to whether any Computational Materials or
Structural Term Sheets (or any written or electronic materials on which the
Computational Materials are based) included or will include any untrue statement
resulting directly from any Mortgage Pool Error (except any Corrected Mortgage
Pool Error, with respect to materials prepared after the receipt by the
Underwriters from the Company of notice of such Corrected Mortgage Pool Error or
materials superseding or correcting such Corrected Mortgage Pool Error).
(c) Each Underwriter delivering Computational Materials shall cause a
firm of public accountants to furnish to the Company a letter, dated as of the
date on which such Underwriter delivers any Computational Materials (which term
shall be deemed to include, for purposes of this paragraph (c), calculated
statistical information delivered to prospective investors in the form of a
Structural Term Sheet) to the Company pursuant to Section 8(a), in form and
substance satisfactory to the Company, stating in effect that they have verified
the mathematical accuracy of any calculations performed by such Underwriter and
set forth in such Computational Materials.
(d) The Underwriters acknowledge and agree that the Company has
not authorized and will not authorize the distribution of any Computational
Materials (or any written or electronic materials on which the Computational
Materials are based) or Structural Term Sheets to any particular prospective
investor, and agrees that any Computational Materials or Structural Term Sheets
with respect to any Series of Certificates furnished to prospective investors
shall include a disclaimer in the form described in paragraph (b) (iv) above.
The Underwriters agree that they will not represent to prospective investors
that any Computational Materials or Structural Term Sheets were prepared or
disseminated on behalf of the Company.
(e) If, at any time when a prospectus relating to the Certificates of a
Series is required to be delivered under the Act, it shall be necessary to amend
or supplement the related Prospectus or Prospectus Supplement as a result of an
untrue statement of a material fact contained in any Computational Materials or
Structural Term Sheets provided by an Underwriter pursuant to this Section 8 or
the omission to state therein a material fact required, when considered in
conjunction with the related Prospectus and Prospectus Supplement, to be stated
therein or necessary to make the statements therein, when read in conjunction
with the related Prospectus and Prospectus Supplement, not misleading, or if it
shall be necessary to amend or supplement any Current Report relating to any
Computational Materials or Structural Term Sheets to comply with the Act or the
rules thereunder, such Underwriter promptly will prepare and furnish to the
Company for filing with the Commission an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Such Underwriter will deliver an Officer's Certificate to the
Company representing and warranting to the Company that, as of the date of
delivery of such amendment or supplement to the Company, such amendment or
supplement will not include any untrue statement of a material fact or, when
read in conjunction with the related Prospectus and Prospectus Supplement, omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that such Underwriter will
make no representation or warranty as to whether any such amendment or
supplement will include any untrue statement resulting directly from any
Mortgage Pool Error (except any Corrected Mortgage Pool Error, with respect to
any such amendment or supplement prepared after the receipt by such Underwriter
from the Company of notice of such Corrected Mortgage Pool Error or materials
superseding or correcting such Corrected Mortgage Pool Error). The Company shall
have no obligation to file such amendment or supplement if (i) the Company
determines that such amendment or supplement contains any untrue statement of a
material fact or, when read in conjunction with the related Prospectus and
Prospectus Supplement, omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; it being
understood, however, that the Company shall have no obligation to review or pass
upon the accuracy or adequacy of, or to correct, any such amendment or
supplement provided by such Underwriter to the Company pursuant to this
paragraph (e) or (ii) the Company reasonably determines that such filing is not
required under the Act and such Underwriter does not object as provided below.
The Company shall give notice to such Underwriter of its determination not to
file an amendment or supplement pursuant to clause (ii) of the preceding
sentence and agrees to file such amendment or supplement if such Underwriter
reasonably objects to such determination within one business day after receipt
of such notice.
9. Collateral Term Sheets. (a) Prior to the delivery of any "Collateral
Term Sheet" within the meaning of the PSA Letter, the filing of which
material is a condition of the relief granted in such letter (such material
being the "Collateral Term Sheets"), to a prospective investor in the
Certificates, the applicable Underwriter shall notify the Company and its
counsel by telephone of its intention to deliver such materials and the
approximate date on which the first such delivery of such materials is expected
to occur. Not later than 10:30 a.m., New York time, on the business day
immediately following the date on which any Collateral Term Sheet was first
delivered to a prospective investor in the Certificates of an offered series,
such applicable Underwriter shall deliver to the Company, and unless otherwise
agreed to by the Company, in a form reasonably convertible to an EDGAR format, a
complete copy of all materials provided by such Underwriter to prospective
investors in such Certificates which constitute "Collateral Term Sheets." Each
delivery of a Collateral Term Sheet to the Company pursuant to this paragraph
(a) shall be effected by delivering a copy of such materials to counsel for the
Company on behalf of the Company at the address specified by the Company and one
copy of such materials to the Company. (Collateral Term Sheets and Structural
Term Sheets are, together, referred to herein as "ABS Term Sheets.") At the time
of each such delivery, such Underwriter shall indicate in writing that the
materials being delivered constitute Collateral Term Sheets, and, if there has
been any prior such delivery with respect to the related Series, shall indicate
whether such materials differ in any material respect from any Collateral Term
Sheets previously delivered to the Company with respect to such Series pursuant
to this Section 9(a) as a result of the occurrence of a material change in the
characteristics of the related Mortgage Loans.
(b) You and each other Underwriter, by virtue of its having executed
and delivered the related Terms Agreement, which shall incorporate this Section
9(b) by reference, represents and warrants to and agrees with the Company as of
the date of the related Terms Agreement and as of the Closing Date, that:
(i) The Collateral Term Sheets furnished to the
Company pursuant to Section 9(a) constitute all of the
materials furnished to prospective investors by such
Underwriter prior to time of delivery thereof to the Company
that are required to be filed with the Commission as
"Collateral Term Sheets" with respect to the related Offering
of the Certificates in accordance with the PSA Letter, and
such Collateral Term Sheets comply with the requirements of
the PSA Letter;
(ii) On the date any such Collateral Term Sheets with
respect to the Offering of the Certificates were last
furnished to each prospective investor and on the date of
delivery thereof to the Company pursuant to Section 9(a) and
on the related Closing Date, such Collateral Term Sheets did
not and will not include any untrue statement of a material
fact or, when read in conjunction with the Prospectus and
Prospectus Supplement, omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; and
(iii) such Underwriter has not represented to any
prospective investor that any Collateral Term Sheets with
respect to any Series were prepared or disseminated on behalf
of the Company, and, except as otherwise disclosed by such
Underwriter to the Company in writing prior to the date
hereof, all Collateral Term Sheets previously furnished to
prospective investors included a disclaimer to the effect set
forth in Section 8(b)(iv).
Notwithstanding the foregoing, you and each such Underwriter make no
representation or warranty as to whether any Collateral Term Sheet included or
will include any untrue statement or material omission resulting directly from
any Mortgage Pool Error (except any Corrected Mortgage Pool Error, with respect
to materials prepared after the receipt by such Underwriter from the Company of
notice of such Corrected Mortgage Pool Error or materials superseding or
correcting such Corrected Mortgage Pool Error).
(c) Each Underwriter delivering Collateral Term Sheets acknowledges
and agrees that any Collateral Term Sheets with respect to any Series of
Certificates furnished to prospective investors from and after the date hereof
shall include a disclaimer to the effect set forth in Section 8(d) hereof, and
to the effect that the information contained in such materials supersedes the
information contained in any prior Collateral Term Sheet with respect to such
Series of Certificates being offered and will be superseded by the description
of the related Mortgage Loans in the related Prospectus Supplement. The
Underwriters agree that they will not represent to any prospective investors
that any Collateral Term Sheets were prepared or disseminated on behalf of the
Company.
(d) If, at any time when a prospectus relating to the Certificates of a
Series is required to be delivered under the Act, it shall be necessary to amend
or supplement the related Prospectus as a result of an untrue statement of a
material fact contained in any Collateral Term Sheets provided by an Underwriter
pursuant to this Section 9 or the omission to state therein a material fact
required, when considered in conjunction with the related Prospectus and
Prospectus Supplement, to be stated therein or necessary to make the statements
therein, when read in conjunction with the related Prospectus and Prospectus
Supplement, not misleading, or if it shall be necessary to amend or supplement
any Current Report relating to any Collateral Term Sheets to comply with the Act
or the rules thereunder, such Underwriter promptly will prepare and furnish to
the Company for filing with the Commission an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Such Underwriter will deliver an Officer's Certificate to the
Company representing and warranting to the Company that, as of the date of
delivery of such amendment or supplement to the Company, such amendment or
supplement will not include any untrue statement of a material fact or, when
read in conjunction with the related Prospectus and Prospectus Supplement, omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, such Underwriter will make
no representation or warranty as to whether any such amendment or supplement
will include any untrue statement resulting directly from any Mortgage Pool
Error (except any Corrected Mortgage Pool Error, with respect to any such
amendment or supplement prepared after the receipt by such Underwriter from the
Company of notice of such Corrected Mortgage Pool Error or materials superseding
or correcting such Corrected Mortgage Pool Error). The Company shall have no
obligation to file such amendment or supplement if the Company determines that
(i) such amendment or supplement contains any untrue statement of a material
fact or, when read in conjunction with the related Prospectus and Prospectus
Supplement, omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; it being understood,
however, that the Company shall have no obligation to review or pass upon the
accuracy or adequacy of, or to correct, any such amendment or supplement
provided by such Underwriter to the Company pursuant to this paragraph (d) or
(ii) such filing is not required under the Act. The Company shall give notice to
such Underwriter of its determination not to file an amendment or supplement
pursuant to clause (ii) of the preceding sentence.
10. Default of Underwriters. If any Underwriter or
Underwriters participating in an Offering of Certificates default in their
obligations to purchase Certificates hereunder and under the Terms Agreement and
the aggregate purchase price of Certificates which such defaulting Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the
aggregate purchase price of the Certificates then being purchased, you may make
arrangements satisfactory to the Company for the purchase of such Certificates
by other persons, including any of the Underwriters, but if no such arrangements
are made by the Closing Date the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective total commitments as set forth in
the applicable Terms Agreement (for all classes of Certificates), to purchase
the Certificates which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters so default and the
aggregate purchase price of Certificates with respect to which such default or
defaults occur is more than 10% of the aggregate purchase price of Certificates
then being purchased, and arrangements satisfactory to you and the Company for
the purchase of such Certificates by other persons are not made within 36 hours
after such default, the Terms Agreement as to which such offering relates will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 11. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
11. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the result thereof,
made by or on behalf of any Underwriter or the Company or any of its officers or
directors or any controlling person, and will survive delivery of and payment
for the Certificates and any termination of this Agreement or any Terms
Agreement, including any termination pursuant to Section 10.
12. Termination. You shall have the right to terminate any
Terms Agreement at any time prior to the applicable Closing Date if any
domestic or international event or act or occurrence has materially disrupted,
or in your opinion will in the immediate future materially disrupt, securities
markets; or if trading on the New York or American Stock Exchanges shall have
been suspended, or minimum or maximum prices for trading shall have been fixed,
or maximum ranges for prices for securities shall have been required on the New
York or American Stock Exchanges by the New York or American Stock Exchanges or
by order of the Commission or any other governmental authority having
jurisdiction; or if the United States shall have become involved in a war or
major hostilities; or if a banking moratorium has been declared by a state or
Federal authority, or if a banking moratorium in foreign exchange trading by
major international banks or persons has been declared; or if any new
restriction materially and adversely affecting the distribution of the series of
Certificates as to which such Terms Agreement relates shall have become
effective; or if there shall have been such change in the market for securities
in general or in political, financial or economic conditions as in your judgment
would be so materially adverse as to make it inadvisable to proceed with the
Offering, sale and delivery of the Series of Certificates as to which such Terms
Agreement relates on the terms contemplated in such Terms Agreement. Any notice
of termination pursuant to this Section 12 shall be by telephone, telex, or
telegraph, confirmed in writing by letter.
13. Notices. All communications hereunder will be in writing,
and, if sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to you at _______________ Attention: _______________ or if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at
_____________, Attention: _____________; provided, however, that any notice to
an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed to
such Underwriter at the address furnished by it.
14. Successors. This Agreement and the Terms Agreement will
inure to the benefit of and be binding upon the parties hereto and thereto, and
their respective successors and the officers and directors and controlling
persons referred to in Section 7, and no other person will have any right or
obligation hereunder or thereunder.
15. Representation of Underwriters. You will act for the
several Underwriters in connection with each Offering of Certificates governed
by this Agreement, and any action under this Agreement and any Terms Agreement
taken by you will be binding upon all the Underwriters identified in such Terms
Agreement.
16. Construction. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to principles of conflict of laws.
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicate hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
BEAR STEARNS MORTGAGE SECURITIES
INC.
By: __________________________________
Name:
Title:
The foregoing Underwriting Agreement
hereby is confirmed and accepted
as of the date first above written.
[------------------------]
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
BEAR STEARNS MORTGAGE SECURITIES INC.
Mortgage-Backed Certificates
FORM OF TERMS AGREEMENT
Dated: _________, 199_
To: _______________ [AND _____________]
Re: Underwriting Agreement dated __________, 199_
Series Designation: Series 199_ - _
Class Designation Schedule:
Terms of the Certificates:
Original
Principal Interest Price to
Class Amount Rate Public(1)(2)
- ----------------------------
(1) Do not include if the Certificates will be offered from time to time by the
Underwriter in negotiated transactions at varying prices to be determined at the
time of sale.
(2) Plus accrued interest, if any, at the applicable rate from _____________ .
Distribution Dates: The ____ day of each month or, if such ____ day is not a
business day, the next succeeding business day commencing ________________ .
Certificate Rating:
Mortgage Assets: The initial amounts to be included in any Reserve Account and
other accounts are as set forth, and the Mortgage Loans to be included in the
Trust Fund are as described, in Annex A hereto.
Purchase Price: The aggregate purchase price payable by the Underwriter for
the Certificates covered by this Agreement will be $_________________.
[Purchase price may also be separately stated by class.]
Credit Enhancement:
[Include pool policies, letters of credit, bonds, subordination and similar
arrangements.]
Closing Date: ______, 199_, ____ a.m., N.Y. time
The undersigned, agrees, subject to the terms and provisions of the
above-referenced Underwriting Agreement, which is incorporated herein in its
entirety and made a part hereof, to purchase the respective principal amounts of
the Classes of the above-referenced Series of Certificates set forth [herein]
[on Schedule I attached hereto].
[UNDERWRITER].
By: _________________________
Name:
Title:
[ADDITIONAL UNDERWRITERS]
By: __________________________
Name:
Title:
Accepted:
BEAR STEARNS MORTGAGE SECURITIES INC.
By: _______________________________________
Name:
Title:
<PAGE>
Schedule I (for multiple underwriters)
Underwriters
Name Class Class Class Class Class
[Underwriter] $ $ $ $ $
[Other
Underwriters]
------ ------ ------ ------ ------
Total
====== ====== ====== ====== ======
EXHIBIT 4.1
BEAR STEARNS MORTGAGE SECURITIES INC.,
SELLER,
[CORPORATION 1],
MASTER SERVICER,
and
---------------------------,
TRUSTEE
---------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ___________, 199_
--------------------------------
Bear Stearns Mortgage Securities Inc.
Mortgage Pass-Through Certificates
Series 199_-_
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TABLE OF CONTENTS
PAGE
ARTICLE I
<S> <C>
Definitions.......................................................................................................1
ARTICLE II
Conveyance of Mortgage Loans; Original Issuance of Certificates
Section 2.01. Conveyance of Mortgage Loans to Trustee............................................................1
Section 2.02. Acceptance of Mortgage Loans by Trustee............................................................2
Section 2.03. Representations, Warranties and Covenants of the Master Servicer...................................4
Section 2.04. Substitution of Mortgage Loans.....................................................................6
Section 2.05. Representations and Warranties of the Trustee......................................................7
Section 2.06. Issuance of Certificates...........................................................................8
Section 2.07. Representations and Warranties Concerning the Seller...............................................8
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. Master Servicer to Assure Servicing................................................................1
Section 3.02. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers.................................2
Section 3.03. Successor Sub-Servicers............................................................................2
Section 3.04. Liability of the Master Servicer...................................................................3
Section 3.05. Assumption or Termination of Sub-Servicing Agreements by Trustee...................................3
Section 3.06. Collection of Mortgage Loan Payments...............................................................4
Section 3.07. Collection of Taxes, Assessments and Similar Items; Servicing Accounts.............................5
Section 3.08. Access to Certain Documentation and Information Regarding the Mortgage Loans.......................5
Section 3.09. Maintenance of Primary Insurance Policies; Collection Thereunder...................................5
Section 3.10. Maintenance of Hazard Insurance and Fidelity Coverage..............................................6
Section 3.11. Due-on-Sale Clauses; Assumption Agreements.........................................................8
Section 3.12. Realization Upon Defaulted Mortgage Loans..........................................................9
Section 3.13. Trustee to Cooperate; Release of Mortgage Files...................................................10
Section 3.14. Servicing and Master Servicing Compensation.......................................................11
Section 3.15. Annual Statement of Compliance....................................................................11
Section 3.16. Annual Independent Public Accountants Servicing Report............................................12
Section 3.17. REMIC-Related Covenants...........................................................................12
Section 3.18. Additional Information............................................................................13
Section 3.19. Optional Purchase of Defaulted Mortgage Loans.....................................................13
ARTICLE IV
Accounts
Section 4.01. Protected Accounts.................................................................................1
Section 4.02. Certificate Account................................................................................2
Section 4.03. Permitted Withdrawals and Transfers from the Certificate Account...................................4
Section 4.04. Custody Account....................................................................................7
Section 4.05. Buydown Accounts...................................................................................8
ARTICLE V
Section 5.01. Certificates.......................................................................................1
Section 5.02. Registration of Transfer and Exchange of Certificates..............................................7
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.................................................11
Section 5.04. Persons Deemed Owners.............................................................................11
Section 5.05. Transfer Restrictions on Residual Certificates....................................................11
Section 5.06. Restrictions on Transferability of Private Certificates...........................................13
Section 5.07. ERISA Restrictions................................................................................13
Section 5.08. Rule 144A Information.............................................................................14
Section 5.09. Calculation of LIBOR..............................................................................14
ARTICLE VI
Payments to Certificateholders
Section 6.01. Distributions on the Certificates..................................................................1
Section 6.02. [Reserved].........................................................................................5
Section 6.03. Allocation of Losses...............................................................................5
Section 6.04. [Reserved].........................................................................................8
Section 6.05. Payments...........................................................................................8
Section 6.06. Statements to Certificateholders...................................................................8
Section 6.07. Reports to the Trustee and the Master Servicer....................................................11
Section 6.08. Monthly Advances..................................................................................13
Section 6.09. Compensating Interest Payments....................................................................13
Section 6.10. Reports of Foreclosures and Abandonment of Mortgaged Property.....................................13
ARTICLE VII
The Master Servicer
Section 7.01. Liabilities of the Master Servicer.................................................................1
Section 7.02. Merger or Consolidation of the Master Servicer.....................................................1
Section 7.03. Indemnification of the Trustee.....................................................................1
Section 7.04. Limitation on Liability of the Master Servicer and Others..........................................2
Section 7.05. Master Servicer Not to Resign......................................................................3
Section 7.06. [Reserved].........................................................................................3
Section 7.07 Sale and Assignment of Master Servicing.............................................................3
ARTICLE VIII
Default
Section 8.01. Events of Default..................................................................................1
Section 8.02. Trustee to Act; Appointment of Successor...........................................................2
Section 8.03. Notification to Certificateholders.................................................................3
Section 8.04. Waiver of Defaults.................................................................................3
Section 8.05. List of Certificateholders.........................................................................4
ARTICLE IX
Concerning the Trustee
Section 9.01. Duties of Trustee..................................................................................1
Section 9.02. Certain Matters Affecting the Trustee..............................................................2
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans..............................................4
Section 9.04. Trustee May Own Certificates.......................................................................4
Section 9.05. Trustee's Fees and Expenses........................................................................5
Section 9.06. Eligibility Requirements for Trustee...............................................................5
Section 9.07. Insurance..........................................................................................5
Section 9.08. Resignation and Removal of the Trustee.............................................................6
Section 9.09. Successor Trustee..................................................................................6
Section 9.10. Merger or Consolidation of Trustee.................................................................7
Section 9.11. Appointment of Co-Trustee or Separate Trustee......................................................7
Section 9.12. Master Servicer Shall Provide Information as Reasonably Required...................................8
Section 9.13. Federal Information Returns and Reports to Certificateholders......................................8
ARTICLE X
Termination
Section 10.01. Termination Upon Repurchase by [Corporation 1] or its Designee
or Liquidation of All Mortgage Loans.........................................................1
Section 10.02 Additional Termination Requirements................................................................3
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Intent of Parties.................................................................................1
Section 11.02. Amendment.........................................................................................1
Section 11.03. Recordation of Agreement..........................................................................1
Section 11.04. Limitation on Rights of Certificateholders........................................................2
Section 11.05. Acts of Certificateholders........................................................................2
Section 11.06. [Reserved]........................................................................................3
Section 11.07. Governing Law.....................................................................................4
Section 11.08. Notices...........................................................................................4
Section 11.09. Severability of Provisions........................................................................4
Section 11.10. Successors and Assigns............................................................................4
Section 11.11. Article and Section Headings......................................................................4
Section 11.12. Counterparts......................................................................................4
Section 11.13. Notice to Rating Agencies.........................................................................4
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EXHIBITS
Exhibit A-1 - Form of Face of Certificates
Exhibit A-2 - Form of Reverse of Certificates
Exhibit B - Mortgage Loan Schedule
Exhibit C - Representations and Warranties of [CORPORATION 1] Concerning
the Mortgage Loans
Exhibit D - Form of Request for Release
Exhibit E - Form of Affidavit pursuant to Section 860E(e)(4)
Exhibit F-1 - Form of Investment Letter
Exhibit F-2 - Form of Rule 144A and Related Matters Certificate
Exhibit G - Form of Special Servicing and Collateral Fund Agreement
Exhibit H - Form of Trustee's Initial Certification
Exhibit I - Form of Trustee's Final Certification
<PAGE>
POOLING AND SERVICING AGREEMENT
Pooling and Servicing Agreement dated as of __________, 199_,
among Bear Stearns Mortgage Securities Inc., a Delaware corporation, as the
seller (the "Seller"), [CORPORATION 1], a _____________ corporation, as master
servicer (the "Master Servicer"), and _________________, a _________________,
as trustee (the "Trustee").
PRELIMINARY STATEMENT
On or prior to the Closing Date, the Seller has acquired the
Mortgage Loans from [CORPORATION 1]. On the Closing Date, the Seller will sell
the Mortgage Loans and certain other property to the Trust Fund and receive in
consideration therefor Certificates evidencing the entire beneficial ownership
interest in the Trust Fund. [CORPORATION 1] will be the Master Servicer for the
Mortgage Loans.
The Trustee shall make an election for the assets constituting
REMIC II to be treated for federal income tax purposes as a REMIC. On
____________, 199_ (the "Startup Day"), all the Classes of REMIC II Regular
Certificates will be designated "regular interests" in such REMIC and the Class
R-2 Certificates will be designated the "residual interest" in such REMIC.
The Trustee shall make an election for the assets constituting
REMIC I to be treated for federal income tax purposes as a REMIC. On the Startup
Day, all the Classes of Certificates except for the Class R-1, Class R-2 and
Class X Certificates will be designated "regular interests" in such REMIC and
the Class R-1 Certificates will be designated the "residual interest" in such
REMIC. Each component of the Class X Certificates as described in Section 5.01
(each, a "Separate Component") will be designated as a "regular interest" in
REMIC I.
The Mortgage Loans will have an Outstanding Principal Balance
as of the Cut-Off Date, after deducting all Scheduled Principal due on or before
the Cut-Off Date, of $_____________. The initial principal amount of the
Certificates will not exceed such Outstanding Principal Balance.
In consideration of the mutual agreements herein contained,
the Seller, the Master Servicer and the Trustee agree as follows:
<PAGE>
ARTICLE I
Definitions
Whenever used in this Agreement, the following words and
phrases, unless otherwise expressly provided or unless the context otherwise
requires, shall have the meanings specified in this Article.
ACCOUNT: The Custody Account, the Certificate Account
(including each subaccount thereof), the Protected Accounts or the Servicing
Accounts as the context may require.
ACCRUED CERTIFICATE INTEREST: For any Certificate (other than
a Class PO Certificate) for any Distribution Date, the interest accrued during
the related Interest Accrual Period at the applicable Pass-Through Rate on the
Current Principal Amount (or, in the case of a Class A-I-8 Certificate, the
Class A-I-8 Notional Amount and, in the case of a Class X Certificate, the Class
X Notional Amount) of such Certificate immediately prior to such Distribution
Date, calculated on the basis of a 360-day year consisting of twelve 30-day
months, less (i) in the case of a Senior Certificate, such Certificate's share
of any Net Interest Shortfall and the interest portion of Excess Losses and,
after the Cross-Over Date, the interest portion of any Realized Losses and (ii)
in the case of a Subordinate Certificate, such Certificate's share of any Net
Interest Shortfall and the interest portion of any Realized Losses.
ADVANCING DATE: The fourth Business Day preceding the
related Distribution Date.
AFFILIATE: As to any Person, any other Person controlling,
controlled by or under common control with such Person. "Control" means the
power to direct the management and policies of a Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise.
"Controlled" and "Controlling" have meanings correlative to the foregoing. The
Trustee may conclusively presume that a Person is not an Affiliate of another
Person unless a Responsible Officer of the Trustee has actual knowledge to the
contrary.
AGREEMENT: This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
ALLOCABLE SHARE: With respect to each Class of Subordinate
Certificates:
(a) as to any Distribution Date and amounts
distributable pursuant to clauses (i) and (iii) of the
Subordinate Optimal Principal Amount, the fraction, expressed
as a percentage, the numerator of which is the Current
Principal Amount of such Class and the denominator of which is
the aggregate Current Principal Amount of all Classes of the
Subordinate Certificates; and
(b) as to any Distribution Date and amounts
distributable pursuant to clause (ii), (iv) and (v) of the
Subordinate Optimal Principal Amount, and as to each Class of
Subordinate Certificates for which (x) the related Prepayment
Distribution Trigger has been satisfied on such Distribution
Date, the fraction, expressed as a percentage, the numerator
of which is the Current Principal Amount of such Class and the
denominator of which is the aggregate Current Principal Amount
of all such Classes and (y) the related Prepayment
Distribution Trigger has not been satisfied on such
Distribution Date, ______%; provided that if on a Distribution
Date, the Current Principal Amount of any Class of Subordinate
Certificates for which the related Prepayment Distribution
Trigger was satisfied on such Distribution Date is reduced to
zero, any amounts distributed pursuant to this clause (b), to
the extent of such Class's remaining Allocable Share, shall be
distributed to the remaining Classes of Subordinate
Certificates in reduction of their respective Current
Principal Amounts in the order of their numerical Class
designations.
ANNIVERSARY DETERMINATION DATE: The Determination Date
occurring in ____________ of each year that the Certificates are
outstanding, commencing in __________, 199_.
APPLICABLE CREDIT RATING: A rating of _____, in the case of
_________________ or ______ for any long-term deposit or security or a rating of
____, in the case of _____________, ____ or ____ in the case of ______________,
for any short-term deposit or security (or _____ or _____, in the case of
_____________, for any Permitted Investment listed in clause (viii) of the
definition thereof).
APPRAISED VALUE: For any Mortgaged Property, the amount set
forth as the appraised value of such Mortgaged Property in an appraisal made for
the mortgage originator in connection with its origination of the related
Mortgage Loan.
ASSUMED FINAL DISTRIBUTION DATE: With respect to each Class
of Certificates, _____________, 20__.
AVAILABLE FUNDS: With respect to any Distribution Date, the
sum of the Group I Available Funds and the Group II Available Funds for
such Distribution Date.
BANKRUPTCY CODE: The United States Bankruptcy Code, as
amended, as codified in 11 U.S.C. ss.ss. 101-1330.
BANKRUPTCY COVERAGE TERMINATION DATE: The Distribution Date
upon which the Bankruptcy Loss Amount has been reduced to zero or a negative
number (or the Cross-Over Date, if earlier).
BANKRUPTCY LOSS: With respect to any Mortgage Loan, a
Deficient Valuation or Debt Service Reduction.
BANKRUPTCY LOSS AMOUNT: As of any Determination Date prior to
the first Anniversary Determination Date, the Bankruptcy Loss Amount shall equal
$_____________, as reduced by the aggregate amount of Bankruptcy Losses since
the Cut-off Date. As of any Determination Date after the first Anniversary
Determination Date, other than an Anniversary Determination Date, the Bankruptcy
Loss Amount shall equal the Bankruptcy Loss Amount on the immediately preceding
Anniversary Determination Date as reduced by the aggregate amount of Bankruptcy
Losses since such preceding Anniversary Determination Date. As of any
Anniversary Determination Date, the Bankruptcy Loss Amount shall equal the
lesser of (x) the Bankruptcy Loss Amount as of the preceding Determination Date
as reduced by any Bankruptcy Losses for the preceding Distribution Date, and (y)
the Formula Amount for such Anniversary Determination Date.
The Bankruptcy Loss Amount may be further reduced by the
Master Servicer (including accelerating the manner in which such coverage is
reduced) provided that prior to any such reduction, the Master Servicer shall
obtain written confirmation from each Rating Agency that such reduction shall
not adversely affect the then-current rating assigned to the related Classes of
Certificates by such Rating Agency and shall provide a copy of such written
confirmation to the Trustee.
BENEFIT PLAN OPINION: The meaning specified in Section
5.07(a) hereof.
BOOK-ENTRY CERTIFICATES: All Classes of Certificates other
than the Class R-1 and Class R-2 Certificates and, to the extent provided in
Section 5.02, the Class B-4, Class B-5 and Class B-6 Certificates.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday,
or (ii) a day on which the New York Stock Exchange is closed or on which banking
institutions in New York City or in [ ] are authorized or obligated by law or
executive order to be closed.
BUYDOWN ACCOUNT: A custodial account established and
maintained by a Lender in a Designated Depository Institution, as described
in Section 4.05 for deposit of Buydown Funds.
BUYDOWN FUNDS: Any amount contributed by the seller of any
Mortgaged Property, the Mortgagee, a Sub-Servicer, the Master Servicer or
another party in order to enable the Mortgagor to reduce the payments required
to be made by the Mortgagor in the early years of a Mortgage Loan.
BUYDOWN MORTGAGE LOAN: Any Mortgage Loan as to which a
specified amount of interest is paid out of related Buydown Funds.
BUYDOWN PERIOD: The period during which Buydown Funds are
required to be applied to a Buydown Mortgage Loan.
CERTIFICATE: Any mortgage pass-through certificate evidencing
a beneficial ownership interest in the Trust Fund signed and countersigned by
the Trustee in substantially the forms annexed hereto as Exhibit A-1 and A-2,
with the blanks therein appropriately completed.
CERTIFICATE ACCOUNT: The trust account or accounts created
and maintained pursuant to Section 4.02, which shall be denominated
"________________, as Trustee f/b/o holders of Bear Stearns Mortgage Securities
Inc. Mortgage Pass-Through Certificates, Series 199_-_ - Certificate Account"
which shall have two subaccounts as provided in Section 4.02.
CERTIFICATE ACCOUNT ADVANCE: As of any Determination Date, the
amount on deposit in a Protected Account or Custody Account which is not
required to be transferred to the Certificate Account for distribution during
the calendar month in which such Determination Date occurs but which is
deposited in a subaccount of the Certificate Account and used to make a
distribution to Certificateholders during such calendar month on account of
Scheduled Payments on the Mortgage Loans due on the Due Date for such month not
being paid on or before such Determination Date except insofar as such unpaid
amounts are the result of application of the Relief Act.
CERTIFICATE OWNER: Any Person who is the beneficial owner of
a Certificate registered in the name of the Depository or its nominee.
CERTIFICATE REGISTER: The register maintained pursuant to
Section 5.02.
CERTIFICATEHOLDER: A Holder of a Certificate.
CLASS: With respect to the Certificates, A-I-1, A-I-2, A-I-3,
A-I-4, A-I-5, A-I-6, A-I-7, A-I-8, A-I-9, A-I-10, A-I-11, A-II, PO, X, B-1, B-2,
B-3, B-4, B-5, B-6, R-1 and R-2. With respect to the REMIC II Regular
Certificates, each such REMIC II Regular Certificate.
CLASS A CERTIFICATES: Class A-I-1, Class A-I-2, Class A-I-3,
Class A-I-4, Class A-I-5, Classes A-I-6, Class A-I-7, Class A-I-8, Class A-I-9,
Class A-I-10, Class A-I-11 and Class A-II Certificates.
CLASS A-I CERTIFICATES: Class A-I-1, Class A-I-2, Class A-I-3,
Class A-I-4, Class A-I-5, Classes A-I-6, Class A-I-7, Class A-I-8, Class A-I-9,
Class A-I-10, and Class A-I-11 Certificates.
CLASS A-I SENIOR PERCENTAGE: Initially _____%. On any
Distribution Date, the lesser of (i) _____% and (ii) the percentage (carried to
six places rounded up) obtained by dividing the aggregate Current Principal
Amounts of all the Class A-I Certificates (other than the Class A-1-8
Certificates) and the Residual Certificates immediately preceding such
Distribution Date by the aggregate Scheduled Principal Balances of all the Group
I Mortgage Loans (other than the PO Percentage of the Group I Discount Mortgage
Loans) immediately preceding such Distribution Date.
CLASS A-II SENIOR PERCENTAGE: Initially _____%. On any
Distribution Date, the lesser of (i) _____% and (ii) the percentage (carried to
six places rounded up) obtained by dividing the aggregate Current Principal
Amount of the Class A-II Certificates immediately preceding such Distribution
Date by the aggregate Scheduled Principal Balances of all of the Group II
Mortgage Loans immediately preceding such Distribution Date.
CLASS A-I SENIOR PREPAYMENT PERCENTAGE or CLASS A-II SENIOR
PREPAYMENT PERCENTAGE: On any Distribution Date occurring during the periods set
forth below, as follows:
Period (dates Senior Prepayment Percentage
inclusive)
______, 199_ --
______, 199_ _____%
______, 199_ -- Class A-I Senior Percentage or Class A-II Senior
Percentage, respectively, plus _____% of the Group I
______, 20__ Subordinate Percentage or Group II Subordinate Percentage,
respectively
______, 20__ -- Class A-I Senior Percentage or Class II Senior
Percentage, respectively, plus _____% of the Group I
______, 20__ Subordinate Percentage or Group II Subordinate Percentage,
respectively
______, 20__ -- Class A-I Senior Percentage or Class A-II Senior
Percentage, respectively, plus _____% of the Group I
Subordinate Percentage or Group II Subordinate Percentage,
respectively
______, 20__ -- Class A-I Senior Percentage or Class A-II Senior
Percentage, respectively, plus _____% of the Group I
Subordinate Percentage or Group II Subordinate Percentage,
respectively
______, 20__
and thereafter Class A-I Senior Percentage or Class A-II Senior
Percentage
Notwithstanding the foregoing, if on any Distribution Date the Class A-I Senior
Percentage or the Class A-II Senior Percentage exceeds such respective Senior
Percentage as of the Cut-Off Date, the Class A-I Senior Prepayment Percentage or
the Class A-II Senior Prepayment Percentage, respectively, for such Distribution
Date will equal _____%. On the Distribution Date on which the aggregate of the
Current Principal Amounts of the Class A-1 Certificates and the Residual
Certificates are reduced to zero, the Class A-I Senior Prepayment Percentage
shall be the minimum percentage sufficient to effect such reduction and on the
Distribution Date on which the Current Principal Amount of the Class A-II
Certificates is reduced to zero, the Class A-II Senior Prepayment Percentage
shall be the minimum percentage necessary to effect such reduction; provided
that in the circumstances described in paragraph (D) in Section 6.01(a),
prepayments resulting from Mortgage Loans in one Mortgage Loan Group and
otherwise distributable to the Subordinate Certificates will be distributed to
the Senior Certificates related to the other Mortgage Loan Group (other than the
Class PO and Class X Certificates in the case of the Group I Mortgage Loans).
In addition, notwithstanding the foregoing, no reduction of a Senior Prepayment
Percentage shall occur on any Distribution Date unless, as of the last day of
the month preceding such Distribution Date either (a)(i)(X) the aggregate
Outstanding Principal Balance of Mortgage Loans in both Mortgage Loan Groups
delinquent 60 days or more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund), averaged over the last six
months, as a percentage of the aggregate Current Principal Amount of the
Subordinate Certificates averaged over the last six months, does not exceed
_____% or (Y) the aggregate Outstanding Principal Balance of the Mortgage Loans
in both Mortgage Loan Groups delinquent 60 days or more averaged over the last
six months, as a percentage of the aggregate Outstanding Principal Balance of
all Mortgage Loans averaged over the last six months, does not exceed _____% and
(ii) cumulative Realized Losses on the Mortgage Loans in both Mortgage Loan
Groups do not exceed (a) _____% of the Original Subordinate Principal Balance if
such Distribution Date occurs between and including ___________, 199_ and
___________, 20__, (b) _____% of the related Original Subordinate Principal
Balance if such Distribution Date occurs between and including ___________, 20__
and ___________, 20__, (c) _____% of the related Original Subordinate Principal
Balance if such Distribution Date occurs between and including ___________, 20__
and ___________, 20__, (d) _____% of the related Original Subordinate Principal
Balance if such Distribution Date occurs between and including ___________, 20__
and ___________, 20__, and (e) _____% of the related Original Subordinate
Principal Balance if such Distribution Date occurs during or after ___________,
20__ or (b)(i) the outstanding principal balance of the Mortgage Loans in both
Mortgage Loan Groups delinquent 60 days or more averaged over the last six
months, as a percentage of the aggregate outstanding principal balance of all of
the Mortgage Loans averaged over the last six months, does not exceed _____% and
(ii) Realized Losses on the Mortgage Loans in both Mortgage Loan Groups to date
for such Distribution date are less than _____% of the Original Subordinate
Principal Balance.
CLASS A-I-8 NOTIONAL AMOUNT: With respect to the Class A-I-8
Certificates, an amount equal to the Current Principal Amount of the Class A-I-7
Certificates as of the Due Date in the month prior to the month of the
Distribution Date.
CLASS A-I-11 OPTIMAL PRINCIPAL AMOUNT: With respect to any
Distribution Date occurring within the first five years after the Closing Date
(I.E., prior to the Distribution Date in ___________, 19__) zero. The Class
A-I-11 Optimal Principal Amount for any Distribution Date occurring thereafter
will be as follows: for any Distribution Date during the sixth year after the
Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount for
such Distribution Date; for any Distribution Date during the seventh year after
the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount
for such Distribution Date; for any Distribution Date during the eighth year
after the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal
Amount for such Distribution Date; for any Distribution Date during the ninth
year after the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal
Principal Amount for such Distribution Date; and, for any Distribution Date
thereafter, _____% of the Class A-I-11 Pro Rata Optimal Distribution Amount for
such Distribution Date. Notwithstanding the foregoing, if on any Distribution
Date the Current Principal Amount of each Class of Class A-I Certificates (other
than the Class A-I-11 Certificates) has been reduced to zero, the Class A-I-11
Optimal Principal Amount shall equal the Group I Senior Optimal Principal Amount
to the extent not distributed on such Distribution Date to the other Classes of
Class A-I Certificates or Residual Certificates.
CLASS A-I-11 PRO RATA OPTIMAL PRINCIPAL AMOUNT: With respect
to any Distribution Date, an amount equal to the product of (x) the Group I
Senior Optimal Principal Amount for such Distribution Date multiplied by (y) a
fraction, the numerator of which is the sum of the Current Principal Amounts of
the Class A-I-11 Certificates immediately prior to such Distribution Date and
the denominator of which is the aggregate Current Principal Amounts of all
Classes of Class A-I Certificates and Residual Certificates immediately prior to
such Distribution Date.
CLASS B GROUP I CURRENT PRINCIPAL AMOUNT: For any Distribution
Date, the aggregate Current Principal Amounts of the Class B Certificates as of
such Distribution Date less the Class B Group II Current Principal Amount for
such Distribution Date.
CLASS B GROUP II CURRENT PRINCIPAL AMOUNT: For any
Distribution Date, the sum of the Scheduled Principal Balances of the Group II
Mortgage Loans as of such Distribution Date less the Current Principal Amount of
the Class A-II Certificates as of such Distribution Date.
CLASS PO CASH SHORTFALL: The difference between the Class PO
Principal Distribution Amount for a Distribution Date and the actual amount
distributed to holders of the Class PO Certificates on such Distribution Date in
the instance where Group I Available Funds are insufficient to make the full
amount of distributions required to be made to holders of the Class PO
Certificates.
CLASS PO DEFERRED AMOUNT: With respect to each Distribution
Date through the Cross-Over Date, the aggregate of all amounts allocable on such
Distribution Date to the Class PO Certificates in respect of the principal
portion of Realized Losses (other than Excess Losses) and Class PO Cash
Shortfall and all amounts previously allocated in respect of such losses and
Class PO Cash Shortfall to the Class PO Certificates and not distributed on
prior Distributions Dates.
CLASS PO DEFERRED PAYMENT WRITEDOWN AMOUNT: With respect to
any Distribution Date, the amount if any, distributed on such date in respect of
the Class PO Deferred Amount.
CLASS PO PRINCIPAL DISTRIBUTION AMOUNT: With respect to each
Distribution Date, an amount, without duplication, equal to the sum of:
(i) the applicable PO Percentage of all Scheduled Principal due on
each Group I Discount Mortgage Loan on the first day of the month in
which the Distribution Date occurs, as specified in the amortization
schedule at the time applicable thereto (after adjustment for previous
principal prepayments and the principal portion of Debt Service
Reductions after the Bankruptcy Coverage Termination Date, but before
any adjustment to such amortization schedule by reason of any other
bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period);
(ii) the applicable PO Percentage of the Scheduled Principal
Balance of each Group I Discount Mortgage Loan which was the subject of
a Voluntary Principal Prepayment in full received by the Master
Servicer during the applicable Prepayment Period;
(iii) the applicable PO Percentage of all Voluntary Principal
Prepayments in part received on Group I Discount Mortgage Loans during
the applicable Prepayment Period;
(iv) the lesser of (a) the applicable PO Percentage of the sum of
(w) the Net Liquidation Proceeds allocable to principal on each Group I
Discount Mortgage Loan which became a Liquidated Mortgage Loan during
the related Prepayment Period (other than Group I Discount Mortgage
Loans described in clause (x)) and (x) the Scheduled Principal Balance
of each Group I Discount Mortgage Loan that was purchased by a primary
mortgage insurer during the related Prepayment Period as an alternative
to paying a claim under the related insurance policy, and (b) the
applicable PO Percentage of the sum of (w) the Scheduled Principal
Balance of each Group I Discount Mortgage Loan which became a
Liquidated Mortgage Loan during the related Prepayment Period (other
than Group I Discount Mortgage Loans described in clause (x)) and (x)
the Scheduled Principal Balance of each Group I Discount Mortgage Loan
that was purchased by a primary mortgage insurer during the related
Prepayment Period as an alternative to paying a claim under the related
Insurance policy less (y) in the case of
clause (b), the applicable PO Percentage of the principal portion of
Excess Losses (other than Debt Service Reductions) with respect to
Group I Mortgage Loans incurred during the related Prepayment Period;
and
(v) the applicable PO Percentage of the sum of (a) the Scheduled
Principal Balance of each Group I Discount Mortgage Loan which was
repurchased by the Master Servicer in connection with such Distribution
Date and (b) the difference, if any, between the Scheduled Principal
Balance of a Group I Discount Mortgage Loan that has been replaced by
the Master Servicer with a substitute Group I Discount Mortgage Loan
pursuant to the Agreement in connection with such Distribution Date and
the Scheduled Principal Balance of such substitute Group I Discount
Mortgage Loan.
CLASS X COMPONENT I ACCRUED CERTIFICATE INTEREST: For any
Distribution Date, the excess of all interest accrued on the aggregate Scheduled
Principal Balances of the Group I Mortgage Loans at the weighted average of the
Net Rates on such Mortgage Loans during the related Interest Accrual Period over
the sum of (x) all Accrued Certificate Interest on the Class A-I Certificates
and the Residual Certificates for such Distribution Date, (y) the portion of the
Accrued Certificate Interest on the Class B Certificates for such Distribution
Date that the Class B Group I Current Principal Amount as of such Distribution
Date bears to the aggregate Current Principal Amounts of the Class B
Certificates as of such Distribution Date, and (z) the portion of (i) any Net
Interest Shortfall and (ii) the interest portion of any Excess Losses, and after
the applicable Cross-Over Date, (iii) the interest portion of any Realized
Losses, allocated to the Class X Certificates that the Class X Component I
Accrued Certificate Interest (determined without regard to this clause (z))
bears to the total Accrued Certificate Interest on the Class X Certificates
(determined without regard to such Net Interest Shortfall, or the interest
portion of Excess Losses or Realized Losses, as applicable). However, if on any
Distribution Date, the interest on the Group II Mortgage Loans at their Net
Rates is less than the Accrued Certificate Interest on the Class A-II
Certificates, the Class X Component I Accrued Certificate Interest for such
Distribution Date shall equal the Accrued Certificate Interest for the Class X
Certificates.
CLASS X COMPONENT II ACCRUED CERTIFICATE INTEREST: For any
Distribution Date, the excess of all interest accrued on the aggregate
Scheduled Principal Balances of the Group II Mortgage Loans at the weighted
average of the Net Rates on such Mortgage Loans during the related Interest
Accrual Period over the sum of (x) all Accrued Certificate Interest on the Class
A-II Certificates for such Distribution Date, (y) the portion of the Accrued
Certificate Interest on the Class B Certificates for such Distribution Date that
the Class B Group II Current Principal Amount as of such Distribution Date bears
to the aggregate Current Principal Amounts of the Class B Certificates as of
such Distribution Date, and (z) the portion of (i) any Net Interest Shortfall
and (ii) the interest portion of any Excess Losses, and after the applicable
Cross-Over Date, (iii) the interest portion of any Realized Losses, allocated to
the Class X Certificates that the Class X Component II Accrued Certificate
Interest (determined without regard to this clause (z)) bears to the total
Accrued Certificate Interest on the Class X Certificates (determined without
regard to such Net Interest Shortfall, or the Interest portion of Excess Losses
or Realized Losses, as applicable). However, if on any Distribution Date, the
interest on the Group I Mortgage Loans at their Net Rates is less than the
Accrued Certificate Interest on the Class A-1 Certificates, the Class X
Component II Accrued Certificate Interest for such Distribution Date shall equal
the Accrued Certificate Interest for the Class X Certificates.
CLASS X NOTIONAL AMOUNT: On any Distribution Date, with
respect to the Class X Certificates, an amount equal to the aggregate Scheduled
Principal Balances of all of the Mortgage Loans.
CLOSING DATE: ___________, 199_.
CODE: The Internal Revenue Code of 1986, as amended.
COMPENSATING INTEREST PAYMENTS: As defined in Section 6.09.
COMPONENT I: The sum of the 12 Separate Components
corresponding to the Class A-I Certificates (treating the Class A-I-7 and Class
A-I-8 Certificates as if they were a single Class of Certificates for this
purpose), the Class R-1 Certificates and the Current Principal Amount of the
Class B Certificates which derives its distributions from Group I Mortgage
Loans.
COMPONENT II: The sum of the 2 Separate Components
corresponding to the Class A-II Certificates and to the Current Principal Amount
of the Class B Certificates which derives its distributions from Group II
Mortgage Loans.
CORPORATE TRUST OFFICE: The office of the Trustee at which
at any particular time its corporate trust business is administered, which
office, at the date of the execution of this Agreement, is located at
_______________________, Attention: ______________.
CORRESPONDING CLASS: As indicated in Section 5.01(c).
CROSS-OVER DATE: The first Distribution Date on which the
aggregate Current Principal Amount of the Subordinate Certificates has been
reduced to zero (giving effect to all distributions on such Distribution Date).
CURRENT PRINCIPAL AMOUNT: With respect to any Certificate
(other than a Class A-I-8 Certificate or a Class X Certificate) as of any
Distribution Date, the initial principal amount of such Certificate reduced by
(A) the sum of (i) all amounts distributed on previous Distribution Dates on
such Certificate with respect to principal (and the Class PO Cash Shortfall with
respect to a Class PO Certificate), (ii) the principal portion of all Realized
Losses allocated prior to such Distribution Date to such Certificate, and (iii)
in the case of a Subordinate Certificate, such Certificate's pro rata share, if
any, of the Subordinate Certificate Writedown Amount and the Class PO Deferred
Payment Writedown Amount for previous Distribution Dates. With respect to any
Class of Certificates (other than the Class A-I-8 or the Class X Certificates),
the Current Principal Amount thereof will equal the sum of the Current Principal
Amounts of all Certificates in such Class. Notwithstanding the foregoing, solely
for purposes of giving consents, directions, waivers, approvals, requests and
notices, the Class R-1 and Class R-2 Certificates after the Distribution Date on
which they receive the distribution of the last dollar of their original
principal amount shall be deemed to have a Current Principal Amount equal to
their Current Principal Amount on the day immediately preceding such
Distribution Date.
CUSTODY ACCOUNT: A trust account created and maintained
pursuant to Section 4.04.
CUT-OFF DATE: ___________, 199_.
CUT-OFF DATE BALANCE: $_____________.
DEBT SERVICE REDUCTION: Any reduction of the Scheduled
Payments which a Mortgagor is obligated to pay with respect to a Mortgage Loan
as a result of any proceeding under the Bankruptcy Code or any other similar
state law or other proceeding.
DEBTOR RELIEF LAWS: Any applicable liquidation,
conservatorship, receivership, bankruptcy, insolvency, rearrangement,
moratorium, reorganization, or similar debtor relief laws affecting the rights
of creditors generally from time to time in effect.
DEFAULTED MORTGAGE LOAN: Any Mortgage Loan as to which the
Mortgagor has failed to make unexcused payment in full of three or more
consecutive Scheduled Payments.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation of the Mortgaged Property by a court of competent jurisdiction in
an amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated under the Bankruptcy Code or
any other similar state law or other proceeding.
DEFINITIVE CERTIFICATES: The meaning specified in
Subsection 5.01(b) hereof.
DEPOSITORY: The Depository Trust Company, the nominee of
which is Cede & Co., or any successor thereto.
DEPOSITORY AGREEMENT: The meaning specified in Subsection
5.01(a) hereof.
DEPOSITORY PARTICIPANT: A broker, dealer, bank or other
financial institution or other Person for whom from time to time the Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
DESIGNATED DEPOSITORY INSTITUTION: A depository institution
(commercial bank, mutual savings bank or savings and loan association) or trust
company (which may include the Trustee), the deposits of which are fully insured
by the FDIC to the extent provided by law.
DETERMINATION DATE: The ______ day of the month of the
Distribution Date, or if such day is not a Business Day, the following
Business Day.
DISTRIBUTION DATE: The ____________ day of any month,
beginning in the month immediately following the month of the initial issuance
of the Certificates, or, if such ____________ day is not a Business Day, the
Business Day immediately following.
DTC CUSTODIAN: ___________________, or its successors in
interest.
DUE DATE: With respect to each Mortgage Loan, the first day
of each month, on which its Scheduled Payment is due.
DUE PERIOD: With respect to any Distribution Date, the period
commencing on the second day of the month preceding the month in which the
Distribution Date occurs and ending at the close of business on the first day of
the month in which the Distribution Date occurs.
ERISA: Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: An event described in Section 8.01.
EXCESS BANKRUPTCY LOSS: Any Bankruptcy Loss, or portion
thereof, (i) occurring after the Bankruptcy Coverage Termination Date or (ii) if
on such date, in excess of the then-applicable Bankruptcy Loss Amount.
EXCESS FRAUD LOSS: Any Fraud Loss, or portion thereof, (i)
occurring after the Fraud Coverage Termination Date or (ii) if on such date, in
excess of the then-applicable Fraud Loss Amount.
EXCESS LIQUIDATION PROCEEDS: To the extent that such amount is
not required by law to be paid to the related Mortgagor, the amount, if any, by
which Liquidation Proceeds with respect to a Liquidated Mortgage Loan exceed the
sum of (i) the Outstanding Principal Balance of such Mortgage Loan and accrued
but unpaid interest at the related Mortgage Interest Rate through the last day
of the month in which the related Liquidation Date occurs, plus (ii) related
Liquidation Expenses.
EXCESS LOSSES: The sum of any Excess Bankruptcy Losses,
Excess Fraud Losses and Excess Special Hazard Losses.
EXCESS SPECIAL HAZARD LOSS: Any Special Hazard Loss, or
portion thereof, (i) occurring after the Special Hazard Termination Date or (ii)
if on such date, in excess of the then-applicable Special Hazard Loss Amount.
FANNIE MAE: Federal National Mortgage Association or any
successor thereto.
FDIC: Federal Deposit Insurance Corporation or any successor
thereto.
FREDDIE MAC: Freddie Mac, formerly known as Federal Home
Loan Mortgage Corporation, or any successor thereto.
FLOATING RATE CERTIFICATES: The Class A-I-7 Certificates and
A-I-8 Certificates.
FORMULA AMOUNT: As to each Anniversary Determination Date, the
greater of (i) $___________ and (ii) the product of (x) _____% and (y) the
Scheduled Principal Balance of each Mortgage Loan remaining in the Trust whose
original principal balance was _____% or greater of the Original Value thereof.]
FRACTIONAL UNDIVIDED INTEREST: With respect to any Class of
Certificates other than the Class A-I-8 Certificates and the Class X
Certificates, the fractional undivided interest evidenced by any Certificate of
such Class, the numerator of which is the Current Principal Amount of such
Certificate and the denominator of which is the Current Principal Amount of such
Class. With respect to the Class A-I-8 Certificates, the fractional undivided
interest evidenced by any Certificate of such Class, the numerator of which is
the Class A-I-8 Notional Amount of such Certificate and the denominator of which
is the Class A-I-8 Notional Amount of such Class. With respect to the Class X
Certificates, the fractional undivided interest evidenced by any Certificate of
such Class, the numerator of which is the Notional Amount of such Certificate
and the denominator of which is the Notional Amount of such Class. With respect
to the Certificates in the aggregate, the fractional undivided interest
evidenced by (i) a Class A-I-8 Certificate or a Class X Certificate will be
deemed to equal _____% multiplied by a fraction, the numerator of which is the
Class A-I-8 Notional Amount or the Class X Notional Amount, as the case may be,
of such Certificate and the denominator of which is the sum of the Class A-I-8
Notional Amount and the Class X Notional Amount, (ii) a Class R-1 or Class R-2
Certificate will be deemed to equal _____% multiplied by a fraction the
numerator of which is the Current Principal Amount of such Certificate and the
denominator of which is the aggregate Current Principal Amount of such Classes
and (iii) a Certificate of any other Class will be deemed to equal _____% (plus
an additional _____% if and when the Class A-I-8 and Class X Certificates have
been paid in full prior to the date of determination) multiplied by a fraction,
the numerator of which is the Current Principal Amount of such Certificate and
the denominator of which is the Current Principal Amount of all the
Certificates.
FRAUD COVERAGE TERMINATION DATE: The Distribution Date upon
which the related Fraud Loss Amount has been reduced to zero or a negative
number (or the Cross-Over Date, if earlier).
FRAUD LOSS: Any Realized Loss attributable to fraud in the
origination of the related Mortgage Loan.
FRAUD LOSS AMOUNT: As of any Distribution Date after the
Cut-Off Date, (x) prior to the first anniversary of the Cut-Off Date, an amount
equal to $______________ minus the aggregate amount of Fraud Losses that would
have been allocated to the Subordinate Certificates in accordance with Section
6.03 in the absence of the Loss Allocation Limitation since the CutOff Date, and
(y) from the first through the fifth anniversary of the Cut-Off Date, an amount
equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the CutOff Date and (b) ______________% of the aggregate
Outstanding Principal Balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-Off Date minus (2) the Fraud Losses that would have been
allocated to the Subordinate Certificates in accordance with Section 6.03 in the
absence of the Loss Allocation Limitation since the most recent anniversary of
the Cut-Off Date. After the fifth anniversary of the Cut-Off Date the Fraud Loss
Amount shall be zero.
FUNDS TRANSFER DATE: The ________ day of the month of the
Distribution Date, or if such day is not a Business Day, the preceding Business
Day (but in no event less than two Business Days prior to the related
Distribution Date).
GLOBAL CERTIFICATE: Any Private Certificate registered in the
name of the Depository or its nominee, beneficial interests in which are
reflected on the books on the Depository or on the books of a Person maintaining
an account with such Depository (directly or as an indirect participant in
accordance with the rules of such Depository).
GROUP I AVAILABLE FUNDS or GROUP II AVAILABLE FUNDS: With
respect to any Distribution Date, an amount equal to the aggregate of the
following with respect to the Group I Mortgage Loans or Group II Mortgage Loans,
respectively: (a) all previously undistributed payments on account of principal
(including the principal portion of Scheduled Payments, Principal Prepayments
and the principal portion of Net Liquidation Proceeds) and all previously
undistributed payments on account of interest received after the Cut-Off Date
and on or prior to the related Determination Date, (b) any Monthly Advances
(including Certificate Account Advances) and Compensating Interest Payments by
the Master Servicer with respect to such Distribution Date and (c) any amount
reimbursed by the Master Servicer pursuant to Subsections 4.02(d) and 4.04(d) in
connection with losses on Permitted Investments, except:
(i) all payments that were due on or before the Cut-Off
Date;
(ii) all Principal Prepayments and Liquidation Proceeds
received after the applicable Prepayment Period and all related
payments of interest;
(iii) all payments, other than Principal Prepayments, that
represent early receipt of Scheduled Payments due on a date or dates
subsequent to the Due Date in the month in which such Distribution Date
occurs;
(iv) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting which, and to the
extent that, there are any unreimbursed Monthly Advances (including
Certificate Account Advances);
(v) amounts of Monthly Advances (including Certificate Account
Advances) determined to be Nonrecoverable Advances;
(vi) amounts permitted to be withdrawn from the Certificate
Account pursuant to Subsection 4.03(a); and
(vii) amounts withdrawn by the Trustee pursuant to Subsection
4.03(b) to pay the Trustee's Fee.
GROUP I DISCOUNT MORTGAGE LOAN: Any Mortgage Loan with a Net
Rate less than _____% per annum.
GROUP I MORTGAGE LOANS: The Mortgage Loans identified as such
on the Mortgage Loan Schedule, all of which shall have Net Rates lower than or
equal to _____% per annum.
GROUP II MORTGAGE LOANS: The Mortgage Loans identified as such
on the Mortgage Loan Schedule, all of which have Net Rates greater than _____%
per annum.
GROUP I SENIOR OPTIMAL PRINCIPAL AMOUNT or GROUP II SENIOR
OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an amount equal to the
sum, without duplication, of:
(i) the Class A-I Senior Percentage or the Class A-II Senior
Percentage, respectively, of the applicable Non-PO Percentage of
Scheduled Principal due on the related Due Date on each Outstanding
Mortgage Loan in the related Mortgage Loan Group as of such Due Date as
specified in the amortization schedule at the time applicable thereto
(after adjustments for previous Principal Prepayments and the principal
portion of Debt Service Reductions subsequent to the Bankruptcy
Coverage Termination Date but before any adjustment to such
amortization schedule by reason of any bankruptcy (except as aforesaid)
or similar proceeding or any moratorium or similar waiver or grace
period);
(ii) the Class A-I Senior Prepayment Percentage or Class A-II Senior
Prepayment Percentage, respectively, of the applicable Non-PO
Percentage of all Voluntary Principal Prepayments in part on Mortgage
Loans in the Mortgage Group received during the related Prepayment
Period, together with the Class A-I Senior Prepayment Percentage or
Class A-II Senior Prepayment Percentage, respectively, of the
applicable Non-PO Percentage of the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which was the subject
of a Voluntary Principal Prepayment in full during the related
Prepayment Period;
(iii) the lesser of (x) the Class A-I Senior Prepayment
Percentage or Class A-II Senior Prepayment Percentage, respectively, of
the applicable Non-PO Percentage of the sum of (A) all Net Liquidation
Proceeds allocable to principal received in respect of each Mortgage
Loan in the related Mortgage Loan Group that became a Liquidated
Mortgage Loan during the related Prepayment Period (other than Mortgage
Loans in the related Mortgage Loan Group described in clause (B)) and
(B) the Scheduled Principal Balance of each such Mortgage Loan
purchased by an Insurer from the Trustee during the related Prepayment
Period pursuant to the related Primary Insurance Policy; and (y) the
Class A-I Senior Percentage or Class A-II Senior Percentage,
respectively, of the applicable Non-PO Percentage of the sum of (A) the
Scheduled Principal Balance of each Mortgage Loan in the related
Mortgage Loan Group that became a Liquidated Mortgage Loan during the
related Prepayment Period (other than Mortgage Loans in the related
Mortgage Loan Group described in clause (B)) and (B) the Scheduled
Principal Balance of each such Mortgage Loan that was purchased by an
Insurer from the Trustee during the related Prepayment Period pursuant
to the related Primary Insurance Policy, as reduced in each case by the
Class A-I Senior Percentage or Class A-II Senior Percentage,
respectively, of the applicable Non-PO Percentage of the principal
portion of any Excess Bankruptcy Losses (other than those attributable
to Debt Service Reductions), Excess Fraud Losses and Excess Special
Hazard Losses on each Mortgage Loans in the Related Mortgage Loan Group
incurred during the related Prepayment Period;
(iv) the Class A-I Senior Prepayment Percentage or Class A-II
Senior Prepayment Percentage, respectively, of the applicable Non-PO
Percentage of the Scheduled Principal Balance of each Mortgage Loan in
the related Mortgage Loan Group which was purchased on such
Distribution Date pursuant to Section 2.02, 2.03(d) or 3.19; and
(v) the Class A-I Senior Prepayment Percentage or Class A-II
Senior Prepayment Percentage, respectively, of the applicable Non-PO
Percentage of the difference, if any, between the Scheduled Principal
Balance of a Mortgage Loan in the related Mortgage Loan Group that has
been replaced by the Master Servicer with a Substitute Mortgage Loan
pursuant to Section 2.04 during the month of such Distribution Date and
the Scheduled Principal Balance of such Substitute Mortgage Loan.
GROUP I SUBORDINATE PERCENTAGE: On any Distribution Date,
_____% minus the applicable Class A-I Senior Percentage.
GROUP II SUBORDINATE PERCENTAGE: On any Distribution Date,
_____% minus the applicable Class A-II Senior Percentage.
GROUP I SUBORDINATE PREPAYMENT PERCENTAGE or GROUP II
SUBORDINATE PREPAYMENT PERCENTAGE: On any Distribution Date, _____% minus
the applicable Class A-I Senior Prepayment Percentage or Class A-II Senior
Prepayment Percentage, respectively, except that on any Distribution Date after
the Current Principal Amounts of the Class A-I Certificates and Residual
Certificates and Class A-II Certificates, respectively, have each been reduced
to zero, the Group I Subordinate Prepayment Percentage or Group II Subordinate
Prepayment Percentage, respectively, will equal _____%.
HOLDER: The Person in whose name a Certificate is registered
in the Certificate Register, except that, subject to Subsection 11.05(e), solely
for the purpose of giving any consent pursuant to this Agreement, any
Certificate registered in the name of the Seller, the Master Servicer, a
Sub-Servicer or the Trustee or any Affiliate thereof shall be deemed not to be
outstanding and the Fractional Undivided Interest evidenced thereby shall not be
taken into account in determining whether the requisite percentage of Fractional
Undivided Interests necessary to effect any such consent has been obtained.
INDEMNIFIED PERSONS: The Trustee, its employees and any
separate co-trustee.
INDEPENDENT: When used with respect to any specified Person,
this term means that such Person (a) is in fact independent of the Seller or the
Master Servicer and of any Affiliate of the Seller or the Master Servicer, (b)
does not have any direct financial interest or any material indirect financial
interest in the Seller or the Master Servicer, or any Affiliate of the Seller or
the Master Servicer, and (c) is not connected with the Seller or the Master
Servicer, or any Affiliate as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
INDIVIDUAL CERTIFICATE: Any Private Certificate registered
in the name of the Holder other than the Depository or its nominee.
INSTITUTIONAL ACCREDITED INVESTOR: Any Person meeting the
requirements of Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the
Securities Act.
INSURANCE POLICY: With respect to any Mortgage Loan, any
Primary Insurance Policy, standard hazard insurance policy, flood insurance
policy or title insurance policy.
INSURANCE PROCEEDS: Amounts paid by the insurer under any
Insurance Policy covering any Mortgage Loan or Mortgaged Property other
than amounts required to be paid over to the Mortgagor pursuant to law or the
related Mortgage Note or Security Instrument and other than amounts used to
repair or restore the Mortgaged Property or to reimburse Insured Expenses.
INSURED EXPENSES: Expenses covered by any Insurance Policy.
INSURER: Any issuer of an Insurance Policy.
INTEREST ACCRUAL PERIOD: With respect to each Distribution
Date, for each Class of REMIC II Certificates and each Class of Certificates
(other than the Class A-I-7 and Class A-I-8 Certificates), the calendar month
preceding the month in which the Distribution Date occurs, commencing in
____________, 199_; with respect to the Class A-1-7 and Class A-1-8 Certificates
for each Distribution Date will commence on the __________ day of the calendar
month preceding the calendar month in which such Distribution Date occurs and
will end on the __________ day of the calendar month in which such Distribution
Date occurs.
INTEREST SHORTFALL: With respect to any Distribution Date and
each Mortgage Loan that during the related Prepayment Period was the subject of
a Voluntary Principal Prepayment, or constitutes a Relief Act Mortgage Loan, an
amount determined as follows:
(a) partial principal prepayments: The difference
between (i) one month's interest at the applicable Net Rate on
the amount of such prepayment and (ii) the amount of interest
for the calendar month of such prepayment (adjusted to the
applicable Net Rate) received at the time of such repayment;
(b) principal prepayments in full received during the
relevant Prepayment Period: The difference between (i) one
month's interest at the applicable Net Rate on the Scheduled
Principal Balance of such Mortgage Loan immediately prior to
such prepayment and (ii) the amount of interest for the
calendar month of such prepayment (adjusted to the applicable
Net Rate) received at the time of such prepayment;
(c) Relief Act Mortgage Loans: As to any Relief Act
Mortgage Loan, the excess of (i) 30 days' interest (or, in the
case of a principal prepayment in full, interest to the date
of prepayment) on the Scheduled Principal Balance thereof (or,
in the case of a principal prepayment in part, on the amount
so prepaid) at the related Net Rate over (ii) 30 days'
interest (or, in the case of a principal prepayment in full,
interest to the date of prepayment) on such Scheduled
Principal Balance (or, in the case of a Principal Prepayment
in part, on the amount so prepaid) at the Net Rate required to
be paid by the Mortgagor as limited by application of the
Relief Act.
INVESTMENT LETTER: The letter to be furnished by each
Institutional Accredited Investor which purchases Class B-4, Class B-5 and Class
B-6 Certificates in connection with such purchase, substantially in the form set
forth as Exhibit F-1 hereto.
LIBOR: The London interbank offered rate for one-month United
States dollar deposits established on each LIBOR Determination Date pursuant to
Section 5.09.
LIBOR DETERMINATION DATE: _____________, 199_ and, with
respect to each month thereafter until the Current Principal Amount of the Class
A-I-7 Certificates and the Class A-I-8 Notional Amount have been reduced to
zero, the second business day prior to the first day of the related Interest
Accrual Period for such Certificates. For purposes of this definition, "business
day" means a day on which banks are open for dealing in foreign currency and
exchange in London and New York City.
LIQUIDATED MORTGAGE LOAN: Any defaulted Mortgage Loan as to
which the Master Servicer has determined that all amounts it expects to recover
from or on account of such Mortgage Loan have been recovered.
LIQUIDATION DATE: With respect to any Liquidated Mortgage
Loan, the date on which the Master Servicer has certified that such Mortgage
Loan has become a Liquidated Mortgage Loan.
LIQUIDATION EXPENSES: With respect to a Mortgage Loan in
liquidation, unreimbursed expenses paid or incurred by or for the account of the
Master Servicer and not recovered by the Master Servicer under any Primary
Insurance Policy for reasons other than the Master Servicer's failure to ensure
the maintenance of or compliance with a Primary Insurance Policy, such expenses
including (a) property protection expenses, (b) property sales expenses, (c)
foreclosure and sale costs, including court costs and reasonable attorneys'
fees, and (d) similar expenses reasonably paid or incurred in connection with
liquidation.
LIQUIDATION PROCEEDS: Cash received in connection with the
liquidation of a defaulted Mortgage Loan, whether through trustee's sale,
foreclosure sale, Insurance Proceeds, condemnation proceeds or otherwise.
LOAN SUMMARY AND REMITTANCE REPORT: The report to be
submitted by the Master Servicer to the Trustee pursuant to Subsection 6.07(b).
LOAN-TO-VALUE RATIO: The fraction, expressed as a percentage,
the numerator of which is the original principal balance of the related Mortgage
Loan and the denominator of which is the Original Value of the related Mortgaged
Property.
LOSS ALLOCATION LIMITATION: The meaning specified in
Section 6.03(d) hereof.
MASTER SERVICER: With respect to the Mortgage Loans,
[CORPORATION 1], or its successor in interest, or any successor master servicer
with respect to the Mortgage Loans appointed as herein provided.
MASTER SERVICING FEE: As to any Mortgage Loan and Distribution
Date, an amount equal to the product of (i) the Scheduled Principal Balance of
such Mortgage Loan as of the Due Date in the preceding calendar month and (ii)
the Master Servicing Fee Rate.
MASTER SERVICING FEE RATE: With respect to each Mortgage
Loan, the per annum rate of _______%.
MONTHLY ADVANCE: The advance (including a Certificate
Account Advance) required to be made by the Master Servicer on the related
Advancing Date pursuant to Section 6.08.
MORTGAGE FILE: The mortgage documents listed in Section
2.01(b) pertaining to a particular Mortgage Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
MORTGAGE INTEREST RATE: The annual rate at which interest
accrues from time to time on any Mortgage Loan pursuant to the related Mortgage
Note, which rate is equal to the "Mortgage Interest Rate" set forth with respect
thereto on the Mortgage Loan Schedule.
MORTGAGE LOAN: A mortgage loan transferred and assigned to the
Trustee pursuant to Section 2.01 or Section 2.04 and held as a part of the Trust
Fund, as identified in the Mortgage Loan Schedule, including a mortgage loan the
property securing which has become an REO Property.
MORTGAGE LOAN GROUP: Mortgage Loan Group I or Mortgage Loan
Group II.
MORTGAGE LOAN GROUP I: The group of Mortgage Loans which is
composed of the Group I Mortgage Loans.
MORTGAGE LOAN GROUP II: The group of Mortgage Loans which is
composed of the Group II Mortgage Loans.
MORTGAGE LOAN SCHEDULE: The schedule, attached hereto as
Exhibit B with respect to the Mortgage Loans and as amended from time to time to
reflect the repurchase or substitution of Mortgage Loans pursuant to this
Agreement, which shall separately identify the Group I Mortgage Loans and the
Group II Mortgage Loans.
MORTGAGE NOTE: The originally executed note or other
evidence of the indebtedness of a Mortgagor under the related Mortgage Loan.
MORTGAGED PROPERTY: Land and improvements securing the
indebtedness of a Mortgagor under the related Mortgage Loan or, in the case
of REO Property, such REO Property.
MORTGAGOR: The obligor on a Mortgage Note.
NET INTEREST SHORTFALL: With respect to any Distribution Date,
the Interest Shortfall, if any, for such Distribution Date net of Compensating
Interest Payments made with respect to such Distribution Date.
NET LIQUIDATION PROCEEDS: As to any Liquidated Mortgage Loan,
Liquidation Proceeds net of (i) Liquidation Expenses which are payable therefrom
to the Master Servicer in accordance with this Agreement and (ii) unreimbursed
advances by the related Sub-Servicer and Monthly Advances including Certificate
Account Advances.
NET RATE: With respect to each Mortgage Loan, the Mortgage
Interest Rate in effect from time to time less the sum of the Master Servicing
Fee Rate and the Trustee's Fee (expressed as a per annum rate), each such fee
being expressed as a per annum rate.
NON-DISCOUNT MORTGAGE LOAN: Any Mortgage Loan with a Net
Rate equal to or greater than _____%.
NON-PO PERCENTAGE: (i) with respect to any Group I Discount
Mortgage Loan, the Net Rate thereof divided by _____%, and (ii) with respect to
any Non-Discount Mortgage Loan,
- -----%.
NONRECOVERABLE ADVANCE: Any advance (i) which was previously
made or is proposed to be made by the Master Servicer and (ii) which, in
the good faith judgment of the Master Servicer, will not or, in the case of a
proposed advance, would not, be ultimately recoverable by the Master Servicer
from Liquidation Proceeds, Insurance Proceeds or future payments on the Mortgage
Loan for which such advance was made.
OFFICER'S CERTIFICATE: A certificate signed by the Chairman of
the Board, the Vice Chairman of the Board, the President or a Vice President or
Assistant Vice President of the Master Servicer and delivered to the Trustee, as
required by this Agreement.
OPINION OF COUNSEL: A written opinion of counsel who is or are
acceptable to the Trustee and who, unless required to be Independent (an
"Opinion of Independent Counsel"), may be internal counsel for the Master
Servicer.
ORIGINAL SUBORDINATE PRINCIPAL BALANCE: The sum of the
aggregate Current Principal Amounts of each Class of Subordinate Certificates
as of the Cut-Off Date.
ORIGINAL VALUE: Except in the case of a refinance Mortgage
Loan, the lesser of the Appraised Value or sales price of a Mortgaged Property
at the time a Mortgage Loan is closed, and for a refinance Mortgage Loan, the
Original Value is the value of such property set forth in an appraisal
acceptable to the Master Servicer.
OUTSTANDING MORTGAGE LOAN: With respect to any Due Date, a
Mortgage Loan which, prior to such Due Date, was not the subject of a Principal
Prepayment in full, did not become a Liquidated Mortgage Loan and was not
purchased pursuant to Sections 2.02, 2.03 or 3.19 or replaced pursuant to
Section 2.04.
OUTSTANDING PRINCIPAL BALANCE: As of the time of any
determination, the principal balance of a Mortgage Loan remaining to be paid by
the Mortgagor, or, in the case of an REO Property, the principal balance of the
related Mortgage Loan remaining to be paid by the Mortgagor at the time such
property was acquired by the Trust Fund less any Net Insurance Proceeds with
respect thereto to the extent applied to principal.
PASS-THROUGH RATE: As to each Class of Certificates, the rate
of interest set forth, or determined as provided with respect thereto, in
Section 5.01. Any monthly calculation of interest at a stated rate shall be
based upon annual interest at such rate divided by twelve.
PERMITTED INVESTMENTS: Any one or more of the following
obligations or securities:
(i) direct obligations of, and obligations fully guaranteed by
the United States of America or any agency or instrumentality of the
United States of America the obligations of which are backed by the
full faith and credit of the United States of America;
(ii) (a) demand or time deposits, federal funds or bankers'
acceptances issued by any depository institution or trust company
incorporated under the laws of the United States of America or any
state thereof (including the Trustee acting in its commercial banking
capacity) and subject to supervision and examination by federal and/or
state banking authorities, provided that the commercial paper and/or
the short-term deposit rating and/or the long-term unsecured debt
obligations or deposits of such depository institution or trust company
at the time of such investment or contractual commitment providing for
such investment have the Applicable Credit Rating or better from each
Rating Agency and (b) any other demand or time deposit or certificate
of deposit that is fully insured by the Federal Deposit Insurance
Corporation;
(iii) repurchase obligations with respect to (a) any security
described in clause (i) above or (b) any other security issued or
guaranteed by an agency or instrumentality of the United States of
America, the obligations of which are backed by the full faith and
credit of the United States of America, in either case entered into
with a depository institution or trust company (acting as principal)
described in clause (ii)(a) above where the Trustee holds the security
therefor;
(iv) securities bearing interest or sold at a discount issued
by any corporation (including the Trustee) incorporated under the laws
of the United States of America or any state thereof that have the
Applicable Credit Rating or better from each Rating Agency at the time
of such investment or contractual commitment providing for such
investment; PROVIDED, HOWEVER, that securities issued by any particular
corporation will not be Permitted Investments to the extent that
investments therein will cause the then outstanding principal amount of
securities issued by such corporation and held as part of the Trust to
exceed _____% of the aggregate Outstanding Principal Balances and
amounts of all the Mortgage Loans and Permitted Investments held as
part of the Trust;
(v) commercial paper (including both noninterest-bearing
discount obligations and interest-bearing obligations payable on demand
or on a specified date not more than one year after the date of
issuance thereof) having the Applicable Credit Rating or better from
each Rating Agency at the time of such investment;
(vi) a Reinvestment Agreement issued by any bank, insurance
company or other corporation or entity;
(vii) any other demand, money market or time deposit,
obligation, security or investment as may be acceptable to each Rating
Agency; and
(viii) any money market funds the collateral of which consists
of obligations fully guaranteed by the United States of America or any
agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the
United States of America (which may include repurchase obligations
secured by collateral described in clause (i)) and having the
Applicable Credit Rating or better from each Rating Agency;
PROVIDED, HOWEVER, that no instrument or security shall be a Permitted
Investment if such instrument or security evidences a right to receive only
interest payments with respect to the obligations underlying such instrument or
if such security provides for payment of both principal and interest with a
yield to maturity in excess of _____% of the yield to maturity at par.
PERSON: Any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
PHYSICAL CERTIFICATES: The Class R-1 and Class R-2
Certificates and, to the extent provided in Section 5.02, the Class B-4, Class
B-5 and Class B-6 Certificates.
PO PERCENTAGE: (i) With respect to any Group I Discount
Mortgage Loan, the fraction, expressed as a percentage, equal to _____% minus
the Net Rate thereof divided by _____%, and (ii) with respect to any
Non-Discount Mortgage Loan, _____%.
PREPAYMENT DISTRIBUTION TRIGGER: For a Class of Subordinate
Certificates for any Distribution Date, the Class Prepayment Distribution
Trigger is satisfied if the fraction (expressed as a percentage), the numerator
of which is the aggregate Current Principal Amount of such Class and each Class
of Subordinate Certificates subordinate thereto, if any, and the denominator of
which is the Scheduled Principal Balances of all of the Mortgage Loans as of the
Due Date in the month next preceding such Distribution Date, equals or exceeds
such percentage calculated as of the Closing Date.
PREPAYMENT PERIOD: With respect to any Mortgage Loan and any
Distribution Date, the calendar month preceding the month of such Distribution
Date.
PRIMARY INSURANCE POLICY: Any primary mortgage guaranty
insurance policy issued in connection with a Mortgage Loan which provides
compensation to a Mortgage Note holder in the event of default by the obligor
under such Mortgage Note or the related Security Instrument, or any replacement
policy therefor.
PRINCIPAL PREPAYMENT: Any payment (whether partial or full) or
other recovery of principal on a Mortgage Loan which is received in advance of
its scheduled Due Date to the extent that it is not accompanied by an amount as
to interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment, including Insurance
Proceeds and the purchase price in connection with any purchase of a Mortgage
Loan, any cash deposit in connection with the substitution of a Mortgage Loan,
and the principal portion of Net Liquidation Proceeds.
PRIVATE CERTIFICATE: Any Class B-4, Class B-5 or Class B-6
Certificate.
PROTECTED ACCOUNT: A trust account established and maintained
by the Master Servicer or any Sub-Servicer with respect to the Mortgage Loans
and with respect to REO Property in a Designated Depository Institution for
receipt of principal and interest and other amounts as described in Section
4.01.
QUALIFIED INSURER: Any insurance company duly qualified as
such under the laws of the state or states in which the related Mortgaged
Property or Mortgaged Properties is or are located, duly authorized and licensed
in such state or states to transact the type of insurance business in which it
is engaged and approved as an insurer by the Master Servicer, so long as the
claims paying ability of which is acceptable to the Rating Agencies for
pass-through certificates having the same rating as the Certificates rated by
the Rating Agencies as of the Closing Date.
RATING AGENCIES: ____________ and ____________.
RATING AGENCY ELIGIBLE ACCOUNT: An account, including one
maintained with the Trustee, which either (i) is a trust account maintained with
the trust department of a depository institution or trust company organized
under the laws of the United States of America or any one of the states thereof
or the District of Columbia or (ii) is maintained with an entity which is an
institution whose deposits are insured by the FDIC, the unsecured and
uncollateralized long-term debt obligations of which shall be rated "_____" or
better by _____________ and _____________, or one of the two highest short-term
ratings by _____________ and _____________, and which is either (a) a federal
savings association duly organized, validly existing and in good standing under
the federal banking laws, (b) an institution duly organized, validly existing
and in good standing under the applicable banking laws of any state, (c) a
national banking association under the federal banking laws, or (d) a principal
subsidiary of a bank holding company.
REALIZED LOSS: Any (i) Deficient Valuation or (ii) as to any
Liquidated Mortgage Loan, (x) the Outstanding Principal Balance of such
Liquidated Mortgage Loan plus accrued and unpaid interest thereon at the
Mortgage Interest Rate through the last day of the month of such liquidation
LESS (y) the related Net Liquidation Proceeds.
RECORD DATE: With respect to any Distribution Date, the close
of business on the last Business Day of the month immediately preceding the
month of such Distribution Date.
REINVESTMENT AGREEMENTS: One or more reinvestment agreements,
acceptable to the Rating Agencies, from a bank, insurance company or other
corporation or entity (including the Trustee).
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT MORTGAGE LOAN: Any Mortgage Loan as to which the
Scheduled Payment thereof has been reduced due to the application of the
Relief Act.
REMIC: A real estate mortgage investment conduit, as defined
in the Code.
REMIC I: That group of assets contained in the Trust Fund
designated as a REMIC consisting of the REMIC II Regular Certificates.
REMIC II: That group of assets contained in the Trust Fund
designated as a REMIC consisting of (i) the Mortgage Loans, (ii) the Certificate
Account, (iii) any REO Property and (iv) any proceeds of the foregoing. Expenses
and fees of the Trust shall be paid by REMIC II.
REMIC II CERTIFICATES: The REMIC II Regular Certificates and
the Class R-2 Certificates.
REMIC II REGULAR CERTIFICATES: As defined in Section 5.01.
REMIC OPINION: An Opinion of Independent Counsel, to the
effect that the proposed action described therein would not, under the REMIC
Provisions, (i) cause either REMIC I or REMIC II to fail to qualify as a REMIC
while any regular interest in either REMIC I or REMIC II is outstanding, (ii)
result in a tax on prohibited transactions or (iii) constitute a taxable
contribution after the Startup Day.
REMIC PROVISIONS: The provisions of the federal income tax law
relating to REMICs, which appear at Sections 860A through 860G of the Code, and
related provisions and regulations promulgated thereunder, as the foregoing may
be in effect from time to time.
REO PROPERTY: A Mortgaged Property acquired in the name of the
Trustee, for the benefit of Certificateholders, by foreclosure or deed-in-lieu
of foreclosure in connection with a defaulted Mortgage Loan.
REPURCHASE PRICE: With respect to any Mortgage Loan (or any
property acquired with respect thereto) required to be repurchased pursuant to
Section 2.02 or 2.03 an amount equal to the sum of (i) _____% of the Outstanding
Principal Balance of such Mortgage Loan as of the date of repurchase (or if the
related Mortgaged Property was acquired with respect thereto, _____% of the
Outstanding Principal Balance at the date of the acquisition) plus (ii) accrued
but unpaid interest on the Outstanding Principal Balance at the related Mortgage
Interest Rate, through and including the last day of the month of repurchase
reduced by (ii) any portion of the Master Servicing Fee or advances payable to
the purchaser of the Mortgage Loan.
REQUEST FOR RELEASE: A request for release in the form
attached hereto as Exhibit D.
REQUIRED INSURANCE POLICY: With respect to any Mortgage Loan,
any insurance policy which is required to be maintained from time to time under
this Agreement with respect to such Mortgage Loan.
RESIDUAL CERTIFICATES: The Class R-1 and Class R-2
Certificates.
RESPONSIBLE OFFICER: Any officer assigned to the corporate
trust department or similar department of the Trustee (or any successor division
or department thereto), and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
RULE 144A CERTIFICATE: The certificate to be furnished by each
purchaser of a Private Certificate which is a Qualified Institutional Buyer as
defined under Rule 144A promulgated under the Securities Act, substantially in
the form set forth as Exhibit F-2 hereto.
SCHEDULED PAYMENT: With respect to any Mortgage Loan and any
month, the scheduled payment or payments of principal and interest due during
such month on such Mortgage Loan which either is payable by a Mortgagor in such
month under the related Mortgage Note or, in the case of REO Property, would
otherwise have been payable under the related Mortgage Note.
SCHEDULED PRINCIPAL: The principal portion of any Scheduled
Payment.
SCHEDULED PRINCIPAL BALANCE: With respect to any Mortgage Loan
on any Distribution Date, (A) the unpaid principal balance of such Mortgage Loan
as of the close of business on the Due Date in the month preceding the month of
such Distribution Date (i.e., taking account of the principal payment to be made
on such Due Date and irrespective of any delinquency in its payment), as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any bankruptcy or similar
proceeding occurring after the Cut-Off Date (other than a Deficient Valuation)
or any moratorium or similar waiver or grace period) less (B) any Principal
Prepayments (including the principal portion of Net Liquidation Proceeds)
received during or prior to the related Prepayment Period; provided that the
Scheduled Principal Balance of a Liquidated Mortgage Loan is zero.
SECURITIES ACT: The Securities Act of 1933, as amended.
SECURITIES LEGEND: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER
HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A
"QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A
QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) PURSUANT TO
AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (3) IN CERTIFICATED FORM TO AN "INSTITUTIONAL ACCREDITED INVESTOR"
WITHIN THE MEANING THEREOF IN RULE 501(a)(1), (2), (3) or (7) (OR ANY ENTITY IN
WHICH ALL OF THE EQUITY HOLDERS COME WITHIN SUCH PARAGRAPHS) OF REGULATION D
UNDER THE SECURITIES ACT PURCHASING NOT FOR DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, SUBJECT TO (A) THE RECEIPT BY THE TRUSTEE OF A LETTER
SUBSTANTIALLY IN THE FORM PROVIDED IN THE AGREEMENT AND (B) AN OPINION OF
COUNSEL AS TO COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED
STATES. THIS CERTIFICATE MAY NOT BE TRANSFERRED TO "BENEFIT PLAN INVESTORS," AS
SUCH TERM IS DEFINED IN 29 C.F.R. ss. 2510.3-101., UNLESS THE PROPOSED
TRANSFEREE PROVIDES A BENEFIT PLAN OPINION TO THE TRUSTEE."
SECURITY INSTRUMENT: A written instrument creating a valid
[first] lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: Bear Stearns Mortgage Securities Inc., a Delaware
corporation, or its successors in interest.
SELLER CONTRACT: The Mortgage Loan Purchase Agreement dated as
of ___________, 199_, among [CORPORATION 1], as seller, [____________., as
guarantor,] and Bear Stearns Mortgage Securities Inc., as purchaser, and all
amendments thereof and supplements thereto.
SENIOR CERTIFICATES: The Class A-I-1, Class A-I-2, Class
A-I-3, Class A-I-4, Class A-I-5, Class A-I-6, Class A-I-7, Class A-I-8, Class
A-I-9, Class A-I-10, Class A-I-11, Class A-II, Class PO, Class X, Class R-1 and
Class R-2 Certificates.
SENIOR PERCENTAGE: The Class A-I Senior Percentage or the
Class A-II Senior Percentage.
SENIOR PREPAYMENT PERCENTAGE: The Class A-I Senior
Prepayment Percentage or the Class A-II Senior Prepayment Percentage.
SEPARATE COMPONENT: As defined in footnote (3) to the table
in Section 5.01(c) and which compose Component I and Component II.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Sub-Servicer with respect to the
Mortgage Loans or with respect to REO Property in a Designated Depository
Institution for collection of taxes, assessments, insurance premiums and
comparable items as described in Section 3.07.
SERVICING OFFICER: Any officer of the Master Servicer or of an
agent or independent contractor through which all or part of the Master
Servicer's master servicing responsibilities are carried out, involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Trustee by the Master Servicer as such list may from time to time be amended
in accordance with the foregoing.
SPECIAL HAZARD LOSS: (i) A Realized Loss suffered by a
Mortgaged Property on account of direct physical loss, exclusive of (a) any loss
covered by a hazard policy or a flood insurance policy required to be maintained
in respect of such Mortgaged Property under Section 3.10 and (b) any loss caused
by or resulting from:
(1) normal wear and tear;
(2) conversion or other dishonest act on the part of the
Trustee, the Master Servicer or any of their agents
or employees; or
(3) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a
part thereof ensues;
or (ii) any Realized Loss suffered by the Trust Fund arising from or related to
the presence or suspected presence of hazardous wastes or hazardous substances
on a Mortgaged Property unless such loss to a Mortgaged Property is covered by a
hazard policy or a flood insurance policy required to be maintained in respect
of such Mortgaged Property under Section 3.10.
SPECIAL HAZARD LOSS AMOUNT: As of any Distribution Date, an
amount equal to $___________ minus the sum of (i) the aggregate amount of
Special Hazard Losses that would have been allocated to the Subordinate
Certificates in accordance with Section 6.03 in the absence of the Loss
Allocation Limitation and (ii) the Adjustment Amount (as defined below) as most
recently calculated. On each anniversary of the Cut-Off Date, the "Adjustment
Amount" shall be equal to the amount, if any, by which the amount calculated in
accordance with the preceding sentence (without giving effect to the deduction
of the Adjustment Amount for such anniversary) exceeds the lesser of (x) the
greater of (A) the product of the Special Hazard Percentage for such anniversary
multiplied by the Outstanding Principal Balance of all the Mortgage Loans on the
Distribution Date immediately preceding such anniversary and (B) twice the
Outstanding Principal Balance of the Mortgage Loan which has the largest
Outstanding Principal Balance on the Distribution Date immediately preceding
such anniversary, and (y) an amount calculated by the Master Servicer and
approved by each Rating Agency, which amount shall not be less than
$___________.
SPECIAL HAZARD PERCENTAGE: As of each anniversary of the
Cut-Off Date, the greater of (i) _____% and (ii) the largest percentage obtained
by dividing (x) the aggregate Outstanding Principal Balance (as of the
immediately preceding Distribution Date) of the Mortgage Loans secured by
Mortgaged Properties located in a single, five-digit zip code area in the State
of ___________ by (y) the Outstanding Principal Balance of all the Mortgage
Loans as of the immediately preceding Distribution Date.
SPECIAL HAZARD TERMINATION DATE: The Distribution Date upon
which the Special Hazard Loss Amount has been reduced to zero or a negative
number (or the Cross-Over Date, if earlier).
STARTUP DAY: ___________, 199_.
SUBORDINATE CERTIFICATE WRITEDOWN AMOUNT: As to any
Distribution Date, the amount by which (a) the sum of the Current Principal
Amounts of all the Certificates (after giving effect to the distribution of
principal and the allocation of Realized Losses and the Class PO Deferred
Payment Writedown Amount in reduction of the Current Principal Amounts of the
Certificates on such Distribution Date) exceeds (b) the aggregate Scheduled
Principal Balances of the Mortgage Loans on the first day of the month of such
Distribution Date, less any Deficient Valuation occurring on or prior to the
Bankruptcy Coverage Termination Date.
SUBORDINATE CERTIFICATES: Class B-1, Class B-2, Class B-3,
Class B-4, Class B-5 and Class B-6 Certificates.
SUBORDINATE OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, without duplication, of the following (but in no event
greater than the aggregate Current Principal Amounts of the Subordinate
Certificates immediately prior to such Distribution Date):
(i) the Group I Subordinate Percentage or Group II Subordinate
Percentage, as applicable, of the applicable Non-PO Percentage of
Scheduled Principal due on the related Due Date on each Outstanding
Mortgage Loan in the related Mortgage Loan Group as of such Due Date as
specified in the amortization schedule at the time applicable thereto
(after adjustment for previous Principal Prepayments and the principal
portion of Debt Service Reductions subsequent to the Bankruptcy
Coverage Termination Date but before any adjustment to such
amortization schedule by reason of any bankruptcy (other than as
aforesaid) or similar proceeding or any moratorium or similar waiver or
grace period);
(ii) the Group I Subordinate Prepayment Percentage or Group II
Subordinate Prepayment Percentage, as applicable, of the applicable
Non-PO Percentage of all Voluntary Principal Prepayments in part on
Mortgage Loans in the related Mortgage Group received during the
related Prepayment Period, and _____% of any Group I Senior Optimal
Principal Amount or Group II Senior Optimal Principal Amount, as
applicable, not distributed to the related Senior Certificates on such
Distribution Date, together with the Group I Subordinate Prepayment
Percentage or Group II Subordinate Prepayment Percentage, as
applicable, of the Scheduled Principal Balance of each Mortgage Loan in
the related Mortgage Loan Group which was the subject of a Voluntary
Principal Prepayment in full during the related Prepayment Period;
(iii) the excess, if any, of the applicable Non-PO Percentage
of (x) the sum of (A) all Net Liquidation Proceeds allocable to
principal on Mortgage Loans in the related Mortgage Loan Group received
during the related Prepayment Period (other than in
respect of Mortgage Loans described in clause (B)) and (B) the
Scheduled Principal Balance of each Mortgage Loan in the related
Mortgage Loan Group that was purchased by an Insurer from the Trustee
during the related Prepayment Period pursuant to the related Primary
Insurance Policy, over (y) the sum of the amounts distributable
pursuant to clause (iii) of the definitions of Group I Senior Optimal
Principal Amount or Group II Senior Optimal Principal Amount,
respectively, on such Distribution Date;
(iv) the Group I Subordinate Prepayment Percentage or Group II
Subordinate Prepayment Percentage of the applicable Non-PO Percentage
of the Scheduled Principal Balance of each Mortgage Loan in the related
Mortgage Loan Group which was purchased on such Distribution Date
pursuant to Section 2.02, 2.03(d) or 3.19; and
(v) the Group I Subordinate Prepayment Percentage or Group II
Subordinate Prepayment Percentage of the applicable Non-PO Percentage
of the difference, if any, between the Scheduled Principal Balance of a
Mortgage Loan in the related Mortgage Loan Group that has been replaced
by the Master Servicer with a Substitute Mortgage Loan pursuant to
Section 2.04 during the month of such Distribution Date and the
Scheduled Principal Balance of such Substitute Mortgage Loan.
After the aggregate current Principal Amounts of the Subordinate Certificates
have been reduced to zero, the Group I Subordinate Optimal Principal Amount and
Group II Subordinate Optimal Principal Amount shall each be zero.
SUBORDINATE PERCENTAGE: A Group I Subordinate Percentage or
Group II Subordinate Percentage.
SUBORDINATE PREPAYMENT PERCENTAGE: a Group I Subordinate
Prepayment Percentage or a Group II Subordinate Prepayment Percentage.
SUB-SERVICER: Any Person with which the Master Servicer has
entered into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
SUB-SERVICING AGREEMENT: The written contract between the
Master Servicer and a Sub-Servicer and any successor Sub-Servicer relating to
servicing and administration of certain Mortgage Loans as provided in Section
3.02.
SUBSTITUTE MORTGAGE LOAN: A mortgage loan tendered to the
Trustee pursuant to Section 2.04, in each case, in the opinion of the
Master Servicer, (i) which has an Outstanding Principal Balance not materially
greater nor materially less than the Mortgage Loan for which it is to be
substituted; (ii) which has a Mortgage Interest Rate and Net Rate not less than,
and not materially greater than, such Mortgage Loan; (iii) which has a maturity
date not materially earlier or later than such Mortgage Loan and not later than
the latest maturity date of any Mortgage Loan; (iv) which is of the same
property type and occupancy type as such Mortgage Loan; (v) which has a
Loan-to-Value Ratio not greater than the Loan-to-Value Ratio of such Mortgage
Loan; (vi) which is current in payment of principal and interest as of the date
of substitution; and (vii) as to which the payment terms do not vary in any
material respect from the payment terms of the Mortgage Loan for which it is to
be substituted. The opinion of the Master Servicer shall be evidenced by an
Officer's Certificate delivered to the Trustee.
TAX MATTERS PERSON: _______________, or any successor
thereto or assignee thereof.
TRUST FUND or TRUST: The corpus of the trust created by this
Agreement, consisting of the Mortgage Loans and the other assets described in
Section 2.01(a).
TRUSTEE: ________________, or its successor in interest, or
any successor trustee appointed as herein provided.
TRUSTEE'S FEES: With respect to each Distribution Date, the
amount to be paid to the Trustee calculated monthly on a Mortgage Loan by
Mortgage Loan basis, equal to the sum of (i) with respect to each Mortgage Loan
which has been prepaid in full during the related Prepayment Period, the product
of (a) the amount of the Principal Prepayment, (b) _____% per annum and (c) a
fraction, the numerator of which is the number of days elapsed from the Due Date
in the month prior to the month of such Distribution Date to the date of
Principal Prepayment and the denominator of which is 365, and (ii) with respect
to all other Mortgage Loans, the product of (x) the Scheduled Principal Balance
of such Mortgage Loan on the Due Date in the month prior to the month of such
Distribution Date and (y) _____ of _____%.
UNINSURED CAUSE: Any cause of damage to a Mortgaged Property
or REO Property such that the complete restoration of such Mortgaged Property or
REO Property is not fully reimbursable by the hazard insurance policies required
to be maintained pursuant to Section 3.10, without regard to whether or not such
policy is maintained.
VOLUNTARY PRINCIPAL PREPAYMENT: With respect to any
Distribution Date, any Principal Prepayment received from the related Mortgagor
on a Mortgage Loan.
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates
Section 2.01. CONVEYANCE OF MORTGAGE LOANS TO TRUSTEE. (a) The
Seller concurrently with the execution and delivery of this Agreement, sells,
transfers and assigns to the Trustee without recourse all its right, title and
interest in and to (i) the Mortgage Loans identified in the Mortgage Loan
Schedule, including all interest and principal due with respect to the Mortgage
Loans after the Cut-Off Date, but excluding any payments of principal and
interest due on or prior to the Cut-Off Date; (ii) such assets as shall from
time to time be credited or are required by the terms of this Agreement to be
credited to the Certificate Account (excluding any income to the Master Servicer
from Permitted Investments under Subsection 4.02(d)), (iii) such assets relating
to the Mortgage Loans as from time to time may be held by the Master Servicer or
a Sub-Servicer in Protected Accounts (excluding any income to the Master
Servicer or any Sub-Servicer from Permitted Investments under Subsection
4.01(a)), (iv) such assets relating to the Mortgage Loans as from time to time
may be held by the Trustee in the Custody Account (excluding any income to the
Master Servicer from Permitted Investments under Section 4.04(d)), (v) any
Servicing Accounts (to the extent the mortgagee has a claim thereto and
excluding any income to the Master Servicer or Sub-Servicer or interest payable
to Mortgagors pursuant to applicable law), (vi) any REO Property, (vii) the
Required Insurance Policies and any amounts paid or payable by the insurer under
any Insurance Policy (to the extent the mortgagee has a claim thereto), (viii)
the Seller Contract to the extent provided in Subsection 2.03(b), and (ix) any
proceeds of the foregoing. Although it is the intent of the parties to this
Agreement that the conveyance of the Seller's right, title and interest in and
to the Mortgage Loans and other assets in the Trust Fund pursuant to this
Agreement shall constitute a purchase and sale and not a loan, in the event that
such conveyance is deemed to be a loan, it is the intent of the parties to this
Agreement that the Seller shall be deemed to have granted to the Trustee a first
priority perfected security interest in all of the Seller's right, title and
interest in, to and under the Mortgage Loans and other assets in the Trust Fund,
and that this Agreement shall constitute a security agreement under applicable
law.
(b) In connection with the above transfer and assignment, the
Seller hereby deposits with the Trustee, with respect to each Mortgage
Loan, (i) the original Mortgage Note, endorsed without recourse to the order of
the Trustee and showing an unbroken chain of endorsements from the original
payee thereof to the Person endorsing it to the Trustee, or if the original has
been lost or misplaced a lost note affidavit, (ii) the original Security
Instrument, which shall have been recorded, with evidence of such recording
indicated thereon, (iii) the assignment (which may be in the form of a blanket
assignment if permitted in the jurisdiction in which the Mortgaged Property is
located) to the Trustee of the Security Instrument, with evidence of recording
with respect to each Mortgage Loan in the name of the Trustee thereon, (iv) all
intervening assignments of the Security Instrument, if any, to the extent
available to the Seller with evidence of recording thereon, (v) the original or
a copy of the policy or certificate of primary mortgage guaranty insurance, to
the extent available, if any, (vi) the original policy of title insurance or
mortgagee's certificate of title insurance or commitment or binder for title
insurance and (vii) originals of all assumption and modification agreements, if
any; PROVIDED, HOWEVER, that in lieu of the foregoing, the Seller may deliver
the following documents, under the circumstances set forth below: (w) in lieu of
the original policy of title insurance, the Seller may deliver a binder or
commitment therefor, or, in California, a preliminary title report, or, in Iowa,
an attorney's certificate; (x) in lieu of the original Security Instrument or
intervening assignments thereof which have been delivered or are being delivered
to recording offices for recording and have not been returned to the Seller in
time to permit their delivery as specified above, the Seller may deliver a true
copy thereof with a certification by [CORPORATION 1] or the title company
issuing the commitment for title insurance, on the face of such copy,
substantially as follows: "Certified to be a true and correct copy of the
original, which has been transmitted for recording"; (y) in lieu of the Security
Instrument, assignment to the Trustee or intervening assignments thereof, if the
applicable jurisdiction retains the originals of such documents (as evidenced by
a certification from [CORPORATION 1] to such effect) the Seller may deliver
photocopies of such documents containing an original certification by the
judicial or other governmental authority of the jurisdiction where such
documents were recorded; and (z) in lieu of the Mortgage Notes relating to the
two Group I Mortgage Loans identified in the list delivered by the Master
Servicer to the Trustee on the Closing Date, the Seller may deliver a lost note
affidavit; and PROVIDED, FURTHER, HOWEVER, that in the case of Mortgage Loans
which have been prepaid in full after the Cut-Off Date and prior to the Closing
Date, the Seller, in lieu of delivering the above documents, may deliver to the
Trustee a certification of a Servicing Officer to such effect and shall deposit
all amounts paid in respect of such Mortgage Loans in the Certificate Account on
the Closing Date. The Seller shall deliver such original documents (including
any original documents as to which certified copies had previously been
delivered) or such certified copies together with the original title insurance
policy (or, if a master title policy has been issued by the title insurer, a
mortgagee's certificate of title insurance) if a title insurance binder or
commitment or other assurance of title was originally deposited, to the Trustee
promptly after they are received. The Master Servicer shall cause, at its
expense, the Security Instrument and intervening assignments, if any, and the
assignment of the Security Instrument to the Trustee to be recorded not later
than 180 days after the Closing Date.
Section 2.02. ACCEPTANCE OF MORTGAGE LOANS BY TRUSTEE. (a) The
Trustee acknowledges receipt of, subject to the exceptions it notes
pursuant to the procedures described below, the documents (or certified copies
thereof) delivered to it pursuant to Section 2.01 and declares that it holds and
will continue to hold those documents and any amendments, replacements or
supplements thereto and all other assets of the Trust Fund delivered to it as
Trustee in trust for the use and benefit of all present and future Holders of
the Certificates. No later than 45 days after the Closing Date (or, with respect
to any Substitute Mortgage Loan, within 5 days after the receipt by the Trustee
thereof), the Trustee agrees, for the benefit of the Certificateholders, to
review each Mortgage File delivered to it and to execute and deliver, or cause
to be executed and delivered, to the Seller and the Master Servicer an Initial
Certification in the form annexed hereto as Exhibit H. In conducting such
review, the Trustee will ascertain whether all required documents have been
executed and received and whether those documents relate, determined on the
basis of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans it has received, as identified in Exhibit B to this Agreement, as
supplemented (PROVIDED, HOWEVER, that with respect to those documents described
in subclauses (b)(iv), (b)(v) and (b)(vii) of Section 2.01, the Trustee's
obligations shall extend only to documents actually delivered pursuant to such
subsections). In performing any such review, the Trustee may conclusively rely
on the purported due execution and genuineness of any such document and on the
purported genuineness of any signature thereon. If the Trustee finds any
document constituting part of the Mortgage File not to have been executed or
received, or to be unrelated to the Mortgage Loans identified in Exhibit B or to
appear to be defective on its face, the Trustee shall promptly notify
[CORPORATION 1]. [CORPORATION 1] shall correct or cure any such defect within 60
days from the date of notice from the Trustee of the defect and if [Corporatio
1] fails to correct or cure the defect within such period, and such defect
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, [CORPORATION 1], will, subject to Section 2.04, within 90
days from the Trustee's notification purchase such Mortgage Loan at the
Repurchase Price; PROVIDED, HOWEVER, that if such defect relates solely to the
inability of [CORPORATION 1] to deliver the original Security Instrument or
intervening assignments thereof, or a certified copy because the originals of
such documents, or a certified copy have not been returned by the applicable
jurisdiction, [CORPORATION 1] shall not be required to purchase such Mortgage
Loan if [Corporation 1] delivers such original documents or certified copy
promptly upon receipt, but in no event later than 360 days after the Closing
Date.
(b) No later than 180 days after the Closing Date, the Trustee
will review, for the benefit of the Certificateholders, the Mortgage Files
delivered to it and will execute and deliver or cause to be executed and
delivered to the Seller and the Master Servicer, a Final Certification in the
form annexed hereto as Exhibit I. In conducting such review, the Trustee will
ascertain whether (i) an original of each document required to be recorded has
been returned from the recording office with evidence of recording thereon or a
certified copy has been obtained from the recording office; and (ii) an original
title insurance policy (or if a master title policy has been issued by the title
insurer, a mortgagee's certificate of title insurance) has been delivered
whenever a title insurance binder or commitment or other assurance of title was
originally deposited. If the Trustee finds any document constituting part of the
Mortgage File has not been received, or to be unrelated, determined on the basis
of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans identified in Exhibit B or to appear defective on its face, the
Trustee shall promptly notify [CORPORATION 1]. [CORPORATION 1] shall correct or
cure any such defect within 60 days from the date of notice from the Trustee of
the defect and if [CORPORATION 1] is unable to cure such defect within such
period, and if such defect materially and adversely affects the interests of the
Certificateholders in the related Mortgage Loan, [CORPORATION 1] shall, subject
to Section 2.04, within 90 days from the Trustee's notification purchase such
Mortgage Loan at the Repurchase Price; PROVIDED, HOWEVER, that if such defect
relates solely to the inability of [CORPORATION 1] to deliver the original
Security Instrument or intervening assignments thereof, or a certified copy,
because the originals of such documents, or a certified copy, have not been
returned by the applicable jurisdiction, [CORPORATION 1] shall not be required
to purchase such Mortgage Loan, if [Corporation 1] delivers such original
documents or certified copy promptly upon receipt, but in no event later than
360 days after the Closing Date.
(c) In the event that a Mortgage Loan is purchased by
[CORPORATION 1] in accordance with Subsections 2.02(a) or (b) above or Section
3.19, [CORPORATION 1] shall cause the Repurchase Price to be deposited in the
appropriate subaccount of the Certificate Account and shall provide written
notification of such deposit (which notification shall detail the components of
the Repurchase Price), signed by a Servicing Officer, to the Trustee. Upon
deposit of the Repurchase Price in the appropriate subaccount of the Certificate
Account, the Trustee shall release to [CORPORATION 1] the related Mortgage File
and shall execute and deliver all instruments of transfer or assignment, without
recourse, furnished to it by [CORPORATION 1] as are necessary to vest in
[Corporation 1] title to and rights under the Mortgage Loan. Such purchase shall
be deemed to have occurred on the date on which certification of the deposit of
the Repurchase Price in the Certificate Account was received by the Trustee. The
Trustee shall amend the Mortgage Loan Schedule to reflect such repurchase and
shall promptly notify the Master Servicer and the Rating Agencies of such
amendment. The obligation of [CORPORATION 1] to repurchase any Mortgage Loan as
to which such a defect in a constituent document exists shall be the sole remedy
respecting such defect available to the Certificateholders or to the Trustee on
their behalf.
Section 2.03. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE MASTER SERVICER. (a) [CORPORATION 1] hereby represents and warrants to
the Trustee as of the Closing Date that:
(i) It is a corporation duly organized, validly
existing and in good standing under the laws of the state of
its incorporation and is in good standing as a foreign
corporation in each jurisdiction where such qualification is
necessary and throughout the term of this Agreement will
remain a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation
or any state of reincorporation and in good standing as a
foreign corporation in each jurisdiction where such
qualification is necessary (except, in the case of foreign
corporation qualification both on the date hereof and in the
future, where the failure so to qualify would not reasonably
be expected to have a material adverse effect on the Master
Servicer's ability to enter into this Agreement or to perform
its obligations hereunder), and has the corporate power and
authority to perform its obligations under this Agreement;
(ii) The execution and delivery of this Agreement
have been duly authorized by all requisite corporate action;
(iii) This Agreement, assuming due authorization,
execution, and delivery by the other parties hereto, will
constitute its legal, valid and binding obligation,
enforceable in accordance with its terms, except only as such
enforcement may be limited by applicable Debtor Relief Laws
and that certain equitable remedies may not be available
regardless of whether enforcement is sought in equity or at
law;
(iv) Its execution and delivery of this Agreement
and its performance and compliance with the terms of this
Agreement will not (A) violate its certificate of
incorporation or bylaws (B) to its knowledge, violate any law
or regulation, or any administrative or judicial decree or
order to which it is subject or (C) constitute a default (or
an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any
material contract, agreement or other instrument to which it
is a party or which may be applicable to it or any of its
assets;
(v) To its best knowledge, after reasonable
investigation, it is not in default with respect to any order
or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency, which
default would reasonably be expected to have consequences that
would materially and adversely affect its financial condition
or operations or its performance hereunder;
(vi) It does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement to be performed by
it;
(vii) The consummation of the transactions
contemplated by this Agreement are in the ordinary course of
its business;
(viii) No litigation is pending or, to its best
knowledge, threatened against it, which could be reasonably
expected to materially and adversely affect its entering into
this Agreement or performing its obligations under this
Agreement or which would have a material adverse effect on its
financial condition; and
(ix) As to each Mortgage Loan, the Seller Contract
is in full force and effect.
(b) The Seller hereby assigns to the Trustee, on behalf of the
Certificateholders, all of its right, title and interest in the Seller Contract
(but none of its obligations) insofar as such contract relates to the
representations and warranties set forth in Exhibit C hereto regarding the
Mortgage Loans (including the substitution and repurchase obligations of
[CORPORATION 1] [and the guaranty thereof of ___________]); provided that the
obligations of [CORPORATION 1] [and ____________] to substitute or repurchase a
Mortgage Loan shall be the Trustee's and the Certificateholder's sole remedy for
any breach thereof. At the request of the Trustee, the Seller shall take such
actions as may be necessary to enforce the above right, title and interest on
behalf of the Trustee and the Certificateholders or shall execute such
further documents as the Trustee may reasonably require in order to enable the
Trustee to carry out such enforcement.
(c) [Intentionally omitted.]
(d) If the Seller, [CORPORATION 1], the Master Servicer or the
Trustee discovers a breach of any of the representations and warranties set
forth in Exhibit C or Section 7 of the Seller Contract, and such breach existed
on the date the representation and warranty was made, which breach materially
and adversely affects the value of the interests of Certificateholders or the
Trustee in the related Mortgage Loan, the party discovering the breach shall
give prompt written notice of the breach to the other parties. [CORPORATION 1]
within 60 days of its discovery or receipt of notice that such breach has
occurred (whichever occurs earlier), shall cure the breach in all material
respects or, subject to Section 2.04, shall purchase the Mortgage Loan or any
property acquired with respect thereto from the Trustee; PROVIDED, HOWEVER, that
if there is a breach of any representation set forth in Exhibit C and the
Mortgage Loan or the related property acquired with respect thereto has been
sold, then [CORPORATION 1] shall pay, in lieu of the Repurchase Price, any
excess of the Repurchase Price over the Net Liquidation Proceeds received upon
such sale. (If the Net Liquidation Proceeds exceed the Repurchase Price, any
excess shall be paid to [CORPORATION 1] to the extent not required by law to be
paid to the borrower.) Any such purchase by [CORPORATION 1] shall be made by
depositing an amount equal to the Repurchase Price in the appropriate subaccount
of the Certificate Account and the Trustee, upon receipt of the Repurchase Price
and of written notification of such deposit by a Servicing Officer (which
notification shall detail the components of such Repurchase Price), shall
release to [CORPORATION 1] the related Mortgage File and shall execute and
deliver all instruments of transfer or assignment furnished to it by
[CORPORATION 1], without recourse, as are necessary to vest in [CORPORATION 1]
title to and rights under the Mortgage Loan or any property acquired with
respect thereto. Such purchase shall be deemed to have occurred on the date on
which certification of the deposit of the Repurchase Price in the appropriate
subaccount of the Certificate Account was received by the Trustee. The Trustee
shall amend the Mortgage Loan Schedule to reflect such repurchase and shall
promptly notify the Master Servicer and the Rating Agencies of such amendment.
Enforcement of the obligation of [CORPORATION 1] to purchase (or substitute a
Substitute Mortgage Loan for) any Mortgage Loan or any property acquired with
respect thereto (or pay the Repurchase Price as set forth in the above proviso)
as to which a breach has occurred and is continuing shall constitute the sole
remedy respecting such breach available to the Certificateholders or the Trustee
on their behalf.
Section 2.04. SUBSTITUTION OF MORTGAGE LOANS. Notwithstanding
anything to the contrary in this Agreement, in lieu of purchasing a
Mortgage Loan pursuant to Sections 2.02 or 2.03, [CORPORATION 1] may, no later
than the date by which such purchase by [CORPORATION 1] would otherwise be
required, tender to the Trustee a Substitute Mortgage Loan accompanied by an
Officer's Certificate of [CORPORATION 1] that such Substitute Mortgage Loan
conforms to the requirements set forth in the definition of "Substitute Mortgage
Loan"; PROVIDED, HOWEVER, that substitution pursuant to this Section 2.04 in
lieu of purchase shall not be permitted after the termination of the two-year
period beginning on the Startup Day. The Trustee shall examine the Mortgage File
for any Substitute Mortgage Loan in the manner set forth in Section 2.02(a) and
shall notify the Master Servicer in writing, within five Business Days after
receipt, whether or not the documents relating to the Substitute Mortgage Loan
satisfy the requirements of the third sentence of Subsection 2.02(a). Within two
Business Days after such notification, [CORPORATION 1] shall deposit in the
appropriate subaccount of the Certificate Account the amount, if any, by which
the Outstanding Principal Balance as of the next preceding Due Date of the
Mortgage Loan for which substitution is being made, after giving effect to
Scheduled Principal due on such date, exceeds the Outstanding Principal Balance
as of such date of the Substitute Mortgage Loan, after giving effect to
Scheduled Principal due on such date, which amount shall be treated for the
purposes of this Agreement as if it were the payment by [CORPORATION 1] of the
Repurchase Price for the purchase of a Mortgage Loan by [CORPORATION 1] . After
such notification to [Corporation 1], and, if any such excess exists, upon
receipt of such deposit and of written notification thereof signed by a
Servicing Officer, the Trustee shall accept such Substitute Mortgage Loan, which
shall thereafter be deemed to be a Group I Mortgage Loan or Group II Mortgage
Loan, as applicable, hereunder. In the event of such a substitution, accrued
interest on the Substitute Mortgage Loan for the month in which the substitution
occurs and any Principal Prepayments made thereon during such month shall be the
property of the Trust Fund and accrued interest for such month on the Mortgage
Loan for which the substitution is made and any Principal Prepayments made
thereon during such month shall be the property of [CORPORATION 1]. The
Scheduled Principal on a Substitute Mortgage Loan due on the Due Date in the
month of substitution shall be the property of [CORPORATION 1] and the Scheduled
Principal on the Mortgage Loan for which the substitution is made due on such
Due Date shall be the property of the Trust Fund. Upon acceptance of the
Substitute Mortgage Loan, the Trustee shall release to [CORPORATION 1] the
related Mortgage File related to any Mortgage Loan released pursuant to this
Section 2.04 and shall execute and deliver all instruments of transfer or
assignment, without recourse, in form as provided to it as are necessary to vest
in [CORPORATION 1] title to and rights under any Mortgage Loan released pursuant
to this Section 2.04. [CORPORATION 1] shall deliver the documents related to the
Substitute Mortgage Loan in accordance with the provisions of Subsections
2.01(b) and 2.02(b), with the date of acceptance of the Substitute Mortgage Loan
deemed to be the Closing Date for purposes of the time periods set forth in
those Subsections. The representations and warranties set forth in Exhibit C
shall be deemed to have been made by [CORPORATION 1] with respect to each
Substitute Mortgage Loan as of the date of acceptance of such Mortgage Loan by
the Trustee. The Trustee shall amend the Mortgage Loan Schedule to reflect such
substitution and shall provide a copy of such amended Mortgage Loan Schedule to
the Master Servicer and the Rating Agencies.
Section 2.05. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE.
The Trustee hereby represents and warrants to the Seller and the Master
Servicer, as of the Closing Date (and in the case of paragraphs (v) and (vi)
below throughout the term of the Agreement), that:
(i) The Trustee is a banking association duly
organized, validly existing and in good standing under the
laws of the United States of America with a principal place
of business in __________, __________;
(ii) Subject to the right of the Trustee to appoint
a co-trustee or separate trustee under Section 9.11 hereof in
order to meet the legal requirements of a particular
jurisdiction, the Trustee has full power, authority and legal
right to execute and deliver this Agreement and to perform its
obligations under this Agreement and has taken all necessary
action to authorize the execution, delivery and performance by
it of this Agreement and the Certificates;
(iii) To the best of the Trustee's knowledge, after
reasonable investigation, the execution and delivery by the
Trustee of this Agreement and the Certificates and the
performance by the Trustee of its obligations under this
Agreement and the Certificates will not violate any provision
of the Trustee's Articles of Association or By-Laws or any law
or regulation governing the Trustee or any order, writ,
judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Trustee or any of its
assets. To the best of the Trustee's knowledge, after
reasonable investigation, such execution, delivery and
performance will not require the authorization, consent or
approval of, the giving of notice to, the filing or
registration with, or the taking of any other action with
respect to, any governmental authority or agency regulating
the activities of national banking associations. To the best
of the Trustee's knowledge, after reasonable investigation,
such execution, delivery and performance will not conflict
with, or result in a breach or violation of, any material
indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Trustee is a party or by which it
or its properties is bound;
(iv) This Agreement has been duly executed and
delivered by the Trustee. This Agreement and the Certificates,
when executed and delivered, will constitute the valid, legal
and binding obligations of the Trustee, enforceable against
the Trustee in accordance with their terms, except as the
enforcement thereof may be limited by applicable Debtor Relief
Laws and that certain equitable remedies may not be available
regardless of whether enforcement is sought in equity or at
law; and
(v) All funds received by the Trustee and required
to be deposited in the Certificate Account and the Custody
Account pursuant to this Agreement will be promptly so
deposited.
Section 2.06. ISSUANCE OF CERTIFICATES. The Trustee
acknowledges the assignment to it of the Mortgage Loans and the other
assets comprising the Trust Fund and, concurrently therewith, has signed, and
countersigned and delivered to the Seller, in exchange therefor,
Certificates in such authorized denominations representing such Fractional
Undivided Interests as the Seller has requested. The Trustee agrees that it will
hold the Mortgage Loans and such other assets segregated on the books of the
Trustee in trust for the benefit of the Certificateholders.
Section 2.07. REPRESENTATIONS AND WARRANTIES CONCERNING THE
SELLER. The Seller hereby represents and warrants to the Trustee and the
Master Servicer as follows:
(i) the Seller (a) is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and (b) is qualified
and in good standing as a foreign corporation to do business
in each jurisdiction where such qualification is necessary,
except where the failure so to qualify would not reasonably be
expected to have a material adverse effect on the Seller's
business as presently conducted or on the Purchaser's ability
to enter into this Agreement and to consummate the
transactions contemplated hereby;
(ii) the Seller has full corporate power to own its
property, to carry on its business as presently conducted and
to enter into and perform its obligations under this
Agreement;
(iii) the execution and delivery by the Seller of
this Agreement have been duly authorized by all necessary
corporate action on the part of the Seller; and neither the
execution and delivery of this Agreement, nor the consummation
of the transactions herein contemplated, nor compliance with
the provisions hereof, will conflict with or result in a
breach of, or constitute a default under, any of the
provisions of any law, governmental rule, regulation,
judgment, decree or order binding on the Seller or its
properties or the articles of incorporation or by-laws of the
Seller, except those conflicts, breaches or defaults which
would not reasonably be expected to have a material adverse
effect on the Seller's ability to enter into this Agreement
and to consummate the transactions contemplated hereby;
(iv) the execution, delivery and performance by the
Seller of this Agreement and the consummation of the
transactions contemplated hereby do not require the consent or
approval of, the giving of notice to, the registration with,
or the taking of any other action in respect of, any state,
federal or other governmental authority or agency, except
those consents, approvals, notices, registrations or other
actions as have already been obtained, given or made;
(v) this Agreement has been duly executed and
delivered by the Seller and, assuming due authorization,
execution and delivery by the other parties hereto,
constitutes a valid and binding obligation of the Seller
enforceable against it in accordance with its terms (subject
to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of the rights of
creditors generally); and
(vi) there are no actions, suits or proceedings
pending or, to the knowledge of the Seller, threatened against
the Seller, before or by any court, administrative agency,
arbitrator or governmental body (i) with respect to any of the
transactions contemplated by this Agreement or (ii) with
respect to any other matter which in the judgment of the
Seller will be determined adversely to the Seller and will if
determined adversely to the Seller materially and adversely
affect the Seller's ability to enter into this Agreement or
perform its obligations under this Agreement; and the Seller
is not in default with respect to any order of any court,
administrative agency, arbitrator or governmental body so as
to materially and adversely affect the transactions
contemplated by this Agreement.
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. MASTER SERVICER TO ASSURE SERVICING. (a) The
Master Servicer shall supervise, or take such actions as are necessary to
ensure, the servicing and administration of the Mortgage Loans and any REO
Property in accordance with this Agreement and its normal servicing practices,
which generally conform to the standards of an institution prudently servicing
mortgage loans for its own account and shall have full authority to do anything
it reasonably deems appropriate or desirable in connection with such servicing
and administration. The Master Servicer may perform its responsibilities
relating to servicing through other agents or independent contractors, but shall
not thereby be released from any of its responsibilities as hereinafter set
forth. The authority of the Master Servicer, in its capacity as master servicer,
shall include, without limitation, the power to (i) consult with and advise any
Sub-Servicer regarding administration of a related Mortgage Loan, (ii) approve
any recommendation by a Sub-Servicer to foreclose on a related Mortgage Loan,
(iii) supervise the filing and collection of insurance claims and take or cause
to be taken such actions on behalf of the insured person thereunder as shall be
reasonably necessary to prevent the denial of coverage thereunder, and (iv)
effectuate foreclosure or other conversion of the ownership of the Mortgaged
Property securing a related Mortgage Loan, including the employment of
attorneys, the institution of legal proceedings, the collection of deficiency
judgments, the acceptance of compromise proposals, the filing of claims under
any Primary Insurance Policy and any other matter pertaining to a delinquent
Mortgage Loan. The authority of the Master Servicer shall include, in addition,
the power on behalf of the Certificateholders, the Trustee or any of them to (i)
execute and deliver customary consents or waivers and other instruments and
documents, (ii) consent to transfers of any related Mortgaged Property and
assumptions of the related Mortgage Notes and Security Instruments (in the
manner provided in this Agreement) and (iii) collect any Insurance Proceeds and
Liquidation Proceeds. Without limiting the generality of the foregoing, the
Master Servicer may, and is hereby authorized, and empowered by the Trustee to,
execute and deliver, on behalf of itself, the Certificateholders, the Trustee,
or any of them, any instruments of satisfaction, cancellation, partial or full
release, discharge and all other comparable instruments, with respect to the
related Mortgage Loans, the Insurance Policies and the accounts related thereto,
and the Mortgaged Properties. The Master Servicer may exercise this power in its
own name or in the name of a Sub-Servicer.
(b) Notwithstanding the provisions of Subsection 3.01(a), the
Master Servicer shall not take any action inconsistent with the interest of the
Trustee or the Certificateholders in the Mortgage Loans or with the rights and
interests of the Trustee or the Certificateholders under this Agreement.
(c) The Trustee shall furnish the Master Servicer with any
powers of attorney and other documents in form as provided to it necessary or
appropriate to enable the Master Servicer to service and administer the related
Mortgage Loans and REO Property.
Section 3.02. SUB-SERVICING AGREEMENTS BETWEEN MASTER SERVICER
AND SUB-SERVICERS. (a) The Master Servicer may enter into Sub-Servicing
Agreements with Sub-Servicers for the servicing and administration of the
Mortgage Loans and for the performance of any and all other activities of the
Master Service hereunder. Each Sub-Servicer shall be either (i) an institution
the accounts of which are insured by the FDIC or (ii) another entity that
engages in the business of originating or servicing mortgage loans, and in
either case shall be authorized to transact business in the state or states in
which the related Mortgaged Properties it is to service are situated, if and to
the extent required by applicable law to enable the Sub-Servicer to perform its
obligations hereunder and under the Sub-Servicing Agreement, and in either case
shall be a Freddie Mac or Fannie Mae approved mortgage servicer. Any
Sub-Servicing Agreement entered into by the Master Servicer shall include the
provision that such Agreement may be immediately terminated (x) with cause and
without any termination fee by any Master Servicer hereunder other than
[CORPORATION 1] or (y) without cause in which case the Master Servicer shall be
responsible for any termination fee or penalty resulting therefrom. In addition,
each Sub-Servicing Agreement shall provide for servicing of the Mortgage Loans
consistent with the terms of this Agreement. With the consent of the Trustee,
which consent shall not be unreasonably withheld, the Master Servicer and the
Sub-Servicers may enter into Sub-Servicing Agreements and make amendments to the
Sub-Servicing Agreements or enter into different forms of Sub-Servicing
Agreements; provided, however, that any such amendments or different forms shall
be consistent with and not violate the provisions of this Agreement, and that no
such amendment or different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of the
Certificateholders, without the consent of the Holders of Certificates entitled
to at least _____% of the Fractional Undivided Interests. The parties hereto
acknowledge that the initial Sub-Servicer shall be ____________.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each Sub-Servicer under the related Sub-Servicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Sub-Servicing Agreements and the pursuit
of other appropriate remedies, shall be in such form and carried out to such an
extent and at such time as the Master Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Master Servicer shall pay the costs of such enforcement at its own expense, but
shall be reimbursed therefor only (i) from a general recovery resulting from
such enforcement only to the extent, if any, that such recovery exceeds all
amounts due in respect of the related Mortgage Loans or (ii) from a specific
recovery of costs, expenses or attorneys' fees against the party against whom
such enforcement is directed.
Section 3.03. SUCCESSOR SUB-SERVICERS. The Master Servicer
shall be entitled to terminate any Sub-Servicing Agreement that may exist in
accordance with the terms and conditions of such Sub-Servicing Agreement and
without any limitation by virtue of this Agreement; PROVIDED, HOWEVER, that upon
termination, the Master Servicer shall either act as servicer of the related
Mortgage Loan or enter into an appropriate contract with a successor Sub-
Servicer pursuant to which such successor Sub-Servicer will be bound by all
relevant terms of the related Sub-Servicing Agreement pertaining to the
servicing of such Mortgage Loan.
Section 3.04. LIABILITY OF THE MASTER SERVICER. (a)
Notwithstanding any Sub-Servicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a Sub-Servicer or reference to actions taken through a Sub-Servicer or
otherwise, the Master Servicer shall under all circumstances remain obligated
and primarily liable to the Trustee and the Certificateholders for the servicing
and administering of the Mortgage Loans and any REO Property in accordance with
this Agreement. The obligations and liability of the Master Servicer shall not
be diminished by virtue of Sub-Servicing Agreements or by virtue of
indemnification of the Master Servicer by any Sub-Servicer, or any other Person.
The obligations and liability of the Master Servicer shall remain of the same
nature and under the same terms and conditions as if the Master Servicer alone
were servicing and administering the related Mortgage Loans. The Master Servicer
shall, however, be entitled to enter into indemnification agreements with any
Sub-Servicer or other Person and nothing in this Agreement shall be deemed to
limit or modify such indemnification. For the purposes of this Agreement, the
Master Servicer shall be deemed to have received any payment on a Mortgage Loan
on the date the Sub-Servicer received such payment; PROVIDED, HOWEVER, that this
sentence shall not apply to the Trustee acting as the Master Servicer; PROVIDED,
FURTHER, HOWEVER, that the foregoing provision shall not affect the obligation
of the Master Servicer if it is also the Trustee to advance amounts which are
not Nonrecoverable Advances.
(b) Any Sub-Servicing Agreement that may be entered into and
any transactions or services relating to the Mortgage Loans involving a
Sub-Servicer in its capacity as such and not as an originator shall be deemed to
be between the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.05.
Section 3.05. ASSUMPTION OR TERMINATION OF SUB-SERVICING
AGREEMENTS BY TRUSTEE. (a) If the Trustee or its designee shall assume the
master servicing obligations of the Master Servicer in accordance with Section
8.02, the Trustee, to the extent necessary to permit the Trustee to carry out
the provisions of Section 8.02 with respect to the Mortgage Loans, shall succeed
to all of the rights and obligations of the Master Servicer under each of the
Sub-Servicing Agreements. In such event, the Trustee or its designee as the
successor master servicer shall be deemed to have assumed all of the Master
Servicer's rights and obligations therein and to have replaced the Master
Servicer as a party to such Sub-Servicing Agreements to the same extent as if
such Sub-Servicing Agreements had been assigned to the Trustee or its designee
as a successor master servicer, except that the Trustee or its designee as a
successor master servicer shall not be deemed to have assumed any obligations or
liabilities of the Master Servicer arising prior to such assumption and the
Master Servicer shall not thereby be relieved of any liability or obligations
under such Sub-Servicing Agreements.
(b) In the event that the Trustee or its designee as successor
master servicer for the Trustee assumes the servicing obligations of the Master
Servicer under Section 8.02, upon the reasonable request of the Trustee or such
designee as successor master servicer, the Master Servicer shall at its own
expense deliver to the Trustee, or at its written request to such designee,
photocopies of all documents and records, electronic or otherwise, relating to
the Sub-Servicing Agreements and the related Mortgage Loans or REO Property then
being serviced and an accounting of amounts collected and held by it, if any,
and will otherwise cooperate and use its
reasonable best efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements, or responsibilities hereunder to the Trustee, or at
its written request to such designee as successor master servicer.
Section 3.06. COLLECTION OF MORTGAGE LOAN PAYMENTS. (a) The
Master Servicer will coordinate and monitor remittances by Sub-Servicers to
the Trustee with respect to the Mortgage Loans in accordance with this
Agreement.
(b) The Master Servicer shall make its reasonable best efforts
to collect or cause to be collected all payments required under the terms and
provisions of the Mortgage Loans and shall follow, and use its best efforts to
cause Sub-Servicers to follow, collection procedures comparable to the
collection procedures of prudent mortgage lenders servicing mortgage loans for
their own account to the extent such procedures shall be consistent with this
Agreement. Consistent with the foregoing, the Master Servicer may in its
discretion (i) waive or permit to be waived any late payment charge, prepayment
charge, assumption fee, or any penalty interest in connection with the
prepayment of a Mortgage Loan and (ii) suspend or reduce or permit to be
suspended or reduced regular monthly payments for a period of up to six months,
or arrange or permit an arrangement with a Mortgagor for a scheduled liquidation
of delinquencies. In the event the Master Servicer shall consent to the
deferment of the due dates for payments due on a Mortgage Note, the Master
Servicer shall nonetheless make a Monthly Advance or shall cause the related
Sub-Servicer to make an advance to the same extent as if such installment were
due, owing and delinquent and had not been deferred through liquidation of the
Mortgaged Property; PROVIDED, HOWEVER, that the obligation of the Master
Servicer to make a Monthly Advance shall apply only to the extent that the
Master Servicer believes, in good faith, that such advances are not
Nonrecoverable Advances.
(c) Within five Business Days after the Master Servicer has
determined that all amounts which it expects to recover from or on account of a
Mortgage Loan have been recovered and that no further Liquidation Proceeds will
be received in connection therewith, the Master Servicer shall provide to the
Trustee a certificate of a Servicing Officer that such Mortgage Loan became a
Liquidated Mortgage Loan as of the date of such determination.
Section 3.07. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR
ITEMS; SERVICING ACCOUNTS. (a) The Master Servicer shall establish and
maintain or cause the Sub-Servicers to establish and maintain, in addition to
the Protected Accounts, one or more Servicing Accounts. The Master Servicer or a
Sub-Servicer will deposit and retain therein all collections from the Mortgagors
for the payment of taxes, assessments, insurance premiums, or comparable items
as agent of the Mortgagors.
(b) The deposits in the Servicing Accounts shall be held in a
Designated Depository Institution in an account designated as a "Mortgage Loan
Servicing Account," held in trust by the Master Servicer or a Sub-Servicer as
Trustee of Taxes and Insurance Custodial Account for borrowers and for
[CORPORATION 1] (and its successors and assigns) acting on its own behalf and
for [CORPORATION 1] as agent for holders of various pass-through securities and
other interests in mortgage loans sold by it; and agent for various mortgagors,
as their interests may appear or under such other designation as may be
permitted by a Sub-Servicing Agreement. The amount at any time credited to a
Servicing Account must be fully insured by the FDIC, or, to the extent that such
deposits exceed the limits of such insurance, such excess must be (i)
transferred to another fully insured account in another Designated Depository
Institution or (ii) if permitted by applicable law, invested in Permitted
Investments held in trust by the Master Servicer or a Sub-Servicer as described
above and maturing, or be subject to redemption or withdrawal, no later than the
date on which such funds are required to be withdrawn, and in no event later
than 45 days after the date of investment. The Master Servicer may, or may
permit a Sub-Servicer to, establish Servicing Accounts not conforming to the
foregoing requirements to the extent that such Servicing Accounts are Rating
Agency Eligible Accounts. 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 Master Servicer or a Sub-Servicer for any
advances made with respect to such items, to refund to any Mortgagors any sums
as may be determined to be overages, to pay interest, if required, to Mortgagors
on balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Agreement in accordance
with Section 10.01.
Section 3.08. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS. The Master Servicer shall provide, and shall
cause any Sub-Servicer to provide, to the Trustee and the Seller access to the
documentation regarding the related Mortgage Loans and REO Property and to the
Certificateholders, the FDIC, and the supervisory agents and examiners of the
FDIC (to which the Trustee shall also provide) access to the documentation
regarding the related Mortgage Loans required by applicable regulations, such
access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Master Servicer, the Sub-Servicers
or the Trustee that are designated by these entities; PROVIDED, HOWEVER, that,
unless otherwise required by law, the Trustee, the Master Servicer or the
Sub-Servicer shall not be required to provide access to such documentation if
the provision thereof would violate the legal right to privacy of any Mortgagor
PROVIDED, FURTHER, HOWEVER, that the Trustee and the Seller shall coordinate
their requests for such access so as not to impose an unreasonable burden on, or
cause an interruption of, the business of the Master Servicer or any
Sub-Servicer. The Master Servicer, the Sub-Servicers and the Trustee shall allow
representatives of the above entities to photocopy any of the documentation and
shall provide equipment for that purpose at a charge that covers their own
actual out-of-pocket costs.
Section 3.09. MAINTENANCE OF PRIMARY INSURANCE POLICIES;
COLLECTION THEREUNDER. The Master Servicer shall, or shall cause the related
Sub-Servicer to, exercise its best reasonable efforts to maintain and keep in
full force and effect each Primary Insurance Policy by a Qualified Insurer, or
other insurer satisfactory to the Rating Agencies, with respect to each
conventional Mortgage Loan as to which as of the Cut-Off Date such a Primary
Insurance Policy was in effect (or, in the case of a Substitute Mortgage Loan,
the date of substitution) and the original principal amount of the related
Mortgage Note exceeded _____% of the Original Value in an amount at least equal
to the excess of such original principal amount over _____% of such Original
Value until the principal amount of any such Mortgage Loan is reduced below
_____% of the Original Value or, based upon a new appraisal, the principal
amount of such Mortgage Loan represents less than _____% of the new appraised
value. The Master Servicer shall, or shall cause the related Sub-Servicer to,
effect the timely payment of the premium on each Primary Insurance Policy. The
Master Servicer and the related Sub-Servicer shall have the power to substitute
for any Primary Insurance Policy another substantially equivalent policy issued
by another Qualified Insurer; PROVIDED THAT such substitution is subject to the
condition, to be evidenced by a writing from each Rating Agency, that it would
not cause the ratings on the Certificates to be downgraded or withdrawn.
Section 3.10. MAINTENANCE OF HAZARD INSURANCE AND FIDELITY
COVERAGE. (a) The Master Servicer shall maintain and keep, or cause each
Sub-Servicer to maintain and keep, with respect to each Mortgage Loan and each
REO Property, in full force and effect hazard insurance (fire insurance with
extended coverage) equal to at least the lesser of the Outstanding Principal
Balance of the Mortgage Loan or the current replacement cost of the Mortgaged
Property, and containing a standard mortgagee clause; PROVIDED, HOWEVER, that
the amount of hazard insurance may not be less than the amount necessary to
prevent loss due to the application of any co-insurance provision of the related
policy. Unless applicable state law requires a higher deductible, the deductible
on such hazard insurance policy may be no more than $___________ or _____% of
the applicable amount of coverage, whichever is less. In the case of a
condominium unit or a unit in a planned unit development, the required hazard
insurance shall take the form of a multiperil policy covering the entire
condominium project or planned unit development, in an amount equal to at least
_____% of the insurable value based on replacement cost.
(b) Any amounts collected by the Master Servicer or a
Sub-Servicer under any such hazard insurance policy (other than amounts to be
applied to the restoration or repair of the Mortgaged Property or amounts
released to the Mortgagor in accordance with the Master Servicer's or a
Sub-Servicer's normal servicing procedures, the terms of the Mortgage Note, the
Security Instrument or applicable law) shall be deposited initially in a
Protected Account, for transmittal to the appropriate subaccount of the
Certificate Account or Custody Account, subject to withdrawal pursuant to
Section 4.03.
(c) Any cost incurred by a Master Servicer or a Sub-Servicer
in maintaining any such hazard insurance policy shall not be added to the
amount owing under the Mortgage Loan for the purpose of calculating monthly
distributions to Certificateholders, notwithstanding that the terms of the
Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer
or a Sub-Servicer out of related late payments by the Mortgagor or out of
Insurance Proceeds or Liquidation Proceeds or by the Master Servicer from the
Repurchase Price, to the extent permitted by Section 4.03.
(d) No earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired with respect to a
Security Instrument other than pursuant to such applicable laws and regulations
as shall at any time be in force and shall require such additional insurance.
When, at the time of origination of the Mortgage Loan, the Mortgaged Property is
located in a federally designated special flood hazard area, the Master Servicer
shall use its best reasonable efforts to cause with respect to the Mortgage
Loans and each REO Property, flood insurance (to the extent available and in
accordance with mortgage servicing industry practice) to be maintained. Such
flood insurance shall cover the Mortgaged Property, including all items taken
into account in arriving at the Appraised Value on which the Mortgage Loan was
based, and shall be in an amount equal to the lesser of (i) the Outstanding
Principal Balance of the related Mortgage Loan and (ii) the minimum amount
required under the terms of coverage to compensate for any damage or loss on a
replacement cost basis, but not more than the maximum amount of such insurance
available for the related Mortgaged Property under either the regular or
emergency programs of the National Flood Insurance Program (assuming that the
area in which such Mortgaged Property is located is participating in such
program). Unless applicable state law requires a higher deductible, the
deductible on such flood insurance may not exceed $_____________or _____% of the
applicable amount of coverage, whichever is less.
(e) If insurance has not been maintained complying with
Subsections 3.10(a) and (d) and there shall have been a loss which would have
been covered by such insurance had it been maintained, the Master Servicer shall
pay, or cause the related Sub-Servicer to pay, for any necessary repairs.
(f) The Master Servicer shall present, or cause the related
Sub-Servicer to present, claims under the related hazard insurance or flood
insurance policy.
(g) The Master Servicer shall obtain and maintain at its own
expense and for the duration of this Agreement a blanket fidelity bond and
shall cause each Sub-Servicer to obtain and maintain an errors and omissions
insurance policy covering such Sub-Servicer's officers, employees and other
persons acting on its behalf in connection with its activities under this
Agreement. The amount of coverage shall be at least equal to the coverage
maintained by the Master Servicer acceptable to Freddie Mac or Fannie Mae to
service loans for it or otherwise in an amount as is commercially available at a
cost that is generally not regarded as excessive by industry standards. The
Master Servicer shall promptly notify the Trustee of any material change in the
terms of such bond or policy. The Master Servicer shall provide annually to the
Trustee a certificate of insurance that such bond and policy are in effect. If
any such bond or policy ceases to be in effect, the Master Servicer shall, to
the extent possible, give the Trustee ten days' notice prior to any such
cessation and shall use its best efforts to obtain a comparable replacement bond
or policy, as the case may be. Any amounts relating to the Mortgage Loans
collected under such bond or policy shall be remitted to the appropriate
subaccount of the Certificate Account to the extent that such amounts have not
previously been paid to such account.
Section 3.11. DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS. (a)
In any case in which the Master Servicer is notified by any Mortgagor or
Sub-Servicer that a Mortgaged Property relating to a Mortgage Loan has been or
is about to be conveyed by the Mortgagor, the Master Servicer shall enforce, or
shall instruct such Sub-Servicer to enforce, any due-on-sale clause contained in
the related Security Instrument to the extent permitted under the terms of the
related Mortgage Note and by applicable law unless the Master Servicer
reasonably believes such enforcement is likely to result in legal action by the
Mortgagor. The Master Servicer or the related Sub-Servicer may repurchase a
Mortgage Loan at the Repurchase Price when the Master Servicer requires
acceleration of the Mortgage Loan, but only if the Master Servicer is satisfied,
as evidenced by an Officer's Certificate delivered to the Trustee, that either
(i) such Mortgage Loan is in default or default is reasonably foreseeable or
(ii) if such Mortgage Loan is not in default or default is not reasonably
foreseeable, such repurchase will have no adverse tax consequences for the Trust
Fund or any Certificateholder. If the Master Servicer reasonably believes that
such due-on-sale clause cannot be enforced under applicable law or if the
Mortgage Loan does not contain a due-on-sale clause, the Master Servicer is
authorized, and may authorize any Sub-Servicer, to consent to a conveyance
subject to the lien of the Mortgage, and to take or enter into an assumption
agreement from or with the Person to whom such property has been or is about to
be conveyed, pursuant to which such Person becomes liable under the related
Mortgage Note and unless prohibited by applicable state law, such Mortgagor
remains liable thereon, on condition, however, that the related Mortgage Loan
shall continue to be covered (if so covered before the Master Servicer or the
related Sub-Servicer enters into such agreement) by any Primary Insurance
Policy. The Master Servicer shall notify the Trustee, whenever possible, before
the completion of such assumption agreement, and shall forward to the Trustee
the original copy of such assumption agreement, which copy shall be added by the
Trustee to the related Mortgage File and which shall, for all purposes, be
considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. In connection with any
such assumption agreement, the interest rate on the related Mortgage Loan shall
not be changed and no other material alterations in the Mortgage Loan shall be
made unless such material alteration would not cause each of REMIC I and REMIC
II to fail to qualify as a REMIC for federal income tax purposes, as evidenced
by a REMIC Opinion. Any fee or additional interest collected by the Master
Servicer or Sub-Servicer for consenting to any such conveyance or entering into
any such assumption agreement may be retained by the Master Servicer or the
related Sub-Servicer as additional servicing compensation.
(b) Notwithstanding the foregoing paragraph or any other
provision of this Agreement, the Master Servicer shall not be deemed to be
in default, breach or any other violation of its obligations hereunder by reason
of any assumption of a Mortgage Loan by operation of law or any conveyance by
the Mortgagor of the related Mortgaged Property or assumption of a Mortgage Loan
which the Master Servicer reasonably believes it may be restricted by law from
preventing, for any reason whatsoever or if the exercise of such right would
impair or threaten to impair any recovery under any applicable Insurance Policy,
or, in the Master Servicer's judgment, be reasonably, likely to result in legal
action by the Mortgagor.
Section 3.12. REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a)
The Master Servicer shall, or shall direct the related Sub-Servicer to,
foreclose upon or otherwise comparably convert the ownership of properties
securing any Mortgage Loans that come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.06 except that the Master Servicer shall not, and
shall not direct the related Sub-Servicer to, foreclose upon or otherwise
comparably convert a Mortgaged Property if there is evidence of toxic waste
thereon and the Master Servicer determines it would be imprudent to do so or not
in accordance with appropriate servicing standards. The Master Servicer can
conclusively rely on results of third party inspections from parties it
reasonably believes are qualified to conduct such inspections. In connection
with such foreclosure or other conversion, the Master Servicer in conjunction
with the related Sub-Servicer, if any, shall use its best reasonable efforts to
preserve REO Property and to realize upon defaulted Mortgage Loans in such
manner as to maximize the receipt of principal and interest by the
Certificateholders, taking into account, among other things, the timing of
foreclosure and the considerations set forth in Subsection 3.12(b). The
foregoing is subject to the proviso that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines in good faith (i) that such
restoration or foreclosure will increase the proceeds of liquidation of the
Mortgage Loan to Certificateholders after reimbursement to itself for such
expenses and (ii) that such expenses will be recoverable to it either through
Liquidation Proceeds (respecting which it shall have priority for purposes of
reimbursements from the Certificate Account pursuant to Section 4.03) or through
Insurance Proceeds (respecting which it shall have similar priority). The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; PROVIDED, HOWEVER, that it shall be entitled to
reimbursement thereof (as well as its normal servicing compensation), and in
respect of the Master Servicer only, to receive Excess Liquidation Proceeds as
additional servicing compensation to the extent that transfers or withdrawals
from the Certificate Account with respect thereto are permitted under Section
4.03. Any income from or other funds (net of any income taxes) generated by REO
Property shall be deemed for purposes of this Agreement to be Insurance
Proceeds.
(b) The Trust Fund shall not acquire any real property (or any
personal property incident to such real property) except in connection with
a default or imminent default of a Mortgage Loan. In the event that the Trust
Fund acquires any real property (or personal property incident to such real
property) in connection with a default or imminent default of a Mortgage Loan,
such property shall be disposed of by the Trust Fund within two years after its
acquisition by the Trust Fund unless the Trustee shall have received a REMIC
Opinion with respect to such longer retention or the Master Servicer applies for
and receives an extension of the two-year period under Section 856(e)(3) of the
Code, in which case such two year period will be extended by the period set
forth in such REMIC Opinion or approved application, as the case may be. The
Trustee shall have no obligation to pay for such REMIC Opinion.
(c) Notwithstanding anything to the contrary contained herein,
the Master Servicer shall have the right, at its sole option, to enter into an
agreement substantially in the form of Exhibit G hereto with a Holder of the
Class B-6 Certificates (provided that such form may be revised to incorporate an
option on the part of such Person to purchase a defaulted Mortgage Loan at the
end of the six-month period referred to in Subsection 2.02(b) thereof). It is
understood that the right of the Master Servicer to be reimbursed for Monthly
Advances and Nonrecoverable Advances under this Agreement shall not be affected
in any way by the provisions of any such agreement. The Trustee hereby agrees to
perform such obligations as may be required of it pursuant to the provisions of
such agreement. The Master Servicer agrees to provide the Trustee with such
information as may be necessary, or as the Trustee may reasonably request, for
the Trustee to perform such obligations.
Section 3.13. TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES.
(a) Upon payment in full of any Mortgage Loan or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer will immediately notify the
Trustee by a certification signed by a Servicing Officer in the Form of Exhibit
D (which certification shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required to
be deposited in the Certificate Account have been or will be so deposited in the
appropriate subaccount thereof) and shall request delivery to the Master
Servicer or Sub-Servicer, as the case may be, of the Mortgage File. Upon receipt
of such certification and request, the Trustee shall promptly release the
related Mortgage File to the Master Servicer or Sub-Servicer and execute and
deliver to the Master Servicer, without recourse, the request for reconveyance,
deed of reconveyance or release or satisfaction of mortgage or such instrument
releasing the lien of the Security Instrument (furnished by the Master
Servicer), together with the Mortgage Note with written evidence of cancellation
thereon. No expenses incurred in connection with any instrument of satisfaction
or deed of reconveyance shall be chargeable to the Certificate Account.
(b) From time to time as is appropriate for the servicing or
foreclosure of any Mortgage Loan or collection under a Required Insurance
Policy, the Master Servicer shall deliver to the Trustee a Request for Release
signed by a Servicing Officer on behalf of the Master Servicer in substantially
the form attached as Exhibit D hereto. Upon receipt of the Request for Release,
the Trustee shall deliver the Mortgage File or any document therein to the
Master Servicer or Sub-Servicer, as the case may be.
(c) The Master Servicer shall cause each Mortgage File or any
document therein released pursuant to Subsection 3.13(b) to be returned to
the Trustee when the need therefor no longer exists, and in any event within 21
days of the Master Servicer's receipt thereof, unless the Mortgage Loan has
become a Liquidated Mortgage Loan and the Liquidation Proceeds relating to the
Mortgage Loan have been deposited in the appropriate subaccount of the
Certificate Account or such Mortgage File is being used to pursue foreclosure or
other legal proceedings. Prior to return of a Mortgage File or any document to
the Trustee, the Master Servicer, the related Insurer or Sub-Servicer to whom
such file or document was delivered shall retain such file or document in its
respective control unless the Mortgage File or such document has been delivered
to an attorney, or to a public trustee or other public official as required by
law, to initiate or pursue legal action or other proceedings for the foreclosure
of the Mortgaged Property either judicially or non-judicially, and the Master
Servicer has delivered to the Trustee a certificate of a Servicing Officer
certifying as to the name and address of the Person to which such Mortgage File
or such document was delivered and the purpose or purposes of such delivery. If
a Mortgage Loan becomes a Liquidated Mortgage Loan, the Trustee shall deliver
the Request for Release with respect thereto to the Master Servicer upon deposit
of the related Liquidation Proceeds in the appropriate subaccount of the
Certificate Account.
(d) The Trustee shall execute and deliver to the Master
Servicer any court pleadings, requests for trustee's sale or other documents
necessary to (i) the foreclosure or trustee's sale with respect to a Mortgaged
Property; (ii) any legal action brought to obtain judgment against any Mortgagor
on the Mortgage Note or Security Instrument; (iii) obtain a deficiency judgment
against the Mortgagor; or (iv) enforce any other rights or remedies provided by
the Mortgage Note or Security Instrument or otherwise available at law or
equity. Together with such documents or pleadings the Master Servicer shall
deliver to the Trustee a certificate of a Servicing Officer in which it requests
the Trustee to execute the pleadings or documents. The certificate shall certify
and explain the reasons for which the pleadings or documents are required. It
shall further certify that the Trustee's execution and delivery of the pleadings
or documents will not invalidate any insurance coverage under the Required
Insurance Policies or invalidate or otherwise affect the lien of the Security
Instrument, except for the termination of such a lien upon completion of the
foreclosure or trustee's sale.
Section 3.14. SERVICING AND MASTER SERVICING COMPENSATION. (a)
As compensation for its activities hereunder, the Master Servicer shall be
entitled to receive the Master Servicing Fee from full payments of accrued
interest on each Mortgage Loan.
(b) The Master Servicer may retain additional servicing
compensation in the form of prepayment charges, if any, assumption fees, tax
service fees, fees for statement of account or payoff, late payment charges,
interest on amounts deposited in any Accounts or Permitted Investments of such
amounts, or otherwise. The Master Servicer is also entitled to receive Excess
Liquidation Proceeds as additional servicing compensation to the extent that
transfers or withdrawals from the appropriate subaccount of the Certificate
Account with respect thereto are permitted under Subsection 4.03(a)(xii). The
Master Servicer shall be required to pay all expenses it incurs in connection
with servicing activities under this Agreement, including fees and expenses to
Sub-Servicers, and shall not be entitled to reimbursement except as provided in
this Agreement. Expenses to be paid by the Master Servicer under this Subsection
3.14(b) shall include payment of the expenses of the accountants retained
pursuant to Section 3.16.
Section 3.15. ANNUAL STATEMENT OF COMPLIANCE. Within 120
days after December 31 of each year, commencing December 199_, the Master
Servicer at its own expense, shall deliver to the Trustee, with a copy to the
Rating Agencies, an Officer's Certificate stating, as to the signer thereof,
that (i) a review of the activities of the Master Servicer during the preceding
fiscal year and of performance under this Agreement has been made under such
officer's supervision, (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer has fulfilled all its obligations under this
Agreement for such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof including the steps being taken by the Master Servicer
to remedy such default; (iii) a review of the activities of each Sub-Servicer
during the Sub-Servicer's most recently ended fiscal year on or prior to such
December 31 and its performance under its Sub-Servicing Agreement has been made
under such Officer's supervision; and (iv) to the best of the Servicing
Officer's knowledge, based on his review and the certification of an officer of
the Sub-Servicer (unless the Servicing Officer has reason to believe that
reliance on such certification is not justified), either each Sub-Servicer has
performed and fulfilled its duties, responsibilities and obligations under this
Agreement and its Sub-Servicing Agreement in all material respects throughout
the year, or, if there has been a default in performance or fulfillment of any
such duties, responsibilities or obligations, specifying the nature and status
of each such default known to the Servicing Officer. Copies of such statements
shall be provided by the Master Servicer to the Certificateholders upon request
or by the Trustee at the expense of the Master Servicer should the Master
Servicer fail to provide such copies.
Section 3.16. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS SERVICING
REPORT. (a) Within 120 days after December 31 of each year, commencing December
199_, the Master Servicer, at its expense, shall cause a firm of Independent
public accountants who are members of the American Institute of Certified Public
Accountants to furnish a statement to the Master Servicer, which will be
provided to the Trustee and the Rating Agencies to the effect that, in
connection with the firm's examination of the Master Servicer's financial
statements as of the end of such fiscal year, nothing came to their attention
that indicated that the Master Servicer was not in compliance with Sections
3.07, 3.15, 4.01, 4.02, 4.03 and 4.04 except for (i) such exceptions as such
firm believes to be immaterial and (ii) such other exceptions as are set forth
in such statement.
(b) Within 120 days after December 31 of each year, commencing
December 199_, the Master Servicer, at its expense, shall furnish to the Trustee
the most recently available letter or letters from one or more firms of
Independent certified public accountants who are members of the American
Institute of Certified Public Accountants reporting the results of such firm's
examination of the servicing procedures of any Sub-Servicer and any Master
Servicer (other than [ ]or the Trustee) in accordance with the requirements of
the Uniform Single Attestation Program for Mortgage Bankers.
Section 3.17. REMIC-RELATED COVENANTS. For as long as REMIC I
and REMIC II shall exist, the Master Servicer and the Trustee shall act in
accordance herewith to assure continuing treatment of REMIC I and REMIC II as
REMICs, and the Trustee shall comply with any directions of the Master Servicer
to assure such continuing treatment. In particular, the Trustee shall not (a)
sell or permit the sale of all or any portion of the Mortgage Loans or of any
Permitted Investment unless such sale is as a result of a repurchase of the
Mortgage Loans pursuant to this Agreement or the Trustee has received a REMIC
Opinion prepared at the expense of the Trust Fund; and (b) other than with
respect to a substitution pursuant to Section 2.04, accept any contribution to
REMIC I or REMIC II after the Startup Day without receipt of a REMIC Opinion.
Section 3.18. ADDITIONAL INFORMATION. The Master Servicer
agrees to furnish the Seller from time to time upon reasonable request, such
further information, reports and financial statements as the Seller deems
appropriate to prepare and file all necessary reports with the Securities and
Exchange Commission.
Section 3.19. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS.
The Master Servicer shall have the right, but not the obligation, to purchase
any Defaulted Mortgage Loan for a price equal to the Repurchase Price therefor.
Any such purchase shall be accomplished as provided in Subsection 2.02(c)
hereof.
ARTICLE IV
Accounts
Section 4.01. PROTECTED ACCOUNTS. (a) The Master Servicer
shall require each Sub-Servicer to establish and maintain a Protected Account
complying with the requirements set forth in this Section 4.01, with records to
be kept with respect thereto on a Mortgage Loan by Mortgage Loan basis, into
which accounts shall be deposited within 24 hours of receipt all collections of
principal and interest on any Mortgage Loan and with respect to any REO Property
received by the Master Servicer, or a Sub-Servicer, including Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds, and advances made from
the Sub-Servicer's own funds (less servicing compensation as permitted by
Subsection 3.14(a)) and all other amounts to be deposited in the Protected
Accounts. The Master Servicer is hereby authorized to make withdrawals from and
deposits to the related Protected Accounts for purposes required or permitted by
this Agreement. All Protected Accounts shall be held in a Designated Depository
Institution and segregated on the books of such institution. The amount at any
time credited to a Protected Account shall be fully insured by the FDIC or, to
the extent that such balance exceeds the lesser of $100,000 or the limits of
such insurance, such excess must be transferred to the appropriate subaccount of
the Certificate Account or the related Custody Account or invested in Permitted
Investments.
Amounts on deposit in a Protected Account may be invested in
Permitted Investments, such Permitted Investments to mature, or to be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn for deposit in the Custody Account or Certificate
Account, and shall be held until required for such deposit. The income earned
from Permitted Investments made pursuant to this Section 4.01 shall be paid to
the Master Servicer or the related Sub-Servicer as additional compensation for
its obligations under this Agreement, and the risk of loss of moneys required to
be distributed to the Certificateholders resulting from such investments shall
be borne by and be the risk of the Master Servicer or the related Sub-Servicer.
The Master Servicer shall cause the related Sub-Servicer to deposit the amount
of any such loss in the related Protected Account within _______ Business Days
of receipt of notification of such loss but not later than the second Business
Day prior to the Distribution Date on which the moneys so invested are required
to be distributed to the Certificateholders. The Master Servicer may, and the
Master Servicer may permit the related Sub-Servicer to, transfer funds to other
accounts (which shall for purposes hereof be deemed to be Protected Accounts) or
to establish Protected Accounts not conforming to the foregoing requirements, to
the extent that such other accounts or Protected Accounts are Rating Agency
Eligible Accounts.
(b) On or before each Funds Transfer Date, the Master Servicer
shall withdraw or shall cause (by written direction to the Trustee if such
withdrawal is from a Custody Account) to be withdrawn from the Protected
Accounts or the Custody Account and shall immediately deposit or cause to be
deposited in the appropriate subaccount of the Certificate Account amounts
representing the following collections and payments (other than with respect to
principal of or interest on the Mortgage Loans due on or before the Cut-Off
Date):
(i) Scheduled Payments on the related Mortgage Loans
received or advanced by the Master Servicer or Sub-Servicers
which were due on or before the related Due Date, net of the
amount thereof comprising the Master Servicing Fee due the
Master Servicer;
(ii) Full Principal Prepayments and any Liquidation
Proceeds received by the Master Servicer or Sub-Servicers with
respect to such Mortgage Loans in the related Prepayment
Period, with interest to the date of prepayment or
liquidation, net of the amount thereof comprising the Master
Servicing Fee due the Master Servicer;
(iii) Partial prepayments of principal received by the
Master Servicer or Sub-Servicers for such Mortgage Loans in
the related Prepayment Period; and
(iv) Any amount to be used as a Certificate Account
Advance.
(c) Withdrawals may be made from a Protected Account only to
make remittances as provided in Subsections 4.01(b) or 4.03(c), or Section 4.04;
to reimburse the Master Servicer or a Sub-Servicer for advances of principal and
interest which have been recovered by subsequent collection from the related
Mortgagor; to remove amounts deposited in error; to remove fees, charges or
other such amounts deposited on a temporary basis; or to clear and terminate the
account at the termination of this Agreement in accordance with Section 10.01.
(d) The Master Servicer shall deliver to the Trustee on or
prior to the Determination Date in each month a statement from the institution
at which each Protected Account is maintained showing deposits and withdrawals
during the prior month.
Section 4.02. CERTIFICATE ACCOUNT. (a) The Trustee shall
establish and maintain in the name of the Trustee, for the benefit of the
Certificateholders, the Certificate Account as a segregated non-interest bearing
trust account or accounts. The Certificate Account shall have two separate
subaccounts, one each for all funds with respect to each Mortgage Loan Group.
The Trustee will deposit in the appropriate subaccount as identified by the
Master Servicer, of the Certificate Account as received the following amounts:
(i) Any amounts withdrawn from a Protected Account
pursuant to Subsection 4.01(b) or the Custody Account pursuant
to Section 4.04;
(ii) Any Monthly Advance and any Compensating Interest
Payments;
(iii) Any Insurance Proceeds or Liquidation Proceeds
received by the Master Servicer which were not deposited in
a Protected Account or the Custody Account;
(iv) The Repurchase Price with respect to any Mortgage
Loans purchased by [CORPORATION 1] pursuant to Sections 2.02
or 2.03 or by the Master Servicer pursuant to Section 3.19,
any amounts which are to be treated pursuant to Section 2.04
as the payment of such a Repurchase Price, and all proceeds of
any Mortgage Loans or property acquired with respect thereto
repurchased by the Master Servicer or its designee pursuant to
Section 10.01;
(v) Any amounts required to be deposited with respect
to losses on Permitted Investments pursuant to Subsection
4.02(d) or Section 4.04(d) below; and
(vi) Any other amounts received by the Master Servicer or
the Trustee and required to be deposited in such subaccount of
the Certificate Account pursuant to this Agreement.
(b) All amounts deposited to the Certificate Account shall be
held by the Trustee in the name of the Trustee in trust for the benefit of the
Certificateholders in accordance with the terms and provisions of this
Agreement, subject to the right of the Master Servicer to require the Trustee to
make withdrawals therefrom as provided herein. The foregoing requirements for
crediting the Certificate Account shall be exclusive, it being understood and
agreed that, without limiting the generality of the foregoing, payments in the
nature of prepayment or late payment charges or assumption, tax service,
statement account or payoff, substitution, satisfaction, release and other like
fees and charges need not be credited by the Master Servicer or the related
Sub-Servicer to the Certificate Account and may be retained by the Master
Servicer or the related Sub-Servicer as servicing compensation. In the event
that the Master Servicer shall deposit or cause to be deposited to the
Certificate Account any amount not required to be credited thereto, or shall
deposit or cause to be deposited to a subaccount of the Certificate Account any
amount which should appropriately be credited to the other subaccount of the
Certificate Account, the Trustee, upon receipt of a written request therefor
signed by a Servicing Officer of the Master Servicer, shall promptly transfer
such amount to the Master Servicer or to the other subaccount of the Certificate
Account, as applicable, any provision herein to the contrary notwithstanding.
(c) The Certificate Account shall constitute a trust account
of the Trust Fund segregated on the books of the Trustee and held by the
Trustee in trust, and the Certificate Account and the funds deposited therein
shall not be subject to, and shall be protected from, all claims, liens, and
encumbrances of any creditors or depositors of the Trustee or the Master
Servicer (whether made directly, or indirectly through a liquidator or receiver
of the Trustee or the Master Servicer). The amount at any time credited to the
Certificate Account shall be (i) fully insured by the FDIC to the maximum
coverage provided thereby, (ii) at the written direction of the Master Servicer
invested, in the name of the Trustee, or its nominee, for the benefit of the
Certificateholders, in such Permitted Investments to be held by the Trustee as
the Master Servicer may direct (such direction to be confirmed in writing) and
in the absence of such direction, the Trustee shall invest funds in the
Certificate Account in Permitted Investments described in clause (viii) of the
definition thereof, or (iii) from the maturity of any Permitted Investment on
the Business Day prior to a Distribution Date through the distribution of such
funds on such Distribution Date or at such other time and in such amount as, in
the judgment of the Master Servicer, cannot reasonably be invested in accordance
with items (i) or (ii) of this sentence, held by the Trustee in such Certificate
Account. All Permitted Investments shall mature or be subject to redemption or
withdrawal on or before, and shall be held until, the next succeeding
Distribution Date if the obligor for such Permitted Investment is the Trustee
or, if such obligor is any other Person, the Business Day preceding such
Distribution Date. With respect to the Certificate Account and the funds
deposited therein, the Trustee shall take such action as may be necessary to
ensure that the Certificateholders shall be entitled to the priorities afforded
to such a trust account (in addition to a claim against the estate of the
Trustee) as provided by 12 U.S.C. ss. 92a(e), if applicable, or any applicable
comparable state statute applicable to state chartered banking corporations.
(d) The income earned from Permitted Investments made pursuant
to this Section 4.02 shall be paid to the Master Servicer, as additional
compensation for its obligations under this Agreement, and the risk of loss of
moneys required to be distributed to the Certificateholders resulting from such
investments shall be borne by and be the risk of the Master Servicer. The amount
of any such loss shall be remitted by the Master Servicer to the Trustee for
deposit in the Certificate Account within _______ Business Days of receipt of
notification of such loss but not later than the _______ Business Day prior to
the Distribution Date on which the moneys so invested are required to be
distributed to the Certificateholders.
Section 4.03. PERMITTED WITHDRAWALS AND TRANSFERS FROM THE
CERTIFICATE ACCOUNT. (a) The Trustee will, from time to time on demand of the
Master Servicer, make or cause to be made such withdrawals or transfers from the
appropriate subaccount of the Certificate Account as the Master Servicer has
designated for such transfer or withdrawal as specified in a certificate signed
by a Servicing Officer (upon which the Trustee may conclusively rely) for the
following purposes:
(i) [intentionally omitted];
(ii) to reimburse the Master Servicer or any
Sub-Servicer for any Monthly Advance of its own funds or any
advance of such Sub-Servicer's own funds, the right of the
Master Servicer or a Sub-Servicer to reimbursement pursuant to
this subclause (ii) being limited to amounts received on a
particular Mortgage Loan (including, for this purpose, the
Repurchase Price therefor, Insurance Proceeds and Liquidation
Proceeds) which represent late payments or recoveries of the
principal of or interest on such Mortgage Loan respecting
which such Monthly Advance or advance was made;
(iii) to reimburse the Master Servicer or any
Sub-Servicer from Insurance Proceeds or Liquidation Proceeds
relating to a particular Mortgage Loan for amounts expended by
the Master Servicer or such Sub-Servicer pursuant to Section
3.12 in good faith in connection with the restoration of the
related Mortgaged Property which was damaged by an Uninsured
Cause or in connection with the liquidation of such Mortgage
Loan;
(iv) to reimburse the Master Servicer or any
Sub-Servicer from Insurance Proceeds relating to a particular
Mortgage Loan for Insured Expenses incurred with respect to
such Mortgage Loan and to reimburse the Master Servicer or
such Sub-Servicer from Liquidation Proceeds from a particular
Mortgage Loan for Liquidation Expenses incurred with respect
to such Mortgage Loan; PROVIDED THAT the Master Servicer shall
not be entitled to reimbursement for Liquidation Expenses with
respect to a Mortgage Loan to the extent that (i) any amounts
with respect to such Mortgage Loan were paid as Excess
Liquidation Proceeds pursuant to clause (xii) of this
Subsection 4.03(a) to the Master Servicer; and (ii) such
Liquidation Expenses were not included in the computation of
such Excess Liquidation Proceeds;
(v) to pay the Master Servicer or any Sub-Servicer
(payment to any Sub-Servicer to be subject to prior payment to
the Master Servicer of an amount equal to the Master Servicing
Fee), as appropriate, from Liquidation Proceeds or Insurance
Proceeds received in connection with the liquidation of any
Mortgage Loan, the amount which it or such Sub-Servicer would
have been entitled to receive under subclause (x) of this
Subsection 4.03(a) as servicing compensation on account of
each defaulted scheduled payment on such Mortgage Loan if paid
in a timely manner by the related Mortgagor, but only to the
extent that the aggregate of Liquidation Proceeds and
Insurance Proceeds with respect to such Mortgage Loan, after
any reimbursement to the Master Servicer or any Sub-Servicer,
pursuant to subclauses (ii), (iii), (iv) and (vii) of this
Subsection 4.03(a), exceeds the Outstanding Principal Balance
of such Mortgage Loan plus accrued and unpaid interest thereon
at the related Mortgage Interest Rate less the Master
Servicing Fee Rate to but not including the date of payment;
(vi) to pay the Master Servicer or any Sub-Servicer
(payment to any Sub-Servicer to be subject to prior payment to
the Master Servicer of the portion of the Master Servicing Fee
which the Master Servicer is entitled to retain as evidenced
in writing to the Trustee by the Master Servicer, as
appropriate, from the Repurchase Price for any Mortgage Loan,
the amount which it or such Sub-Servicer would have been
entitled to receive under subclause (x) of this
Subsection 4.03(a) as servicing compensation, but only to the
extent that the Repurchase Price with respect to such Mortgage
Loan after any reimbursement to the related Master Servicer
and Sub-Servicer pursuant to subclauses (ii) and (vii) of this
Subsection 4.03(a) exceeds the Outstanding Principal Balance
of such Mortgage Loan plus accrued and unpaid interest thereon
at the related Mortgage Interest Rate less the Master
Servicing Fee Rate through the last day of the month of
repurchase;
(vii) to reimburse the Master Servicer or any
Sub-Servicer for advances of funds pursuant to Sections 3.07,
3.09 and 3.10, the right to reimbursement pursuant to this
subclause being limited to amounts received on the related
Mortgage Loan (including, for this purpose, the Repurchase
Price therefor, Insurance Proceeds and Liquidation Proceeds)
which represent late recoveries of the payments for which such
advances were made;
(viii) to pay the Master Servicer or any
Sub-Servicer, as the case may be, with respect to each
Mortgage Loan that has been purchased pursuant to Section
2.02, 2.03, 2.04, 3.19 or 10.01, all amounts received thereon,
representing recoveries of principal that reduce the
Outstanding Principal Balance of the related Mortgage Loan
below the Outstanding Principal Balance used in calculating
the Repurchase Price or representing interest included in the
calculation of the Repurchase Price or accrued after the end
of the month during which such repurchase occurs;
(ix) to reimburse the Master Servicer or any
Sub-Servicer for any Monthly Advance or advance, after a
Realized Loss has been allocated with respect to the related
Mortgage Loan if the Monthly Advance or advance has not been
reimbursed pursuant to clauses (ii) and (vii), such
reimbursement to come from the subaccount relating to the
Mortgage Loan Group of which the related Mortgage Loan is a
part;
(x) to pay the Master Servicer and any
Sub-Servicer servicing compensation as set forth in
Section 3.14;
(xi) to reimburse the Master Servicer for expenses,
costs and liabilities incurred by and reimbursable to it
pursuant to Subsection 7.04(d), which, if not specifically
allocable to a Mortgage Loan Group, shall be allocated between
the subaccounts, PRO RATA, based on the Scheduled Principal
Balances of the Group I Mortgage Loans and the Group II
Mortgage Loans, respectively;
(xii) to pay to the Master Servicer, as additional
servicing compensation, any Excess Liquidation Proceeds;
(xiii) to clear and terminate the Certificate
Account pursuant to Section 10.01; and
(xiv) to remove amounts deposited in error.
The Master Servicer shall keep and maintain separate
accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of
accounting for any reimbursement from the Certificate Account pursuant to
subclauses (i) through (vii), inclusive, and (ix).
(b) On each Distribution Date, the Trustee shall make the
following payments in the priority set forth from the funds in the Certificate
Account:
(i) First, the Trustee's Fees shall be paid to the
Trustee; and
(ii) Second, the amount distributable to the Holders
of the Certificates shall be payable in accordance with
Section 6.01.
(c) Notwithstanding the provisions of this Section 4.03, the
Master Servicer may, but is not required to, allow the Sub-Servicers to deduct
from amounts received by them or from the related Protected Account, prior to
deposit in the Certificate Account or the Custody Account, any portion to which
such Sub-Servicers are entitled as servicing compensation (including income on
Permitted Investments) or reimbursement of any reimbursable advances made by
such Sub-Servicers.
Section 4.04. CUSTODY ACCOUNT. (a) The Trustee shall establish
and maintain for the benefit of the Certificateholders the Custody Account as a
segregated non-interest bearing trust account in the corporate trust department
of a Designated Depository Institution. The Custody Account shall constitute a
trust account of the Trust Fund segregated on the books of the Designated
Depository Institution and held by the Designated Depository Institution in
trust, and such Account and the funds deposited therein shall not be subject to,
and shall be protected from, all claims, liens, and encumbrances of any
creditors or depositors of the Designated Depository Institution, the Trustee,
the Master Servicer, any Sub-Servicer (whether made directly, or indirectly
through a liquidator or receiver of the Designated Depository Institution, the
Trustee, any Master Servicer, or any Sub-Servicer). With respect to the Custody
Account maintained with the Trustee and the funds deposited therein, the Trustee
shall take such action as may be necessary to ensure that the Certificateholders
shall be entitled to the priorities afforded to such a trust account (in
addition to a claim against the estate of the Trustee) as provided by 12 U.S.C.
ss. 92a(e), if applicable, or any applicable comparable state statute applicable
to state chartered banking corporations. The Custody Account shall be an outside
reserve fund of REMIC II and shall not constitute a part of REMIC II (or REMIC
I). The Trustee shall be the legal owner of the portion of the Funds held in the
Custody Account for the benefit of the Certificateholders and for all Federal
income tax purposes, [CORPORATION 1] shall be the owner of the Custody Account.
For all Federal tax purposes, amounts, if any, transferred by REMIC II to the
Custody Account shall be treated as amounts distributed by REMIC II to
[CORPORATION 1].
(b) Within one Business Day after receipt, the Master Servicer
shall withdraw or shall cause to be withdrawn from each Protected Account and
shall immediately deposit or cause to be deposited in the Custody Account all
amounts in the Protected Account not otherwise invested in Permitted Investments
pursuant to Section 4.01 and exceeding the lesser of $100,000 or the FDIC
insurance limit (other than with respect to principal of or interest on the
Mortgage Loans due on or before the Cut-Off Date).
(c) Withdrawals may be made from the Custody Account only to
make remittances as provided in Sections 4.01(b) or 4.04(d); to reimburse the
Master Servicer or any Sub-Servicer for advances of principal and interest which
have been recovered by subsequent collection from the related Mortgagor; to
remove amounts deposited in error; to remove fees, charges or other such amounts
deposited on a temporary basis; or to clear and terminate the account at the
termination of this Agreement in accordance with Section 10.01.
(d) Funds in the Custody Account may be invested at the
direction of the Master Servicer (such direction to be confirmed promptly in
writing) in Permitted Investments held in trust for the benefit of the
Certificateholders and in the absence of such directions, funds in the Custody
Account shall be invested in Permitted Investments described in clause (viii) of
the definition thereof. Such Permitted Investments must mature, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn for deposit in the Certificate Account pursuant to
Section 4.01(b) and shall be held in such Account until required for such
deposit. The income earned from Permitted Investments made pursuant to this
Section 4.04 shall be paid to the Master Servicer as additional compensation for
its obligations under this Agreement, and the risk of loss of moneys required to
be distributed to the Certificateholders resulting from such investments shall
be borne by and be the risk of the Master Servicer. The amount of any such loss
shall be deposited by the Master Servicer in the Custody Account within _______
Business Days of receipt of notification of such loss but not later than the
_______ Business Day prior to the Distribution Date on which the moneys so
invested are required to be distributed to the Certificateholders.
Section 4.05. BUYDOWN ACCOUNTS. (a) With respect to each Group
I Mortgage Loan that is a Buydown Mortgage Loan, the Master Servicer shall
require each Sub-Servicer to establish and maintain a Buydown Account for the
deposit of the Buydown Funds provided to it. Each such Buydown Account shall be
held in a Designated Depository Institution segregated on the books of such
institution and designated as held in trust by each Sub-Servicer for the benefit
of the Mortgagor to secure the Mortgagor's obligations under the Mortgage Note,
and, except to the extent the mortgagee has a claim thereto, shall not be deemed
a part of the Trust Fund or subject to the Trust created by this Agreement nor
shall any income to the Master Servicer be deemed part of the Trust Fund. The
owner of each such Buydown Account shall be the related Sub-Servicer and the
related Sub-Servicer shall report for income tax purposes any income as
loss in such Buydown Account on its tax returns. The amount at any time credited
to the Buydown Account shall be fully insured by the FDIC or, to the extent that
such balance exceeds the limits of such insurance, such excess must be (i)
transferred to another fully insured account in another Designated Depository
Institution or (ii) invested in Permitted Investments held in trust by each
Sub-Servicer as described above. If such excess is invested in Permitted
Investments, such Permitted Investments must mature no later than the date on
which such funds are required to be withdrawn for deposit in the Certificate
Account. The Master Servicer may permit the related Sub-Servicer to establish
Buydown Accounts not conforming to the foregoing requirements to the extent that
such Buydown Accounts meet the requirements of each Rating Agency for the
maintenance of a rating on the Certificates in the highest category of each such
Rating Agency.
(b) Each Mortgagor under a Buydown Mortgage Loan shall be
obligated for the full amount due under the related Mortgage Note.
(c) The Buydown Funds shall equal a sum of payments which,
when added to the payment required of the related Mortgagor on each Due Date, is
equal to the full monthly payment due on that Due Date.
(d) On or before each day on which remittances are due to the
Certificate Account in accordance with Section 4.01, the related Sub-Servicer
shall withdraw from each Buydown Account relating to the Mortgage Loans and
deposit in the Protected Account, an amount of Buydown Funds for each respective
Buydown Mortgage Loan which, when added to the amount due on such date from the
Mortgagor on such Buydown Mortgage Loan, shall equal the full monthly payment
due on such Buydown Mortgage Loan. Such amount deposited by the related
Sub-Servicers shall be remitted to the Certificate Account.
(e) If the Mortgagor on a Buydown Mortgage Loan prepays such
loan in its entirety, during the Buydown Period, the Master Servicer shall cause
the related Sub-Servicer to withdraw from the Buydown Account and deposit or
cause to be deposited in its Protected Account such portion of the Buydown Funds
for such Buydown Mortgage Loan that is necessary to fully prepay the related
Mortgage Loan. Any funds remaining in the related Buydown Account shall be
returned to the original source of such Buydown Funds.
(f) If the Mortgagor on a Buydown Mortgage Loan defaults on
such loan during the Buydown Period and the property securing such Buydown
Mortgage Loan is sold in the liquidation thereof (either by the related
Sub-Servicer or the insurer under any related Primary Insurance Policy), the
Master Servicer shall cause the related Sub-Servicer to withdraw from the
Buydown Account and deposit in its Protected Account or pay to the insurer under
any related Primary Insurance Policy if the Mortgaged Property is transferred to
such insurer and such insurer pays all of the loss incurred in respect of such
default, the Buydown Funds for such Buydown Mortgage Loan still held in the
Buydown Account necessary to fully repay such Buydown Mortgage Loan. Any funds
remaining in the related Buydown Account shall be returned to the original
source of such Buydown Funds.
ARTICLE V
Section 5.01. CERTIFICATES. (a) The Depository, the Seller and
the Trustee have entered into a Depository Agreement dated as of___________,
199_ (the "Depository Agreement"). Except for the Physical Certificates, the
Individual Certificates and as provided in Subsection 5.01(b), the Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of such Certificates may not be
transferred by the Trustee except to a successor to the Depository; (ii)
ownership and transfers of registration of such Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iii) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (iv) the Trustee shall deal with the
Depository as representative of such Certificate Owners of the respective Class
of Certificates for purposes of exercising the rights of Certificateholders
under this Agreement, and requests and directions for and votes of such
representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; and (v) the Trustee may rely and shall
be fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants.
All transfers by Certificate Owners of such respective Classes
of Certificates and Global Certificates shall be made in accordance with the
procedures established by the Depository Participant or brokerage firm
representing such Certificate Owners. Each Depository Participant shall only
transfer Book-Entry Certificates of Certificate Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.
(b) If (i)(A) the Seller advises the Trustee in writing that
the Depository is no longer willing or able to properly discharge its
responsibilities as Depository and (B) the Trustee or the Seller is unable to
locate a qualified successor within 30 days or (ii) the Seller at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository, the Trustee shall request that the Depository notify all
Certificate Owners of the occurrence of any such event and of the availability
of definitive, fully registered Certificates (the "Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of the
Certificates by the Depository, accompanied by registration instructions from
the Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Seller, the Master Servicer nor the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions.
(c) REMIC II will be evidenced by (x) the REMIC II Regular
Certificates, which will be uncertificated and non-transferable and are hereby
designated as the "regular interests" in REMIC II and (y) the Class R-2
Certificates, which are hereby designated as the single "residual interest" in
REMIC II. Except as discussed below, principal and interest shall be paid on the
REMIC II Regular Certificates in the same order and priority as payments are to
be made on the Corresponding Classes of Certificates (disregarding the Class X
Certificates). The REMIC II Regular Certificates and the Class R-2 Certificates
will have the following designations and pass-through rates, and
distributions of principal and interest thereon shall be allocated to the
Corresponding Class of Certificates in the following manner:
Corresponding Classes
of Certificates(1)
-----------------------------
PASS- ALLOCATION ALLOCATION
REMIC II INITIAL THROUGH OF OF
CERTIFICATES BALANCE RATE(2) PRINCIPAL INTEREST
II-A-1 $----------- W1 A-I-1;A-I-2; A-I-1;A-I-2;
A-I-7 (4) A-I-7;A-I-8
(4)(3)
II-A-2 $----------- W1 A-I-2;A-I-3 A-I-2;A-I-3;
A-I-7 (4) A-I-7;A-I-8
(4)(3)
II-A-3 $----------- W1 A-I-2;A-I-4 A-I-2;A-I-4
A-I-7 (4) A-I-7;A-I-8
(4)(3)
II-A-4 $----------- W1 A-I-5;A-I-7 A-I-5;A-I-7;
(4) A-I-8 (4)(3)
II-A-5 $----------- W1 A-I-6;A-I-7 A-I-6;A-I-7;
(4) A-I-8 (4)(3)
II-A-6 $----------- W1 A-I-9;A-I-7 A-I-9;A-I-7;
(4) A-I-8 (4)(3)
II-A-10 $----------- W1 A-I-10 A-I-10(3)
II-A-11 $----------- W1 A-I-11 A-I-11(3)
II-A-II $----------- W2 A-II A-II (3)
II-PO $----------- (5) PO N/A
II-B-1 $_________(7) W1 All Class All Class
B Certi- B Certi-
ficates(6) ficates
(3),(6)
II-B-2 $_________(8) W2 All Class All Class
B Certi- B Certi-
ficates(6) ficates
(3),(6)
II-R-1 $----------- R-1 (9) R-1
(3),(9)
R-2 $----------- N/A (9) N/A (9)
- --------------------
(1) Except as otherwise indicated, the amount of principal and interest
allocable from a REMIC II Certificate to its corresponding Class of
Certificates on any Distribution Date shall be _____%.
(2) For purposes of computing the Pass-Through Rates, W1 is the rate
computed by dividing (i) the sum of the amounts computed for each
Group I Mortgage Loan determined by multiplying the principal balance
of each Group I Mortgage Loan by the Net Rate of the Group I Mortgage
Loan, by (ii) the sum of the amounts computed for each Group I
Mortgage Loan by multiplying the Non-PO Percentage with respect to
each Group I Mortgage Loan by the principal balance of the Group I
Mortgage Loan; and W2 is the weighted average of the Net Rates of the
Group II Mortgage Loans.
(3) Interest from REMIC II Certificates II-A-1, II-A-2, II-A-3, II-A-4,
II-A-5, and II-A-II in excess of ______%, ______%, ______%,
______%, ______%, and ______%, respectively, shall be allocated to the
Class X Certificates as Separate Components. Interest from each of the
REMIC II Certificates II-A-6, II-A-10, II-A-11, II-B-1, II-B-II and
II-R-1 in excess of ______% shall be allocated to the Class X
Certificates as Separate Components. However, if the sum of the
interest allocated to the various Separate Components exceeds the
Accrued Certificate Interest on the Class X Certificates, the interest
allocated to each Separate Component shall be reduced proportionally
by such excess.
(4) Principal allocable to listed Certificates shall be apportioned among
such Certificates in the same order and priority as payments are to be
made with respect to the principal portions of such Certificates that
pay simultaneously, and interest allocable to the listed Certificates
shall be apportioned among such Certificates in proportion to payments
of interest on such Certificates.
(5) The Class II-PO Certificate will be a principal only Certificate and
will not bear interest.
(6) Principal and interest attributable to the Group I Mortgage Loans and
allocable to the Class B Certificates shall be apportioned among such
Certificates in the same order and priority as payments are to be made
on such Certificates. Principal and interest attributable to the Group
II Mortgage Loans and allocable to the Class B Certificates shall be
apportioned among such Certificates in the same order and priority as
payments are to be made on such Certificates.
(7) This Initial Balance is equal to the sum of the initial principal
balances of the Group I Mortgage Loans less the sum of the initial
principal balances of the Class A-I, Class PO, Class R-1 and Class R-2
Certificates (excluding the notional principal balance of the Class
A-I-8 Certificates).
(8) This Initial Balance is equal to the sum of the initial principal
balances of the Group II Mortgage Loans less the initial principal
balance of the Class A-II Certificates.
(9) On each Distribution Date, Available Funds, if any, remaining in
REMIC II after payment of interest and principal, as designated above,
will be distributed to the Class R-2 Certificate. The first
$___________ of principal payments on the Group I Mortgage Loans shall
be distributed pro-rata between the Class II-R-1 and Class R-2
Certificates.
(d) The Classes of the Certificates shall have the following
designations, initial prin cipal amounts and Pass-Through Rates:
DESIGNATION INITIAL PRINCIPAL Amount PASS-THROUGH RATE
A-I-1 $ ------------ ______%
A-I-2 $ ------------ ______%
A-I-3 $ ------------ ______%
A-I-4 $ ------------ ______
A-I-5 $ ------------ ______%
A-I-6 $ ------------ ______%
A-I-7 $------------- (1)
A-I-8 $ -----------* (2)
A-I-9 $ ------------ ______%
A-I-10 $ ------------ ______%
A-I-11 $ ------------ ______%
A-II $ ------------ ______%
PO $ ------------ (3)
X $ -----------* (4)
B-1 $ ------------ ______%
B-2 $ ------------ ______%
B-3 $ ------------ ______%
B-4 $ ------------ ______%
B-5 $ ------------ ______%
B-6 $ ------------ ______%
R-1 $ ------------ ______%
R-2 $ ------------ (5)
- --------------------
* Original Notional Amount
(1) The Class A-I-7 Certificates will bear interest at _____% per annum
during the first Interest Accrual Period. During each Interest Accrual
Period thereafter, the Class A-I-7 Certificates will bear interest,
subject to a maximum rate of _____% per annum and a minimum rate of
_____% per annum, at a rate per annum equal to _____%, in excess of
LIBOR.
(2) The Class A-I-8 Certificates will bear interest at a rate per annum of
_____% per annum during the first Interest Accrual Period. During
each Interest Accrual Period thereafter,
the Class A-I-8 Certificates will bear interest, subject to a maximum
rate of _____% per annum and a minimum rate of _____% per annum, at a
rate per annum equal to _____% minus LIBOR.
(3) The Class PO Certificates are principal only Certificates and will not
bear interest.
(4) The Class X Certificates will bear interest on their Class X Notional
Amount at a variable Pass-Through Rate equal to the excess of (a) the
weighted average of the Net Rates of all of the Mortgage Loans
(weighted on the basis of the Scheduled Principal Balances thereof)
over (b) the weighted average of the Pass-Through Rates of all the
Certificates (other than the Class X Certificates).
(5) The Class R-2 Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the
Group I Mortgage Loans.
(e) With respect to each Distribution Date, each Class of
Certificates (other than the Class PO Certificates) shall accrue interest during
the related Interest Accrual Period. With respect to each Distribution Date and
each such Class of Certificates, interest shall be calculated based upon the
respective Pass-Through Rate set forth, or determined as provided, above and the
Current Principal Amount or Class A-I-8 Notional Amount or Class X Notional
Amount, as the case may be, of such Class applicable to such Distribution Date.
(f) The Certificates shall be substantially in the forms set
forth in Exhibit A-1 and A-2. On original issuance, the Trustee shall sign,
countersign and shall deliver them at the direction of the Seller. Pending the
preparation of definitive Certificates of any Class, the Trustee may sign and
countersign temporary Certificates that are printed, lithographed or
typewritten, in authorized denominations for Certificates of such Class,
substantially of the tenor of the definitive Certificates in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers or authorized signatories executing such
Certificates may determine, as evidenced by their execution of such
Certificates. If temporary Certificates are issued, the Seller will cause
Definitive Certificates to be prepared without unreasonable delay. After the
preparation of Definitive Certificates, the temporary Certificates shall be
exchangeable for Definitive Certificates upon surrender of the temporary
Certificates at the office of the Trustee, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Certificates, the
Trustee shall sign and countersign and deliver in exchange therefor a like
aggregate principal amount, in authorized denominations for such Class, of
definitive Certificates of the same Class. Until so exchanged, such temporary
Certificates shall in all respects be entitled to the same benefits as
Definitive Certificates.
(g) Each Class of Book-Entry Certificates will be registered
as a single Certificate of such Class held by a nominee of the Depository
or the DTC Custodian, and beneficial interests will be held by investors through
the book-entry facilities of the Depository in minimum denominations of $25,000
(except $500,000 in the case of Class A-I-8 Certificates and $1,000,000 in the
case of the Class X Certificates) and in each case increments of $1 in excess
thereof, except that one Certificate of each such Class may be issued in a
different amount so that the sum of the denominations of all outstanding
Certificates of such Class shall equal the Current Principal Amount of such
Class on the Closing Date. Each Class of Global Certificates shall be issued in
fully registered form in minimum dollar denominations of $500,000 in the case of
class A-I-8 Certificates and $1,000,000 in the case of the Class X Certificates
and $25,000 and integral multiples of $1 in excess thereof, except that one
Certificate of each Class may be in a different denomination so that the sum of
the denominations of all outstanding Certificates of such Class shall equal the
Current Principal Amount of such Class on the Closing Date. On the Closing Date,
the Trustee shall execute and countersign (i) one or more Global Certificates of
each Class and/or (ii) Individual Certificates all in an aggregate principal
amount that shall equal the Current Principal Amount of such Class on the
Closing Date. The Global Certificates shall be delivered by the Seller to the
Depository or pursuant to the Depository's instructions, shall be delivered by
the Seller on behalf of the Depository to and deposited with the DTC Custodian.
The Class B-4, Class B-5 and Class B-6 Certificates will be issued in
certificated fully-registered form in minimum denominations of $25,000 and
increments of $1 in excess thereof, except that one Certificate of each such
Class may be issued in a different amount so that the sum of the denominations
of all outstanding Certificates of such Class shall equal the Current Principal
Amount (or Notional Amount in the case of the Class X Certificates) of such
Class on the Closing Date. The Class R-1 and Class R-2 Certificates shall be
issued in certificated fully-registered form in the denomination of $100 each.
The Trustee shall sign them by facsimile or manual signature and countersign
them by manual signature on behalf of the Trustee by authorized signatories, who
shall be Responsible Officers of the Trustee or its agent. A Certificate bearing
the manual and facsimile signatures of individuals who were the authorized
signatories of the Trustee or its agent at the time of issuance shall bind the
Trustee, notwithstanding that such individuals or any of them have ceased to
hold such positions prior to the delivery of such Certificate.
(h) No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
the countersignature of the Trustee or its agent, and such countersignature upon
any Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly executed and delivered hereunder. All Certificates
issued on the Closing Date shall be dated the Closing Date. All Certificates
issued thereafter shall be dated the date of their countersignature.
(i) The Closing Date is hereby designated as the "startup" day
of each REMIC within the meaning of Section 860G(a)(9) of the Code.
(j) For federal income tax purposes, each REMIC shall have a
tax year that is a calendar year and shall report income on an accrual basis.
(k) The Trustee shall cause each REMIC to elect to be treated
as a REMIC under Section 860D of the Code. Any inconsistencies or
ambiguities in this Agreement or in the administration of any Trust established
hereby shall be resolved in a mannerthat preserves the validity of such
elections.
(l) The Assumed Final Distribution Date for each Class of
Certificates and REMIC II Certificates is ___________, 20__.
Section 5.02. REGISTRATION OF TRANSFER AND EXCHANGE OF
CERTIFICATES. (a) The Trustee shall maintain at an office or agency a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
transfers and exchanges of Certificates as herein provided.
(b) Subject to Subsection 5.01(a) and, in the case of each
Class of Global Certificates or Physical Certificates upon the satisfaction of
the conditions set forth below, upon surrender for registration of transfer of
any Certificate at any office or agency of the Trustee maintained for such
purpose, the Trustee shall sign, countersign and shall deliver, in the name of
the designated transferee or transferees, a new Certificate of a like Class and
aggregate Fractional Undivided Interest, but bearing a different number.
(c) By acceptance of an Individual Certificate, whether upon
original issuance or subsequent transfer, each holder of such a Certificate
acknowledges the restrictions on the transfer of such Certificate set forth in
the Securities Legend and agrees that it will transfer such a Certificate only
as provided herein. In addition to the provisions of Subsection 5.02(h), the
following restrictions shall apply with respect to the transfer and registration
of transfer of an Individual Certificate to a transferee that takes delivery in
the form of an Individual Certificate:
(i) The Trustee shall register the transfer of an Individual
Certificate if the requested transfer is being made to a
transferee who has provided the Trustee with a Rule 144A
Certificate.
(ii) The Trustee shall register the transfer of any Individual
Certificate if (x) the transferor has advised the Trustee in
writing that the Certificate is being transferred to an
Institutional Accredited Investor; and (y) prior to the
transfer the transferee furnishes to the Trustee an Investment
Letter, provided that, if based upon an Opinion of Counsel to
the effect that the delivery of (x) and (y) above are not
sufficient to confirm that the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act and
other applicable laws, the Trustee shall as a condition of the
registration of any such transfer require the transferor to
furnish such other certifications, legal opinions or other
information prior to registering the transfer of an Individual
Certificate as shall be set forth in such Opinion of Counsel.
(d) Subject to Subsection 5.02(h), so long as the Global
Certificate of such Class remains outstanding and is held by or on behalf
of the Depository, transfers of beneficial interests in such Class of Global
Certificates, or transfers by holders of Individual Certificates of such Class
to transferees that take delivery in the form of beneficial interests in the
Global Certificate, may be made only in accordance with this Subsection 5.02(d)
and in accordance with the rules of the Depository:
(i) In the case of a beneficial interest in the Global
Certificate being transferred to an Institutional Accredited
Investor, such transferee shall be required to take delivery
in the form of an Individual Certificate or Certificates and
the Trustee shall register such transfer only upon compliance
with the provisions of Subsection 5.02(c)(ii).
(ii) In the case of a beneficial interest in a Class of Global
Certificates being transferred to a transferee that takes
delivery in the form of an Individual Certificate or
Certificates of such Class, except as set forth in clause (i)
above, the Trustee shall register such transfer only upon
compliance with the provisions of Subsection 5.02(c)(i).
(iii) In the case of an Individual Certificate of a Class
being transferred to a transferee that takes delivery in the
form of a beneficial interest in a Global Certificate of such
Class, the Trustee shall register such transfer if the
transferee has provided the Trustee with a Rule 144A
Certificate.
(iv) No restrictions shall apply with respect to the transfer
or registration of transfer of a beneficial interest in the
Global Certificate of a Class to a transferee that takes
delivery in the form of a beneficial interest in the Global
Certificate of such Class.
(e) Subject to Subsection 5.02(h), an exchange of a beneficial
interest in a Global Certificate of a Class for an Individual Certificate or
Certificates of such Class, an exchange of an Individual Certificate or
Certificates of a Class for a beneficial interest in the Global Certificate of
such Class and an exchange of an Individual Certificate or Certificates of a
Class for another Individual Certificate or Certificates of such Class (in each
case, whether or not such exchange is made in anticipation of subsequent
transfer, and, in the case of the Global Certificate of such Class, so long as
such Certificate remains outstanding and is held by or on behalf of the
Depository) may be made only in accordance with this Subsection 5.02(e) and in
accordance with the rules of the Depository:
(i) A holder of a beneficial interest in a Global
Certificate of a Class may at any time exchange such
beneficial interest for an Individual Certificate or
Certificates of such Class.
(ii) A holder of an Individual Certificate or Certificates of
a Class may exchange such Certificate or Certificates for a
beneficial interest in the Global Certificate of such Class
if such holder furnishes to the Trustee a Rule 144A
Certificate.
(iii) A holder of an Individual Certificate of a Class may
exchange such Certificate for an equal aggregate principal
amount of Individual Certificates of such Class in different
authorized denominations without any certification.
(f)(i) Upon acceptance for exchange or transfer of an
Individual Certificate of a Class for a beneficial interest in
a Global Certificate of such Class as provided herein, the
Trustee shall cancel such Individual Certificate and shall (or
shall request the Depository to) endorse on the schedule
affixed to the applicable Global Certificate (or on a
continuation of such schedule affixed to the Global
Certificate and made a part thereof) an appropriate notation
evidencing the date of such exchange or transfer and an
increase in the certificate balance of the Global Certificate
equal to the certificate balance of such Individual
Certificate exchanged or transferred therefor.
(ii) Upon acceptance for exchange or transfer of a
beneficial interest in a Global Certificate of a Class for an
Individual Certificate of such Class as provided herein, the
Trustee shall (or shall request the Depository to) endorse on
the schedule affixed to such Global Certificate (or on a
continuation of such schedule affixed to such Global
Certificate and made a part thereof) an appropriate notation
evidencing the date of such exchange or transfer and a
decrease in the certificate balance of such Global Certificate
equal to the certificate balance of such Individual
Certificate issued in exchange therefor or upon transfer
thereof.
(g) The Securities Legend shall be placed on any Individual
Certificate issued in exchange for or upon transfer of another Individual
Certificate or of a beneficial interest in a Global Certificate.
(h) Subject to the restrictions on transfer and exchange set
forth in this Section 5.02, the holder of any Individual Certificate may
transfer or exchange the same in whole or in part (in an initial certificate
balance equal to the minimum authorized denomination or any integral multiple of
$1 in excess thereof) by surrendering such Certificate at the Corporate Trust
Office, or at the office of any transfer agent, together with an executed
instrument of assignment and transfer satisfactory in form and substance to the
Trustee in the case of transfer and a written request for exchange in the case
of exchange. The holder of a beneficial interest in a Global Certificate may,
subject to the rules and procedures of the Depository, cause the Depository (or
its nominee) to notify the Trustee in writing of a request for transfer or
exchange of such beneficial interest for an Individual Certificate or
Certificates. Following a proper request for transfer or exchange, the Trustee
shall, within five Business Days of such request made at such Corporate Trust
Office, sign, countersign and deliver at such Corporate Trust Office, to the
transferee (in the case of transfer) or holder (in the case of exchange) or send
by first class mail at the risk of the transferee (in the case of transfer) or
holder (in the case of exchange) to such address as the transferee or holder, as
applicable, may request, an Individual Certificate or Certificates, as the case
may require, for a like aggregate Fractional Undivided Interest and in such
authorized denomination or denominations as may be requested. The presentation
for transfer or exchange of any Individual Certificate shall not be valid unless
made at the Corporate Trust Office by the registered holder in person, or by a
duly authorized attorney-in-fact.
(i) At the option of the Certificateholders, Certificates may
be exchanged for other Certificates of authorized denominations of a like Class
and aggregate Fractional Undivided Interest, upon surrender of the Certificates
to be exchanged at any such office or agency; PROVIDED, HOWEVER, that no
Certificate may be exchanged for new Certificates unless the original Fractional
Undivided Interest represented by each such new Certificate (i) is at least
$25,000 with respect to the Certificates other than Class A-I-8 Certificates,
Class X Certificates and the Residual Certificates, at least $500,000 with
respect to the Class A-I-8 Certificates, at least $1,000,000 with respect to the
Class X Certificates and at least $100 with respect to each Residual Certificate
or (ii) is acceptable to the Seller as indicated to the Trustee in writing.
Whenever any Certificates are so surrendered for exchange, the Trustee shall
sign and countersign and the Trustee shall deliver the Certificates which the
Certificateholder making the exchange is entitled to receive.
(j) If the Trustee so requires, every Certificate presented or
surrendered for transfer or exchange shall be duly endorsed by, or be
accompanied by a written instrument of transfer, with a signature guarantee, in
form satisfactory to the Trustee, duly executed by the holder thereof or his or
her attorney duly authorized in writing.
(k) No service charge shall be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
(l) The Trustee shall cancel all Certificates surrendered for
transfer or exchange but shall retain such Certificates in accordance with its
standard retention policy or for such further time as is required by the record
retention requirements of the Securities Exchange Act of 1934, as amended, and
thereafter may destroy such Certificates.
(m) The following legend shall be placed on each Class PO
Certificate, whether upon original issuance or upon issuance of any other Class
PO Certificate, in exchange therefor or upon transfer thereof:
This Certificate may not be transferred to "benefit
plan investors" as such term is defined in 29 C.F.R. ss.
2510.3-101 (other than benefit plan investors which are not
subject to Title I of ERISA) ("Benefit Plan Investors") unless
the transferee provides a Benefit Plan Opinion to the Trustee;
provided that this Certificate may be transferred to a Benefit
Plan Investor without delivery of a Benefit Plan Opinion if
this Certificate is made available for purchase in the
secondary market through an underwriting or sale or placement
by an entity which has been granted an underwriter's
prohibited transaction exemption similar to PTE 90-30 or PTE
90-24.
(n) The following legend shall be placed on each Class B-1,
Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, whether
upon original issuance or upon issuance of any other Certificate of any such
Class in exchange therefor or upon transfer thereof:
This Certificate may not be transferred to "benefit
plan investors" as such term is defined in 29 C.F.R. ss.
2510.3-101 (other than benefit plan investors which are not
subject to Title I of ERISA)unless the transferee provides a
Benefit Plan Opinion to the Trustee.
(o) Subject to the matters set forth in Section 5.02, (j) and
(k), the Class X Certificates and subject to the matters set forth in Section
5.02(k) and (m), the Class PO Certificates may be transferred without provision
of any additional documents to the Trustee.
Section 5.03. MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. (a) If (i) any mutilated Certificate is surrendered to the
Trustee, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Trustee such security or indemnity as it may require to save it harmless,
and (iii) the Trustee has not received notice that such Certificate has been
acquired by a third Person, the Trustee shall sign, countersign and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and Fractional Undivided Interest
but in each case bearing a different number. The mutilated, destroyed, lost or
stolen Certificate shall thereupon be canceled of record by the Trustee and
shall be of no further effect and evidence no rights.
(b) Upon the issuance of any new Certificate under this
Section 5.03, the Trustee may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee) connected
therewith. Any duplicate Certificate issued pursuant to this Section 5.03 shall
constitute complete and indefeasible evidence of ownership in the Trust Fund, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 5.04. PERSONS DEEMED OWNERS. Prior to due presentation
of a Certificate for registration of transfer, the Seller, the Master Servicer,
the Trustee and any agent of the Seller, the Master Servicer or the Trustee may
treat the Person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions pursuant to
Section 6.01 and for all other purposes whatsoever. Neither the Seller, the
Master Servicer, the Trustee nor any agent of the Seller, the Master Servicer or
the Trustee shall be affected by notice to the contrary. No Certificate shall be
deemed duly presented for a transfer effective on any Record Date unless the
Certificate to be transferred is presented no later than the close of business
on the third Business Day preceding such Record Date.
Section 5.05. TRANSFER RESTRICTIONS ON RESIDUAL CERTIFICATES.
(a) Residual Certificates, or interests therein, may not be transferred without
the prior express written consent of the Tax Matters Person. As a prerequisite
to such consent, the proposed transferee must provide the Tax Matters Person and
the Trustee with an affidavit that the proposed transferee is not a Disqualified
Organization (as defined in Subsection 5.05(b)) (and, unless the Tax Matters
Person consents to the transfer to a person who is not a U.S. Person, an
affidavit that it is a U.S. Person) as provided in Subsection 5.05(b).
(b) No transfer, sale or other disposition of a Residual
Certificate (including a beneficial interest therein) may be made unless,
prior to the transfer, sale or other disposition of the Residual Certificate,
the proposed transferee (including the initial purchasers thereof) delivers to
the Tax Matters Person and the Trustee an affidavit in the form attached hereto
as Exhibit E stating, among other things, that as of the date of such transfer
(i) such transferee is not any of (A) the United States, any state or political
subdivision thereof, any foreign government, any international organization, or
any agency or instrumentality of any of the foregoing (other than an
instrumentality that is a corporation all of whose activities are subject to tax
under Chapter 1 of Subtitle A of the Code and (except in the case of Freddie
Mac) a majority of whose board of directors is not selected by the United
States, or any state or political subdivision thereof), (B) any organization
that is exempt from any tax imposed by Chapter 1 of Subtitle A of the Code,
other than (x) a tax-exempt farmers' cooperative within the meaning of Section
521 of the Code or (y) an organization that is subject to the tax imposed by
section 511 of the Code on "unrelated business taxable income" or (C) a
corporation operating on a cooperative basis that is engaged in furnishing
electric energy or providing telephone service to persons in rural areas (within
the meaning of Section 1381(a)(2)(C) of the Code) (any Person described in (A),
(B), or (C) being referred to herein as a "Disqualified Organization") and that
(ii) such transferee is not acquiring such Residual Certificate for the account
of a Disqualified Organization. The Tax Matters Person shall not consent to a
transfer of a Residual Certificate if it has actual knowledge that any statement
made in the affidavit issued pursuant to the preceding sentence is not true.
Notwithstanding any transfer, sale or other disposition of a Residual
Certificate to a Disqualified Organization, such transfer, sale or other
disposition shall be deemed to be of no legal force or effect whatsoever and
such Disqualified Organization shall not be deemed to be a Holder of a Residual
Certificate for any purpose hereunder, including, but not limited to, the
receipt of distributions thereon. If any purported transfer shall be in
violation of the provisions of this Subsection 5.05(b), then the prior Holder
thereof shall, upon discovery that the transfer of such Residual Certificate was
not in fact permitted by this Subsection 5.05(b), be restored to all rights as a
Holder thereof retroactive to the date of the purported transfer. The Trustee
and the Tax Matters Person shall be under no liability to any Person for any
registration or transfer of a Residual Certificate that is not permitted by this
Subsection 5.05(b) or for making payments due on such Residual Certificate to
the purported Holder thereof or taking any other action with respect to such
purported Holder under the provisions of this Agreement so long as the written
affidavit referred to above was received with respect to such transfer, and the
Tax Matters Person and the Trustee had no knowledge that it was untrue. The
prior Holder shall be entitled to recover from any purported Holder of a
Residual Certificate that was in fact not a permitted transferee under this
Subsection 5.05(b) at the time it became a Holder all payments made on such
Residual Certificate. Each Holder of a Residual Certificate, by acceptance
thereof, shall be deemed for all purposes to have consented to the provisions of
this Subsection 5.05(b) and to any amendment of this Agreement deemed necessary
(whether as a result of new legislation or otherwise) by counsel of the Tax
Matters Person or the Seller to ensure that the Residual Certificates are not
transferred to a Disqualified Organization and that any transfer of such
Residual Certificates will not cause the imposition of a tax upon the Trust or
cause REMIC I or REMIC II to fail to qualify as a REMIC.
(c) Unless the Tax Matters Person shall have consented in
writing (which consent may be withheld in the Tax Matters Person's sole
discretion), the Residual Certificates (including a beneficial interest therein)
may not be purchased by or transferred to any person who is not a "United States
person," as such term is defined in Section 7701(a)(30) of the Code.
Section 5.06. RESTRICTIONS ON TRANSFERABILITY OF PRIVATE
CERTIFICATES. (a) No offer, sale, transfer or other disposition (including
pledge) of a Private Certificate shall be made by any Holder thereof unless
registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act and any applicable state securities or "Blue
Sky" laws is available and the prospective transferee (other than the Seller) of
such Certificate signs and delivers to the Trustee an Investment Letter, if the
transferee is an Institutional Accredited Investor, in the form set forth as
Exhibit F-1 hereto, or a Rule 144A Certificate, if the transferee is a Qualified
Institutional Buyer, in the form set forth as Exhibit F-2 hereto. In the case of
a proposed transfer of a Private Certificate to a transferee other than a
Qualified Institutional Buyer, the Trustee shall require an Opinion of Counsel
that such transaction is exempt from the registration requirements of the
Securities Act. The cost of such opinion shall not be an expense of the Trustee
or the Trust Fund.
(b) Each Class B-4, Class B-5 and Class B-6 Certificate
shall bear a Securities Legend.
Section 5.07. ERISA RESTRICTIONS. (a) Subject to the
provisions of subsection (b), No Class PO or Class B Certificates may be
acquired by, or transferred to, an entity which is acquiring such Certificates
directly or indirectly for or on behalf of, a "benefit plan investor" described
in or subject to 29 C.F.R. ss. 2510.3-101 (other than a benefit plan investor
which is not subject to Title I of ERISA)("Benefit Plan Investor") unless the
proposed transferee provides a Benefit Plan Opinion to the Trustee. A "Benefit
Plan Opinion" is an Opinion of Counsel (upon which the Trustee is authorized to
rely) to the effect that neither the proposed transfer and/or
holding of a Certificate nor the servicing, management and operation of the
Trust: (i) will result in a prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code or will be covered under an individual or class
prohibited transaction exemption including but not limited to Department of
Labor Prohibited Transaction Exemption ("PTE") 84-14 (Class Exemption for Plan
Asset Transactions Determined by Independent Qualified Professional Asset
Managers); PTE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds); PTE 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts), PTE 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General
Accounts), and PTCE 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Asset Managers or (ii) will give rise to any additional
fiduciary duties under ERISA on the part of the Master Servicer or the Trustee.
A Benefit Plan Opinion shall not be an expense of the Trustee or the Master
Servicer.
(b) In the event that the Class PO Certificates are made
available for purchase in the secondary market through an underwriting or sale
or placement by an entity which has been granted an underwriter's prohibited
transaction exemption similar to PTE 90-30, no Benefit Plan Opinion shall be
required for the Class PO Certificates to be acquired by, or transferred to, an
entity which is acquiring such Certificates directly or indirectly for or on
behalf of, a Benefit Plan Investor.
(c) Any Person acquiring a Book-Entry Certificate or a Global
Certificate which represents one of the Classes referred to in Section 5.07(a),
by acquisition of such Certificate, shall be deemed to have represented to the
Trustee that such Person is not a Benefit Plan Investor nor a trustee, fiduciary
or other party acting on behalf of any Benefit Plan Investor.
Section 5.08. RULE 144A INFORMATION. For so long as any
Subordinate Certificates are outstanding and are "restricted securities" within
the meaning of Rule 144(a)(3) of the Securities Act, (1) the Master Servicer
will provide or cause to be provided to any holder of such Certificates and any
prospective purchaser thereof designated by such a holder, upon the request of
such holder or prospective purchaser, the information required to be provided to
such holder or prospective purchaser by Rule 144A(d)(4) under the Securities
Act; and (2) the Master Servicer shall update such information from time to time
in order to prevent such information from becoming false and misleading and will
take such other actions as are necessary to ensure that the safe harbor
exemption from the registration requirements of the Securities Act under Rule
144A is and will be available for resales of such Certificates conducted in
accordance with Rule 144A.
Section 5.09. CALCULATION OF LIBOR. On each LIBOR
Determination Date, until the Current Principal Amount of the Class A-I-7
Certificates and the Class A-I-8 Notional Amount have been reduced to zero, the
Trustee will either (i) request each Reference Bank to inform the Trustee of the
quotation offered by its principal London office for making one-month United
States dollar deposits in leading banks in the London interbank market as of
11:00 a.m. (London time) on such LIBOR Determination Date, or (ii) in lieu of
making a request of the Reference Banks, the Trustee may rely on the quotations
for those Reference Banks that appear at such time on the page (the "Relevant
Screen Page") whatever its designation on which LIBOR is for the time being
displayed on the Reuters Monitor Money Rate Service on the appropriate
Association Press-Dow Jones Telerate Service, to the extent available.
LIBOR for the next Interest Accrual Period will be established
by the Trustee on each LIBOR Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest Accrual
Period shall be the arithmetic mean of such offered quotations (rounded upwards
if necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or more of the
Reference Banks provides such offered quotations, LIBOR for the next Interest
Accrual Period shall be whichever is the higher of (i) LIBOR as determined on
the previous LIBOR Determination Date or (ii) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum which the Trustee determines
to be either (i) the arithmetic mean (rounded upwards if necessary to the
nearest whole multiple of 1/32%) of the one-month United States dollar lending
rates that New York City banks selected by BSMSI are quoting, on the relevant
LIBOR Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the Trustee,
being so made, or (ii) in the event that the Trustee can determine no such
arithmetic mean, the lowest one-month United States dollar lending rate which
New York City banks selected by BSMSI are quoting on such LIBOR Determination
Date to leading European banks.
(c) If on any LIBOR Determination Date, the Trustee is
required but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be ______%.
Until all of the Floating Rate Certificates are paid in full,
BSMSI will at all times retain at least four Reference Banks for the purpose of
determining LIBOR with respect to each LIBOR Determination Date and shall inform
the Trustee of which Reference Banks they have retained. Each Reference Bank
shall (i) be a leading bank engaged in transactions in Eurodollar deposits in
the international Eurocurrency market, (ii) not control, be controlled by, or be
under common control with BSMSI, and (iii) have an established place of business
in London. If any such Reference Bank should be unwilling or unable to act as
such or if BSMSI should terminate the appointment of any such Reference Bank,
BSMSI will promptly appoint another leading bank meeting the criteria specified
above. Neither BSMSI nor the Trustee shall have any liability or responsibility
to any Person for (i) the selection of any Reference Bank for purposes of
determining LIBOR or (ii) any liability for a failure to retain at least four
Reference Banks which is caused by circumstances beyond their reasonable
control.
The Pass-Through Rates on the Floating Rate Certificates for
each Interest Accrual Period shall be determined by the Trustee on each LIBOR
Determination Date so long as such Floating Rate Certificates are outstanding on
the basis of LIBOR and the respective formulae appearing in footnotes (1) and
(2) to the tables in Section 5.01(d).
In determining LIBOR and any Pass-Through Rate for the
Floating Rate Certificates, the Trustee may conclusively rely, and shall be
protected in relying, upon the offered quotations (whether written, oral or on
the Relevant Screen Page) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. Neither BSMSI nor the Trustee shall have any liability or responsibility
to any Person for (i) BSMSI's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) the Trustee's liability, following
a good-faith reasonable effort, to obtain such quotations from the Reference
Banks or the New York City banks or to determine such arithmetic mean, all as
provided for in this Section 5.09.
The establishment of LIBOR and each Pass-through Rate for the
Floating Rate Certificates by the Trustee shall (in the absence of manifest
error) be final, conclusive and binding upon such Holder of a Certificate and
BSMSI and their successors and assigns.
ARTICLE VI
Payments to Certificateholders
Section 6.01. DISTRIBUTIONS ON THE CERTIFICATES. (a) Interest
and principal on the Certificates will be distributed by the Trustee monthly on
each Distribution Date, commencing in ____________, 199_, in an aggregate amount
equal to the Available Funds for such Distribution Date as follows:
(i) On each Distribution Date on or prior to the Cross-Over
Date, an amount equal to the Group I Available Funds will be
distributed in the following order of priority among the
Certificates:
FIRST, to the interest-bearing Class A-I Certificates, the
Residual Certificates and Component I of the Class X Certificates, the
Accrued Certificate Interest on each such Class and the Class X
Component I Accrued Certificate Interest on such Component for such
Distribution Date;
SECOND, to the interest-bearing Class A-I Certificates, the
Residual Certificates and Component I of the Class X Certificates, any
Accrued Certificate Interest and Class X Component I Accrued
Certificate Interest thereon remaining undistributed from previous
Distribution Dates, to the extent of remaining Group I Available Funds,
any shortfall in available amounts being allocated among such Classes
and Component in proportion to
the amount of such Accrued Certificate Interest and Class X Component I
Accrued Certificate Interest remaining undistributed for each such
Class or Component for such Distribution Date;
THIRD, to the Class A-I Certificates (other than the Class
A-I-8 Certificates), the Residual Certificates and the Class PO
Certificates in reduction of the Current Principal Amounts thereof:
(A) the Group I Senior Optimal Principal Amount, in the
following order of priority:
(1) to the Class A-I-11 Certificates, up to the Class A-I-11
Optimal Principal Amount for such Distribution Date, until the Current Principal
Amount thereof has been reduced to zero;
(2) concurrently, to the Class R-1 and Class R-2 Certificates,
PRO RATA, based upon their Current Principal Amounts, until the respective
Current Principal Amounts thereof have been reduced to zero;
(3) _______%, _______% and _______% concurrently to the Class
A-I-1 Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-1 Certificates has been
reduced to zero;
(4) _______%, _______% and _______% concurrently to the Class
A-I-3 Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-3 Certificates has been
reduced to zero;
(5) _______%, _______% and _______% concurrently to the Class
A-I-4 Certificates, the Class A-I-7 Certificates and the Class A-I-2
Certificates until the respective Current Principal Amounts of the Class A-I-4
Certificates and the Class A-I-2 Certificates have been reduced to zero;
(6) _______% and _______% concurrently to the Class A-I-5
Certificates and the Class A-I-7 Certificates until the Current Principal Amount
of the Class A-I-5 Certificates has been reduced to zero;
(7) _______% and _______% concurrently to the Class A-I-6
Certificates and Class A-I-7 Certificates, until the Current Principal Amount of
the Class A-I-6 Certificates has been reduced to zero;
(8) concurrently to the Class A-I-9 Certificates and the Class
A-I-7 Certificates, PRO RATA, based on their Current Principal Amounts, until
the Current Principal Amounts thereof have been reduced to zero;
(9) to the Class A-I-10 Certificates, until the Current
Principal Amount thereof has been reduced to zero; and
(B) the Class PO Principal Distribution Amount for such
Distribution Date, to the Class PO Certificates, until the Current
Principal Amount thereof has been reduced to zero; and
FOURTH, the Class PO Deferred Amount for such Distribution
Date to the Class PO Certificates; provided, that (i) on any
Distribution Date, distributions pursuant to this priority (A) FOURTH,
shall not exceed the excess, if any, of (x) the Available Funds
remaining after giving effect to distributions pursuant to priorities
(A) FIRST through THIRD above and (B) FIRST through THIRD below over
(y) the amount of Accrued Certificate Interest for such Distribution
Date and Accrued Certificate Interest remaining undistributed from
previous Distribution Dates on all Classes of Subordinate Certificates
then outstanding, (ii) such distributions shall not reduce the Current
Principal Amount of the Class PO Certificates and (iii) no distribution
will be made in respect of the Class PO Deferred Amount after the
Cross-Over Date.
If, after distributions have been made pursuant to priorities (A) FIRST
and SECOND above on any Distribution Date, remaining Group I Available Funds are
less than the sum of the Group I Senior Optimal Principal Amount and the Class
PO Principal Distribution Amount for such Distribution Date, such amounts shall
be proportionately reduced, and such remaining Group I Available Funds will be
distributed on the Class A-I Certificates (other than Class A-I-8 Certificates),
Residual Certificates and Class PO Certificates in accordance with clauses (a)
and (b) of priority (A) THIRD above on the basis of such reduced amounts.
Notwithstanding any reduction in principal distributable to the Class PO
Certificates pursuant to this paragraph, the principal balance of the Class PO
Certificates shall be reduced not only by principal so distributed but also by
the Class PO Cash Shortfall for such Distribution Date. The Class PO Cash
Shortfall with respect to any Distribution Date will be added to the Class PO
Deferred Amount.
(ii) On each Distribution Date on or prior to the Cross-Over
Date, an amount equal to the Group II Available Funds will be
distributed in the following order of priority among the
Certificates:
FIRST, to the Class A-II Certificates and Component II of the Class X
Certificates, the Accrued Certificate Interest on such Class and Class
X Component II Accrued Certificate Interest on such Component for such
Distribution Date;
SECOND, to the Class A-II Certificates and Component II of the
Class X Certificates, any Accrued Certificate Interest and Class X
Component II Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates, to the extent of the
remaining Group II Available Funds, any shortfall in available amounts
being allocated between such Class and Component in proportion to the
amount of such Accrued Certificate Interest and Class X Component II
Accrued Certificate Interest remaining undistributed for such Class or
Component for such Distribution Date; and
THIRD, the Group II Senior Optimal Principal Amount to the
Class A-II Certificates until their Current Principal Amount has been
reduced to zero.
(iii) On each Distribution Date on or prior to the Cross-Over
Date, an amount equal to any remaining Group I Available Funds
and Group II Available Funds following the distributions in
(A) and (B) above will be distributed sequentially, in the
following order, to the Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5 and Class B-6 Certificates, in each case up to
an amount equal to and in the following order: (a) the Accrued
Certificate Interest thereon for such Distribution Date, (b)
any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates and (c) such
Class's Allocable Share for such Distribution Date.
(iv) On each Distribution Date prior to the occurrence
of the Cross-Over Date but after the reduction
of the Current Principal Amounts of the
Class A-I Certificates (other than the Class A-I-8
Certificates) or Class A-II Certificates to zero, the
remaining Class or Classes of Class A Certificates (other than
the Class A-I-8 Certificates) will be entitled to receive, in
addition to any Principal Prepayments related to such Class A
Certificates' respective Mortgage Loan Group, _____% of the
Principal Prepayments on the Mortgage Loans in the other
Mortgage Loan Group (in the case of Mortgage Loan Group I in
accordance with the priorities set forth in priority (A) THIRD
above, and in reduction of the Current Principal Amounts
thereof). In addition, if on any Distribution Date on which
the aggregate Current Principal Amount of the Class A-I
Certificates (other than the Class A-I-8 Certificates) or
Class A-II Certificates would be greater than the aggregate
Scheduled Principal Balance of the Mortgage Loans in the
related Mortgage Loan Group (other than the related PO
Percentage of the Group I Discount Mortgage Loans in Mortgage
Loan Group I) and Class B Certificates are still outstanding,
in each case after giving effect to distributions to be made
on such Distribution Date, _____% of the Principal Prepayments
otherwise allocable to the Class B Certificates on the
Mortgage Loans in the other Mortgage Loan Group will be
distributed to such Class or Classes of Class A Certificates
(other than the Class A-I-8 Certificates) (in the case of the
Class A-I Certificates, in accordance with the priorities set
forth in priority (A) THIRD above) in reduction of the Current
Principal Amounts thereof, until the aggregate Current
Principal Amount of the Class A-I Certificates (other than the
Class A-I-8 Certificates) or Class A-II Certificates, as
applicable, is an amount equal to the aggregate Scheduled
Principal Balance of the Mortgage Loans in the related
Mortgage Loan Group (other than the related PO Percentage of
the Group I Discount Mortgage Loans in Mortgage Loan Group I).
(v) On each Distribution Date after the Cross-Over Date,
distributions of principal on the outstanding Class A-I
Certificates (other than the Class A-I-8 Certificates) and
Residual Certificates will be made PRO RATA among all such
Certificates, regardless of the allocation, or sequential
nature, of principal payments described in priority (A) THIRD
above, based upon the then Current Principal Amounts of such
Certificates, and interest will be distributed as described
above with respect to Distribution Dates on or prior to the
Cross-Over Date.
(vi) On each Distribution Date, any Group I Available Funds
and Group II Available Funds remaining in REMIC I after
payment of interest and principal as described above will be
distributed to the Class R-1 Certificates; provided that if on
any Distribution Date there are any Group I Available Funds
remaining after payment of interest and principal as described
in the preceding paragraphs, such Group I Available Funds will
be distributed to the Class A-II Certificates in
accordance with the priorities in paragraph (B) above until
all amounts due to such Certificates have been paid in full
before any amounts are distributed to the Residual
Certificates. Similarly, if on any Distribution Date there are
any Group II Available Funds remaining after payment of
interest and principal as described in the preceding
paragraphs, such Group II Available Funds will be distributed
to the Senior Certificates (other than the Class A-II
Certificates and Component II of the Class X Certificates) in
accordance with the priorities in paragraph (E) above until
all amounts due to such Senior Certificates have been paid in
full before any amounts are distributed to the Residual
Certificates.
(b) On each Distribution Date, the funds available for
distribution shall be applied to distributions on the REMIC II Regular Interests
in an amount sufficient to make the distributions on the respective
Corresponding Classes of Certificates on such Payment Date in accordance with
the provisions of subsection (a) of this Section 6.01.
(c) No Accrued Certificate Interest or Class X Component I
Accrued Certificate Interest or Class X Component II Accrued Certificate
Interest will be payable with respect to any class of Certificates after the
Distribution Date on which the outstanding principal balance or Notional Amount
of such Certificate has been reduced to zero.
Section 6.02. [Reserved]
Section 6.03. ALLOCATION OF LOSSES. (a) On or prior to each
Determination Date, the Master Servicer shall determine the amount of any
Realized Loss in respect of each Mortgage Loan that occurred during the
immediately preceding calendar month.
(b) With respect to any Distribution Date, the principal
portion of each Realized Loss (other than any Excess Special Hazard Loss, Excess
Fraud Loss and Excess Bankruptcy Loss) shall be allocated as follows:
(i) the applicable PO Percentage of any such Realized
Loss shall be allocated to the Class PO Certificates; and
(ii) the applicable Non-PO Percentage of any such Realized
Loss shall be allocated as follows:
first, to the Class B-6 Certificates until the
Current Principal Amount thereof has been reduced to zero;
second, to the Class B-5 Certificates until the
Current Principal Amount thereof has been reduced to zero;
third, to the Class B-4 Certificates until the
Current Principal Amount thereof has been reduced to zero;
fourth, to the Class B-3 Certificates until the
Current Principal Amount thereof has been reduced to zero;
fifth, to the Class B-2 Certificates until the
Current Principal Amount thereof has been reduced to zero;
sixth, to the Class B-1 Certificates until the
Current Principal Amount thereof has been reduced to zero; an
seventh, to the Classes of Senior Certificates (other
then the Class A-I-8, Class PO and Class X Certificates), pro
rata, in accordance with their Current Principal Amounts.
(c) With respect to any Distribution Date, the principal
portion of any Excess Loss (other than those attributable to Debt Service
Reductions) shall be allocated as follows:
(i) the applicable PO Percentage of any such
Excess Loss shall be allocated to the Class PO Certificates;
and
(ii) the applicable Non-PO Percentage of any such
Excess Loss shall be allocated among all Classes of
Certificates (other than the Class A-I-8, Class PO and Class X
Certificates), pro rata, based on the respective Current
Principal Amounts thereof.
(d) Notwithstanding the foregoing, no such allocation of any
Realized Loss shall be made on a Distribution Date to a Class of Certificates to
the extent that such allocation would result in the reduction of the aggregate
Current Principal Amounts of all the Certificates as of such Distribution Date,
after giving effect to all distributions and prior allocations of Realized
Losses on such date, to an amount less than the aggregate Scheduled Principal
Balance of all of the Mortgage Loans as of the first day of the month of such
Distribution Date, less any Deficient Valuations occurring on or prior to the
Bankruptcy Coverage Termination Date (such limitation, the "Loss Allocation
Limitation").
(e) Any Realized Losses allocated to a Class of Certificates
pursuant to Subsections 6.03(b) or (c) shall be allocated among the Certificates
of such Class in proportion to their respective Current Principal Amounts. Any
allocation of Realized Losses pursuant to this Subsection 6.03(e) shall be
accomplished by reducing the Current Principal Amount of the related
Certificates on the related Distribution Date in accordance with Subsection
6.03(f).
(f) Realized Losses allocated in accordance with this Section
6.03 shall be allocated on the Distribution Date in the month following the
month in which such loss was incurred and, in the case of the principal portion
thereof, after giving effect to distributions made on such Distribution Date,
except that the aggregate amount of Realized Losses to be allocated to the Class
PO Certificates on such Distribution Date will be taken into account in
determining distributions in respect of the Class PO Deferred Amount.
(g) On each Distribution Date, the Master Servicer shall
determine the Subordinate Certificate Writedown Amount, if any. Any such
Certificate Writedown Amount shall effect a corresponding reduction in the
Current Principal Amount of (i) if prior to the CrossOver Date, the Subordinate
Certificates in the reverse order of their numerical Class designations and (ii)
after the Cross-Over Date, the Senior Certificates (other than the Class PO and
Class X Certificates) pro rata based in their respective Current Principal
Amounts, which reduction shall occur on such Distribution Date after giving
effect to distributions made on such Distribution Date.
(h) On each Distribution Date, on or prior to the Cross-Over
Date, the Master Servicer shall determine the Class PO Deferred Payment Amount
Writedown Amount, if any. Any such Class PO Deferred Payment Writedown Amount
shall effect a corresponding reduction in the Current Principal Amount of the
Subordinate Certificates in the reverse order of their numerical Class
designations.
(i) If on any Distribution Date the Group I Available Funds
are less than the Accrued Certificate Interest on the Class A-I and Residual
Certificates and the Class X Component I Accrued Certificate Interest on
Component I of the Class X Certificates or if the Group II Available Funds are
less than the Accrued Certificate Interest on the Class A-II Certificates and
the Class X Component II Accrued Certificate Interest on Component II of the
Class X Certificates, in each case for such Distribution Date and prior to
reduction for Net Interest Shortfall and the interest portion of Realized
Losses, the shortfall will be allocated among the holders of each such
respective Class or Component in proportion to the respective amounts of Accrued
Certificate Interest and Class X Component I Accrued Certificate Interest or
Class X Component II Accrued Certificate Interest, as applicable, that would
have been allocated thereto in the absence of such Net Interest Shortfall and/or
Realized Losses for such Distribution Date on each such Class or Component. In
addition, the amount of any interest shortfalls with respect to the related
Mortgage Loan Group that are covered by subordination will constitute unpaid
Accrued Certificate Interest or unpaid Class X Component I Accrued Certificate
Interest or unpaid Class X Component II Accrued Certificate Interest and will be
distributable to holders of the Certificates of the related Classes or Component
entitled to such amounts on subsequent Distribution Dates, to the extent of
Group I Available Funds or Group II Available Funds, as applicable, after
interest distributions as required herein. Any such amount so carried forward
will not bear interest.
(j) With respect to any Distribution Date prior to the
Cross-Over Date, Realized Losses shall be allocated to the REMIC II Regular
Certificates in a manner similar to the allocation of Realized Losses to the
REMIC I Regular Certificates under this Section 6.03, except that any losses
allocated to a Class B Certificate shall be allocated to the REMIC II Class
II-B-1 Certificate if the loss is attributable to a Group I Mortgage Loan and
shall be allocated to the REMIC II Class II-B-2 Certificate if the loss is
attributable to a Group II Mortgage Loan. With respect to any Distribution Date
after the Cross-Over Date, Realized Losses shall be allocated to the REMIC II
Regular Certificates in an amount such that distributions on the REMIC II
Regular Certificates are an amount sufficient to make the distributions on the
respective Corresponding Classes of Certificates on such Distribution Date in
accordance with the provisions of subsection (a) of Section 6.01.
Section 6.04. [Reserved]
Section 6.05. PAYMENTS. (a) No later than the Determination
Date, the Master Servicer shall provide to the Trustee any information with
respect to the Mortgage Loans required to enable the Trustee to make, or cause
its agent to make, distributions on the Certificates and prepare reports to
Certificateholders.
(b) On each Distribution Date, other than the final
Distribution Date, the Trustee shall distribute to each Certificateholder of
record on the directly preceding Record Date the Certificateholder's pro rata
share of its Class (based on the aggregate Fractional Undivided Interest
represented by such Holder's Certificates) of all amounts required to be
distributed on such Distribution Date to such Class. The Trustee shall calculate
such amounts based upon the information provided by the Master Servicer pursuant
to Subsection 6.05(a).
(c) Payment of the above amounts to each Certificateholder
shall be made (i) by check mailed to each Certificateholder entitled thereto at
the address appearing in the Certificate Register or (ii) upon receipt by the
Trustee on or before the fifth Business Day preceding the Record Date of written
instructions from a Certificateholder holding Certificates representing an
initial aggregate Current Principal Amount and/or Class A-I-8 Notional Amount or
Class X Notional Amount of not less than $______________ by wire transfer to a
United States dollar account maintained by the payee at any United States
depository institution with appropriate facilities for receiving such a wire
transfer; PROVIDED, HOWEVER, that the final payment in respect of each Class of
Certificates will be made only upon presentation and surrender of such
respective Certificates at the office or agency of the Trustee specified in the
notice to Certificateholders of such final payment.
Section 6.06. STATEMENTS TO CERTIFICATEHOLDERS. (a)
Concurrently with each distribution to Certificateholders, the Trustee
shall forward by first-class mail to each Certificateholder, with a copy to the
Seller, the Master Servicer and the Rating Agencies, a statement setting forth
the following information, expressed with respect to clauses (i) through (vi) in
the aggregate and as a Fractional Undivided Interest representing an initial
Current Principal Amount of $___________, or, in the case of a Class A-I-8
Certificate, a Class A-I-8 Notional Amount of $___________, or, in the case of
Class X Certificates, a Class X Notional Amount of $___________, or in the case
of the Class R-1 or R-2 Certificates, an initial Current Principal Amount of
$___________:
(i) the Current Principal Amount (or Notional Amount
in the case of the Class X Certificates) of each Class of
Certificates immediately prior to such Distribution Date;
(ii) the amount of the distribution allocable to
principal on each applicable Class of Certificates;
(iii) the aggregate amount of interest accrued at the
related Pass-Through Rate with respect to each Class of
Certificates (other than the Class PO Certificates) during the
related Interest Accrual Period;
(iv) the Net Interest Shortfall and any other
adjustments to interest at the related Pass-Through Rate
necessary to account for any difference between interest
accrued and aggregate interest distributed with respect to
each Class of Certificates (other than the Class PO
Certificates);
(v) the amount of the distribution allocable to
interest on each Class of Certificates (other than the Class
PO Certificates);
(vi) the Pass-Through Rates for the Class A-I-7,
Class A-I-8, Class X and Class R-2 Certificates with respect
to such Distribution Date;
(vii) the Current Principal Amount and/or Class A-I-8
Notional Amount or Class X Notional Amount of each applicable
Class of Certificates after such Distribution Date and the
Class PO Deferred Amount;
(viii) the amount of any Monthly Advances and
Compensating Interest Payments by the Master Servicer included
in such distribution separately stated for each Mortgage Loan
Group;
(ix) the amount of any Realized Losses (listed
separately for each category of Realized Loss and for each
Mortgage Loan Group) during the related Prepayment Period and
the amount and source (separately identified) of any
distribution in respect thereof included in such distribution;
(x) the amount of Scheduled Principal and Principal
Prepayments, (including but separately identifying the
principal amount of principal prepayments, Insurance Proceeds,
the purchase price in connection with the
purchase of Mortgage Loans, cash deposits in connection with
substitutions of Mortgage Loans and Net Liquidation Proceeds)
with respect to each Mortgage Loan Group;
(xi) the number of Mortgage Loans (excluding REO
Property) in each Mortgage Loan Group remaining in the Trust
Fund as of the end of the related Due Period;
(xii) information for each Mortgage Group regarding
any Mortgage Loan delinquencies as of the end of the related
Due Period, including the aggregate number, aggregate
Outstanding Principal Balance and aggregate Scheduled
Principal Balance of Mortgage Loans delinquent one month, two
months and three months or more;
(xiii) for each Mortgage Loan Group, the number of
Mortgage Loans in the foreclosure process as of the end of the
related Due Period and the aggregate Outstanding Principal
Balance of such Mortgage Loans;
(xiv) for each Mortgage Loan Group, the number and
aggregate Outstanding Principal Balance of all Mortgage Loans
which were REO Property as of the end of the related Due
Period;
(xv) the book value (the sum of (A) the Outstanding
Principal Balance of the Mortgage Loan, (B) accrued interest
through the date of foreclosure and (C) foreclosure expenses)
of any REO Property in each Mortgage Loan Group; PROVIDED
THAT, in the event that such information is not available to
the Master Servicer and the Trustee on the Distribution Date,
such information shall be furnished promptly after it becomes
available;
(xvi) the amount of Realized Losses allocated to each
Class of Certificates since the prior Distribution Date and in
the aggregate for all prior Distribution Dates; and
(xvii) the then applicable Senior Percentage, Senior
Prepayment Percentage, Subordinate Percentage and Subordinate
Prepayment Percentage.
The information set forth above shall be calculated, or
reported, as the case may be, by the Trustee based on data provided by the
Master Servicer pursuant to Subsection 6.05(a) and, with respect to prior
periods, Section 6.06, upon which the Trustee may conclusively rely. The
information furnished by the Master Servicer shall be sufficient for the Trustee
to calculate any statements it is required to make.
(b) By ___________ of each year beginning in 199_, the Trustee
will furnish a report to each Holder of the Certificates of record at any time
during such calendar year as to the aggregate of amounts reported pursuant to
subclauses (a)(ii) and (a)(v) above with respect to the Certificates, plus
information with respect to the amount of servicing compensation and such other
customary information as the Master Servicer determines and advises the Trustee
to be necessary and/or to be required by the Internal Revenue Service or by a
federal or state law or rules or regulations to enable such Holders to prepare
their tax returns for such calendar year. Copies of such report shall also be
furnished to the Master Servicer. Such obligations shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to the requirements of the Code.
The Master Servicer shall supply to the Trustee in a timely
manner the information required for the statements described above which, where
appropriate, shall be the information from which the Trustee can calculate the
statements it is required to make.
Section 6.07. REPORTS TO THE TRUSTEE AND THE MASTER SERVICER.
(a) Not later than_______ days after each Distribution Date, the Trustee shall
forward to the Master Servicer a statement setting forth the status of the
Certificate Account and the Custody Account as of the close of business on the
last day of the month of the Distribution Date and showing, for the month
covered by such statement, deposits in or withdrawals from the Certificate
Account and the Custody Account.
(b) On or before the Determination Date, the Master Servicer
shall provide to the Trustee, with respect to the Mortgage Loans and the REO
Property, respectively, a Loan Summary and Remittance Report which shall be
based upon reports from Sub-Servicers, if any, received by the Master Servicer
on or before the _______ Business Day of such month with respect to the Mortgage
Loans and REO Property and containing the following information (in respect of
the REO Property, only such information which is applicable):
(i) Aggregate deposits to and withdrawals from each
subaccount of the Certificate Account since the date of the
prior statement, stated separately for each category of
deposit specified in Section 4.02 and each category of
withdrawal specified in Section 4.03, indicating separately
the aggregate of amounts withdrawn which are not applicable to
a particular Mortgage Loan;
(ii) Amount of Group I Available Funds and Group II
Available Funds expected for the related Distribution Date and
attributable to each of the following categories:
(A) regularly scheduled principal;
(B) Principal Prepayments (stated separately for
(v) partial prepayments, (v) full
prepayments, (w) Net Liquidation Proceeds,
stating Liquidation Proceeds and Liquidation
Expenses separately) (x) Insurance Proceeds
(y) the purchase price in connection with
the purchase of a Mortgage Loan of the
applicable Mortgage Loan Group and (z) any
cash deposit in connection with the
substitution of a Mortgage Loan of the
applicable Mortgage Loan Group;
(C) interest on the Mortgage Loans in the
applicable Mortgage Loan Group;
(D) Monthly Advances made by the Master
Servicer;
(E) Certificate Account Advances;
(F) Compensating Interest Payments; and
(G) reimbursements in connection with losses on
Permitted Investments.
(iii) Aggregate Outstanding Principal Balances of the
Mortgage Loans of each Mortgage Loan Group as of the related
Due Date, without giving effect to payments due on such date;
(iv) Realized Losses for the prior month and, in the
aggregate, from the Closing Date, separately stated for Group
I Mortgage Loans and Group II Mortgage Loans;
(v) [intentionally omitted];
(vi) [intentionally omitted];
(vii) Aggregate Scheduled Principal Balance of
the Mortgage Loans of each Mortgage Loan Group as of the
related Due Date;
(viii) Book value of any collateral acquired by means
of foreclosure, grant of deed in lieu of foreclosure or
otherwise in respect of any Mortgage Loan, separately stated
for Group I Mortgage Loans and Group II Mortgage Loans;
(ix) Number and aggregate principal balance of
Mortgage Loans which are 30, 60, 90 and 120 days delinquent,
those which are in foreclosure and those which are REO
Property, separately stated for Group I Mortgage Loans and
Group II Mortgage Loans;
(x) Interest Shortfall for each Mortgage Loan
Group with respect to the related Distribution Date and
portion thereof resulting from Voluntary Principal
Prepayments in full;
(xi) [intentionally omitted]
(xii) Amount, if any, by which the aggregate of
payments of scheduled principal and interest on the Mortgage
Loans of each Mortgage Loan Group that were due on the related
Due Date and delinquent, other than as a result of the Relief
Act, as of the 18th day of such month exceeds the sum of the
Monthly Advances to be made by the Master Servicer and
Certificate Account Advances for such Distribution Date;
(xiii) Aggregate Master Servicing Fee for the
related Due Period; and
(xiv) Such other information regarding each Mortgage
Loan, including an updated Mortgage Loan Schedule in magnetic
tape format, as may be reasonably requested by the Trustee.
(c) [Intentionally omitted.]
(d) Not less than _______ Business Days prior to any
Distribution Date for which the Current Principal Amount of a Class of
Certificates will be reduced to zero, the Master Servicer shall provide the
Trustee with notice thereof.
Section 6.08. MONTHLY ADVANCES. If the Scheduled Payment
(together with any advances from the Sub-Servicers) on a Mortgage Loan that
was due on the Due Date in the month of a Distribution Date and is delinquent
other than as a result of application of the Relief Act exceeds the amount
deposited in the Custody Account or the Certificate Account which will be used
for a Certificate Account Advance with respect to such Mortgage Loan, the Master
Servicer will deposit in the appropriate subaccount of the Certificate Account
not later than the Advancing Date immediately preceding the related Distribution
Date an amount equal to such deficiency net of the related Master Servicing Fee
for such Mortgage Loan except to the extent the Master Servicer determines any
such advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds
or future payments on the Mortgage Loan for which such Monthly Advance was made.
Subject to the foregoing, the Master Servicer shall continue to make such
advances through the date that the related Mortgaged Property has, in the
judgment of the Master Servicer, been completely liquidated. Any amount used as
a Certificate Account Advance shall be replaced by the Master Servicer by
deposit in the appropriate subaccount of the Certificate Account on or before
any future date to the extent that funds in the appropriate subaccount of the
Certificate Account on such date are less than the amount required to be
transferred by the Master Servicer to such subaccount of the Certificate
Account. If applicable, on the fifth Business Day preceding each Distribution
Date, the Master Servicer shall present an Officer's Certificate to the Trustee
(i) stating that the Master Servicer elects not to make a Monthly Advance in a
stated amount and (ii) detailing the reason it deems the advance to be
nonrecoverable.
Section 6.09. COMPENSATING INTEREST PAYMENTS. The Master
Servicer shall deposit in the Certificate Account not later than the Advancing
Date immediately preceding the related Distribution Date an amount equal to the
lesser of (i) the Interest Shortfall resulting from Voluntary Principal
Prepayments in full for the related Distribution Date and (ii) the lesser of (A)
the Master Servicing Fee for such Distribution Date or (B) __________ of
_______% of the Scheduled Principal Balances of the Mortgage Loans with respect
to such Distribution Date (such amount, the "Compensating Interest Payment").
The Master Servicer shall not be entitled to any reimbursement of any
Compensating Interest Payment.
Section 6.10. REPORTS OF FORECLOSURES AND ABANDONMENT OF
MORTGAGED PROPERTY. Each year the Master Servicer shall report or cause to be
reported to the Internal Revenue Service foreclosures and abandonments of any
Mortgaged Property as required by Section 6050J of the Code.
ARTICLE VII
The Master Servicer
Section 7.01. LIABILITIES OF THE MASTER SERVICER. The Master
Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by it herein. Only the
Master Servicer, any successor Master Servicer or the Trustee acting as Master
Servicer shall be liable with respect to the servicing of the Mortgage Loans and
the REO Property for actions taken by any such person in contravention of the
Master Servicer's duties hereunder.
Section 7.02. MERGER OR CONSOLIDATION OF THE MASTER SERVICER.
(a) The Master Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the state of its incorporation,
and will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, the
Certificates or any of the Mortgage Loans and to perform its duties under this
Agreement.
(b) Any Person into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger or consolidation to
which the Master Servicer shall be a party, or any Person succeeding to the
business of the Master Servicer, shall be the successor of the Master Servicer
hereunder, without the execution or filing of any paper or further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 7.03. INDEMNIFICATION OF THE TRUSTEE. The Master
Servicer agrees to indemnify the Indemnified Persons for, and to hold them
harmless against, any loss, liability or expense incurred on their part, arising
out of, or in connection with, this Agreement, including the costs and expenses
(including reasonable legal fees and expenses) of defending themselves against
any such claim other than (i) any loss, liability or expense related to its
failure to perform its duties in compliance with this Agreement (except as any
such loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement and (ii) any loss, liability or expense incurred by reason of such
Person's willful misfeasance, bad faith or gross negligence in the performance
of duties hereunder or by reason of reckless disregard of obligations and duties
hereunder, provided that with respect to any such claim, the Trustee shall have
given the Master Servicer written notice thereof promptly after the Trustee
shall have with respect to such claim knowledge thereof. The Master Servicer
shall assume the defense of any claim for which an Indemnified Person is
entitled to indemnification pursuant to this Section 7.03, and the Master
Servicer shall pay all expenses in connection therewith, including reasonable
legal fees, and shall promptly pay, discharge and satisfy any judgment or decree
which may be rendered against an Indemnified Person in respect of such claim.
Section 7.04. LIMITATION ON LIABILITY OF THE MASTER
SERVICER AND OTHERS. Subject to the obligation of the Master Servicer to
indemnify the Indemnified Persons pursuant to Section 7.03:
(a) Neither the Master Servicer nor any of the directors,
officers, employees or agents of the Master Servicer shall be under any
liability to the Indemnified Persons, the Seller, the Trust Fund or the
Certificateholders for taking any action or for refraining from taking any
action in good faith pursuant to this Agreement, or for errors in judgment;
PROVIDED, HOWEVER, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties or representations made herein
or any liability which would otherwise be imposed by reason of such Person's
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties hereunder.
(b) The Master Servicer and any director, officer, employee or
agent of the Master Servicer may rely in good faith on any document of any kind
PRIMA FACIE properly executed and submitted by any Person respecting any matters
arising hereunder.
(c) The Master Servicer and any director, officer, employee or
agent of the Master Servicer shall be indemnified by the Trust and held harmless
thereby against any loss, liability or expense incurred in connection with any
legal proceedings relating to this Agreement or the Certificates (including
reasonable legal fees and disbursements of counsel), other than (i) any loss,
liability or expense related to its failure to perform its duties in compliance
with this Agreement (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to this Agreement) and (ii) any loss, liability
or expense incurred by reason of such Person's willful misfeasance, bad faith or
gross negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder.
(d) The Master Servicer shall not be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
duties under this Agreement and that in its opinion may involve it in any
expense or liability; PROVIDED, HOWEVER, the Master Servicer may in its
discretion undertake any such action which it may deem necessary or desirable
with respect to this Agreement and the rights and duties of the parties hereto
and the interests of the Certificateholders hereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust Fund, and the Master Servicer shall
be entitled to be reimbursed therefor out of the Certificate Account as provided
by Subsection 4.03(a). Nothing in this Subsection 7.04(d) shall affect the
Master Servicer's obligation to supervise, or to take such actions as are
necessary to ensure, the servicing and administration of the Mortgage Loans
pursuant to Subsection 3.01(a).
(e) In taking or recommending any course of action pursuant to
this Agreement, unless specifically required to do so pursuant to this
Agreement, the Master Servicer shall not be required to investigate or make
recommendations concerning potential liabilities which the Trust might incur as
a result of such course of action by reason of the condition of the
Mortgaged Properties but shall give notice to the Trustee if it has notice of
such potential liabilities.
Section 7.05. MASTER SERVICER NOT TO RESIGN. Except as
provided in Section 7.07, the Master Servicer shall not resign from the
obligations and duties hereby imposed on it except upon a determination that any
such duties hereunder are no longer permissible under applicable law. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an Opinion of Independent Counsel to such effect delivered to the
Trustee. No such resignation by the Master Servicer shall become effective until
the Trustee or a successor to the Master Servicer shall have assumed the
responsibilities and obligations of the Master Servicer in accordance with
Section 8.02 hereof. The Trustee shall notify the Rating Agencies of the
resignation of the Master Servicer.
Section 7.06. [Reserved]
Section 7.07. SALE AND ASSIGNMENT OF MASTER SERVICING. The
Master Servicer may sell and assign its rights and delegate its duties and
obligations in their entirety as Master Servicer under this Agreement; PROVIDED,
HOWEVER, that: (i) the purchaser or transferee accepting such assignment and
delegation (a) shall be a Person which shall be qualified to service mortgage
loans for Freddie Mac or Fannie Mae; (b) shall, in the case of successor master
servicers only, have a net worth of not less than $_____________ (unless
otherwise approved by each Rating Agency pursuant to clause (ii) below); (c)
shall be reasonably satisfactory to the Trustee (as evidenced in a writing
signed by the Trustee) as having a comparable servicing ability to that of the
Master Servicer on the Closing Date; (d) shall execute and deliver to the
Trustee an agreement, in form and substance reasonably satisfactory to the
Trustee, which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by it as master servicer under this Agreement, any custodial agreement
and any agreement substantially in the form of Exhibit G hereto from and after
the effective date of such agreement; (ii) each Rating Agency shall be given
prior written notice of the identity of the proposed successor to the Master
Servicer and each Rating Agency's rating of the Certificates in effect
immediately prior to such assignment, sale and delegation will not be downgraded
or withdrawn as a result of such assignment, sale and delegation, as evidenced
by a letter to such effect delivered to the Master Servicer and the Trustee; and
(iii) the Master Servicer assigning and selling the master servicing shall
deliver to the Trustee an Officer's Certificate and an Opinion of Independent
Counsel, each stating that all conditions precedent to such action under this
Agreement have been completed and such action is permitted by and complies with
the terms of this Agreement. No such assignment or delegation shall affect any
liability of the Master Servicer arising prior to the effective date thereof.
ARTICLE VIII
Default
Section 8.01. EVENTS OF DEFAULT. "Event of Default," wherever
used herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) The Master Servicer fails to cause to be
deposited in the Certificate Account any amount so required to
be deposited pursuant to this Agreement, and such failure
continues unremedied for a period of _______ Business Days
after the date such deposit was required to be made; or
(ii) The Master Servicer fails to observe or perform
in any material respect any other covenants and agreements set
forth in the Certificates or this Agreement to be performed by
it, which covenants and agreements materially affect the
rights of Certificateholders, and such failure continues
unremedied for a period of ______ days after the date on which
written notice of such failure, properly 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 the
Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than _____% of the Trust Fund;
or
(iii) There is entered against the Master Servicer a
decree or order by a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a
conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding up or liquidation of
its affairs, and the continuance of any such decree or order
is unstayed and in effect for a period of ______ consecutive
days, or an involuntary case is commenced against the Master
Servicer under any applicable insolvency or reorganization
statute and the petition is not dismissed within ______ days
after the commencement of the case; or
(iv) The Master Servicer consents to the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or
substantially all of its property; or the Master Servicer
admits in writing its inability to pay its debts generally as
they become due, files a petition to take advantage of any
applicable insolvency or reorganization statute, makes an
assignment for the benefit of its creditors, or voluntarily
suspends payment of its obligations; or
(v) The Master Servicer assigns or delegates its
duties or rights under this Agreement in contravention of the
provisions permitting such assignment or delegation under
Sections 7.05 or 7.07.
In each and every such case, so long as such Event of Default with respect to
the Master Servicer shall not have been remedied, either the Trustee or the
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than ______% of the principal of the Trust Fund, by notice in writing
to the Master Servicer (and to the Trustee if given by such Certificateholders),
with a copy to the Rating Agencies, may terminate all of the rights and
obligations (but not the liabilities) of the Master Servicer under this
Agreement and in and to the Mortgage Loans and/or the REO Property serviced by
the Master Servicer and the proceeds thereof. Upon the receipt by the Master
Servicer of the written notice, all authority and power of the Master Servicer
under this Agreement, whether with respect to the Certificates, the Mortgage
Loans, REO Property or under any other related agreements, including the
Sub-Servicing Agreements (but only to the extent that such other agreements
relate to the Mortgage Loans or REO Property) shall, subject to Section 8.02,
automatically and without further action pass to and be vested in the Trustee
pursuant to this Section 8.01; and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer as attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to cooperate with
the Trustee in effecting the termination of the Master Servicer's rights and
obligations hereunder, including, without limitation, the transfer to the
Trustee of (i) the property and amounts which are then or should be part of the
Trust or which thereafter become part of the Trust; (ii) originals or copies of
all documents of the Master Servicer reasonably requested by the Trustee to
enable it to assume the Master Servicer's duties thereunder; and (iii) the
rights and obligations of the Master Servicer under the Sub-Servicing Agreements
with respect to the Mortgage Loans. In addition to any other amounts which are
then, or, notwithstanding the termination of its activities under this
Agreement, may become payable to the Master Servicer under this Agreement, the
Master Servicer shall be entitled to receive, out of any amount received on
account of a Mortgage Loan or REO Property, that portion of such payments which
it would have received as reimbursement pursuant to Section 3.14 if notice of
termination had not been given. The termination of the rights and obligations of
the Master Servicer shall not affect any obligations incurred by the Master
Servicer prior to such termination.
Section 8.02. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
Upon the receipt by the Master Servicer of a notice of termination pursuant
to Section 8.01 or an Opinion of Independent Counsel pursuant to Section 7.05 to
the effect that the Master Servicer is legally unable to act or to delegate its
duties to a Person which is legally able to act, the Trustee shall automatically
become the successor in all respects to the Master Servicer in its capacity
under this Agreement and the transactions set forth or provided for herein and
shall thereafter be subject to all the responsibilities, duties, liabilities and
limitations on liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof; PROVIDED, HOWEVER, that the Trustee (i) shall be
under no obligation to purchase any Mortgage Loan pursuant to Section 10.01; and
(ii) shall have no obligation whatsoever with respect to any liability incurred
by the Master Servicer at or prior to the time of receipt by the Master Servicer
of such notice or by the Trustee of such Opinion of Independent Counsel. As
compensation therefor, the Trustee shall be entitled to all funds relating to
the Mortgage Loans which the Master Servicer would have been entitled to retain
if the Master Servicer had continued to act hereunder, except for those amounts
due the Master Servicer as reimbursement for advances previously made or
expenses previously incurred. Notwithstanding the above, the Trustee may, if it
shall be unwilling so to act, or shall, if it is legally unable so to act,
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution which is a Freddie Mac-or
Fannie Mae-approved servicer, and with respect to a successor to the Master
Servicer only, having a net worth of not less than $_____________, as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Pending appointment of a successor to the Master Servicer hereunder, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on the Mortgage Loans as it and
such successor shall agree; PROVIDED, HOWEVER, that no such compensation shall
be in excess of that permitted the Trustee under this Subsection 8.02(a), and
that such successor shall undertake and assume the obligations of the Trustee to
pay compensation to any third Person acting as an agent or independent
contractor in the performance of master servicing responsibilities hereunder.
The Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
(b) If the Trustee shall succeed to any duties of the Master
Servicer respecting the Mortgage Loans as provided herein, it shall do so in a
separate capacity and not in its capacity as Trustee and, accordingly, the
provisions of Article IX shall be inapplicable to the Trustee in its duties as
the successor to the Master Servicer in the servicing of the Mortgage Loans
(although such provisions shall continue to apply to the Trustee in its capacity
as Trustee); the provisions of Article VII, however, shall apply to it in its
capacity as successor master servicer.
Section 8.03. NOTIFICATION TO CERTIFICATEHOLDERS. Upon any
termination or appointment of a successor to the Master Servicer, the Trustee
shall give prompt written notice thereof to Certificateholders at their
respective addresses appearing in the Certificate Register and to the Rating
Agencies.
Section 8.04. WAIVER OF DEFAULTS. The Trustee shall
transmit by mail to all Certificateholders, within 60 days after the
occurrence of any Event of Default known to the Trustee, unless such Event of
Default shall have been cured, notice of each such Event of Default hereunder
known to the Trustee. The Holders of Certificates evidencing Fractional
Undivided Interests aggregating not less than _______% of the Trust Fund may, on
behalf of all Certificateholders, waive any default by the Master Servicer in
the performance of its obligations hereunder and the consequences thereof,
except a default in the making of or the causing to be made any required
distribution on the Certificates. Upon any such waiver of a past default, such
default shall be deemed to cease to exist, and any Event of Default arising
therefrom shall be deemed to have been timely remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.
The Master Servicer shall give notice of any such waiver to the Rating Agencies.
Section 8.05. LIST OF CERTIFICATEHOLDERS. Upon written request
of three or more Certificateholders of record, for purposes of communicating
with other Certificateholders with respect to their rights under this Agreement,
the Trustee will afford such Certificateholders access during business hours to
the most recent list of Certificateholders held by the Trustee.
ARTICLE IX
Concerning the Trustee
Section 9.01. DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing or waiver of all Events
of Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement as duties of the
Trustee. If an Event of Default has occurred and has not been cured or waived,
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise, as a
prudent person would exercise under the circumstances in the conduct of his own
affairs.
(b) Upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments which are specifically
required to be furnished to the Trustee pursuant to any provision of this
Agreement, the Trustee shall examine them to determine whether they are in the
form required by this Agreement; PROVIDED, HOWEVER, that the Trustee shall not
be responsible for the accuracy or content of any resolution, certificate,
statement, opinion, report, document, order or other instrument furnished by the
Master Servicer hereunder.
(c) The Trustee shall make monthly distributions and the final
distribution to the Certificateholders as provided in Sections 6.01 and 10.01
herein.
(d) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; PROVIDED, HOWEVER, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing or waiver of all such Events of Default
which may have occurred, the duties and obligations of the
Trustee shall be determined solely by the express provisions
of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be liable for an error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent
facts;
(iii) The Trustee shall not be liable with respect to
any action taken, suffered or omitted to be taken by it in
good faith in accordance with the directions
of the Holders of Certificates evidencing Fractional
Undivided Interests aggregating not less than
_____% of the Trust Fund, if such action or non-action relates
to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust
or other power conferred upon the Trustee, under this
Agreement; and
(iv) The Trustee shall not be required to take notice
or be deemed to have notice or knowledge of any default or
Event of Default unless a Responsible Officer of the Trustee's
corporate trust department shall have actual knowledge
thereof. In the absence of such notice, the Trustee may
conclusively assume there is no such default or Event of
Default.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Master Servicer under this Agreement, except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers and privileges of, the Master Servicer in accordance
with the terms of this Agreement.
(e) All funds received by the Trustee and required to be
deposited in the Certificate Account and the Custody Account pursuant to this
Agreement will be promptly so deposited by the Trustee.
Section 9.02. CERTAIN MATTERS AFFECTING THE TRUSTEE. Except
as otherwise provided in Section 9.01:
(i) The Trustee may rely and shall be protected in
acting or refraining from acting in reliance on any
resolution, Officer's Certificate, certificate of a Servicing
Officer, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection with respect to any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement, other than its obligation to give notices pursuant
to this Agreement, or to institute, conduct or defend any
litigation hereunder or in relation hereto at the request,
order or direction of any of the Certificateholders pursuant
to the provisions of this Agreement, unless such
Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
Nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default
of which a Responsible Officer of the Trustee's corporate
trust department has actual knowledge (which has not been
cured), to exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of care and
skill in their exercise, as a prudent person would exercise
under the circumstances in the conduct of his own affairs;
(iv) The Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by
it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default
hereunder and after the curing or waiver of all Events of
Default which may have occurred, the Trustee shall not be
bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing
to do so by Holders of Certificates evidencing Fractional
Undivided Interests aggregating not less than _____% of the
Trust Fund and provided that the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, reasonably
assured to the Trustee by the security afforded to it by the
terms of this Agreement. The Trustee may require reasonable
indemnity against such expense or liability as a condition to
taking any such action. The reasonable expense of every such
examination shall be paid by the Certificateholders requesting
the investigation;
(vi) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or through agents or attorneys; PROVIDED, HOWEVER,
that the Trustee may not appoint any agent to perform its
custodial or paying agent functions under this Agreement
without the express written consent of the Master Servicer,
which consent will not be unreasonably withheld. The Trustee
shall not be liable or responsible for the misconduct or
negligence of any of the Trustee's agents or attorneys or a
custodian or paying agent appointed hereunder by the Trustee
with due care and, when required, with the consent of the
Master Servicer;
(vii) Should the Trustee deem the nature of any
action required on its part, other than a payment or transfer
under Subsection 4.02(b) or Section 4.03, to
be unclear, the Trustee may require prior to such action that
it be provided by the Master Servicer with reasonable further
instructions;
(viii) The right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be accountable
for other than its negligence or willful misconduct in the
performance of any such act;
(ix) The Trustee shall not be required to give any
bond or surety with respect to the execution of the trust
created hereby or the powers granted hereunder; and
(x) The Trustee shall have no duty to conduct any
affirmative investigation as to the occurrence of any
condition requiring the repurchase of any Mortgage Loan by
[CORPORATION 1] pursuant to this Agreement or the eligibility
of any Mortgage Loan for purposes of this Agreement.
Section 9.03. TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE
LOANS. The recitals contained herein and in the Certificates (other than the
signature and countersignature of the Trustee on the Certificates) shall be
taken as the statements of the Seller, and the Trustee shall have no
responsibility for their correctness. The Trustee makes no representation as to
the validity or sufficiency of the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) or of any Mortgage Loan
except as expressly provided in Sections 2.02 and 2.05 hereof. The Trustee's
signature and countersignature (or countersignature of its agent) on the
Certificates shall be solely in its capacity as Trustee and shall not constitute
the Certificates an obligation of the Trustee in any other capacity. The Trustee
shall not be accountable for the use or application by the Seller of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Seller with respect to the Mortgage Loans.
Subject to the provisions of Section 2.05, the Trustee shall not be responsible
for the legality or validity of this Agreement or any document or instrument
relating to this Agreement, the validity of the execution of this Agreement or
of any supplement hereto or instrument of further assurance, or the validity,
priority, perfection or sufficiency of the security for the Certificates issued
hereunder or intended to be issued hereunder. The Trustee shall at no time have
any responsibility or liability for or with respect to the legality, validity
and enforceability of any Mortgage or any Mortgage Loan, or the perfection and
priority of any Mortgage or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Trust Fund or its ability to
generate the payments to be distributed to Certificateholders, under this
Agreement. The Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder or to record this Agreement.
Section 9.04. TRUSTEE MAY OWN CERTIFICATES. The Trustee in
its individual capacity or in any capacity other than as Trustee hereunder may
become the owner or pledgee of any Certificates with the same rights it would
have if it were not Trustee, and may otherwise deal with the parties hereto.
Section 9.05. TRUSTEE'S FEES AND EXPENSES. The Master Servicer
covenants and agrees to pay to the Trustee the Trustee's Fee with respect to the
calendar month in which the Closing Date occurs. With respect to the calendar
month following the month in which the Closing Date occurs and all subsequent
calendar months, the Trustee's Fee shall be paid from the Certificate Account,
pursuant to Subsection 4.03(b). If the funds in the Certificate Account are not
sufficient to pay the Trustee's Fees, the Master Servicer will be liable for
payment of the Trustee's Fees. The Master Servicer further covenants and agrees
to pay or reimburse the Trustee from time to time upon request for all
reasonable out-of-pocket expenses, disbursements and advances incurred or made
by the Trustee in the administration of the trusts hereunder as set forth in a
fee letter sent by the Trustee to the Master Servicer (including the reasonable
compensation, expenses and disbursements of its counsel) except any such
expense, disbursement or advance as may arise from its negligence or intentional
misconduct or which is the responsibility of the Certificateholders or the Trust
Fund hereunder. Such compensation and reimbursement obligation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust.
Section 9.06. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The
Trustee and any successor Trustee shall during the entire duration of this
Agreement be a state bank or trust company or a national banking association
with its principal office in ___________, __________ or such other state and
city reasonably acceptable to the Master Servicer and organized and doing
business under the laws of such state or the United States of America,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus and undivided profits of at least $_____________ or, in the
case of a successor Trustee, $_____________, subject to supervision or
examination by federal or state authority and, in the case of a successor
Trustee other than pursuant to Section 9.10, rated in one of the two highest
long-term debt categories of, or otherwise acceptable to, each of the Rating
Agencies. The Trustee shall not be an Affiliate of the Master Servicer, unless
the Trustee acts as successor Master Servicer hereunder. If the Trustee
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 9.06 the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 9.06, the Trustee shall resign immediately in the manner and with the
effect specified in Section 9.08.
Section 9.07. INSURANCE. The Trustee, at its own expense,
shall at all times maintain and keep in full force and effect: (i) fidelity
insurance, (ii) theft of documents insurance and (iii) forgery insurance. All
such insurance shall be in amounts, with standard coverage and subject to
deductibles, as are customary for insurance typically maintained by banks which
act as custodians for investor-owned mortgage pools. A certificate of an officer
of the Trustee as to the Trustee's compliance with this Section 9.07 shall be
furnished to the Master Servicer or any Certificateholder upon request.
Section 9.08. RESIGNATION AND REMOVAL OF THE TRUSTEE. (a) The
Trustee may at any time resign and be discharged from the Trust hereby created
by giving written notice thereof to the Master Servicer, with a copy to the
Rating Agencies. Upon receiving such notice of resignation, the Master Servicer
shall promptly appoint a successor Trustee by written instrument, in triplicate,
one copy of which instrument shall be delivered to each of the resigning Trustee
and the successor Trustee. If no successor Trustee shall have been so appointed
and have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.06 and shall fail to resign after
written request therefor by the Master Servicer or if at any time the Trustee
shall become incapable of acting, or shall be adjudged a bankrupt or insolvent,
or a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Master Servicer shall be entitled to remove the Trustee and appoint a successor
Trustee by written instrument, in triplicate, one copy of which instrument shall
be delivered to each of the Trustee so removed and the successor Trustee.
(c) The Holders of Certificates evidencing Fractional
Undivided Interests aggregating not less than _______% of the Trust Fund may at
any time remove the Trustee and appoint a successor Trustee by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to each of the Master Servicer, the Trustee so removed and the
successor so appointed.
(d) No resignation or removal of the Trustee and appointment
of a successor Trustee pursuant to any of the provisions of this Section 9.08
shall become effective except upon appointment of and acceptance of such
appointment by the successor Trustee as provided in Section 9.09.
Section 9.09. SUCCESSOR TRUSTEE. (a) Any successor Trustee
appointed as provided in Section 9.08 shall execute, acknowledge and deliver to
the Master Servicer and to its predecessor Trustee an instrument accepting such
appointment hereunder. The resignation or removal of the predecessor Trustee
shall then become effective and such successor Trustee, without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as Trustee herein. The predecessor Trustee shall after payment
of its outstanding fees and expenses promptly deliver to the successor Trustee
all assets and records of the Trust held by it hereunder, and the Master
Servicer and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
(b) No successor Trustee shall accept appointment as provided
in this Section 9.09 unless at the time of such acceptance such successor
Trustee shall be eligible under the provisions of Section 9.06.
(c) Upon acceptance of appointment by a successor Trustee as
provided in this Section 9.09, the successor Trustee shall mail notice of the
succession of such Trustee hereunder to all Certificateholders at their
addresses as shown in the Certificate Register and to the Rating Agencies. The
Master Servicer shall pay the cost of any mailing by the successor Trustee.
Section 9.10. MERGER OR CONSOLIDATION OF TRUSTEE. Any state
bank or trust company or national banking association into which the Trustee may
be merged or converted or with which it may be consolidated or any state bank or
trust company or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any state
bank or trust company or national banking association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such state bank or trust company or
national banking association shall be eligible under the provisions of Section
9.06. Such succession shall be valid without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 9.11. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust or property constituting the same may at the time be located, the Master
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and the Master Servicer to act as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any part
of the Trust, and to vest in such Person or Persons, in such capacity, such
title to the Trust, or any part thereof, and, subject to the other provisions of
this Section 9.11, such powers, duties, obligations, rights and trusts as the
Master Servicer and the Trustee may consider necessary or desirable.
(b) If the Master Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a written request so to
do, or in case an Event of Default with respect to the Master Servicer shall
have occurred and be continuing, the Trustee shall have the power to make such
appointment without the Master Servicer.
(c) No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor Trustee under Section
9.06 hereunder and no notice to Certificateholders of the appointment of
co-trustee(s) or separate trustee(s) shall be required under Section 9.08
hereof.
(d) In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 9.11, all rights, powers, duties and
obligations conferred or imposed upon the Trustee and required to be conferred
on such co-trustee shall be conferred or imposed upon and exercised or performed
by the Trustee and such separate trustee or co-trustee jointly, except to the
extent that under any law of any jurisdiction in which any particular act or
acts are to be performed (whether as Trustee hereunder or as successor to the
Master Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion thereof
in any such jurisdiction) shall be exercised and performed by such separate
trustee or co-trustee at the direction of the Trustee.
(e) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article IX. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.
(f) To the extent not prohibited by law, any separate trustee
or co-trustee may, at any time, request the Trustee, its agent or
attorney-in-fact, with full power and authority, to do any lawful act under or
with respect to this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties rights, remedies and trusts shall vest
in and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.
(g) No trustee under this Agreement shall be personally liable
by reason of any act or omission of another trustee under this Agreement. The
Master Servicer and the Trustee acting jointly may at any time accept the
resignation of or remove any separate trustee or co-trustee, except that
following the occurrence of any Event of Default which has not been cured, the
Trustee acting alone may accept the resignation of or remove any separate
trustee or co-trustee.
Section 9.12. MASTER SERVICER SHALL PROVIDE INFORMATION AS
REASONABLY REQUIRED. The Master Servicer shall furnish to the Trustee, during
the term of this Agreement, such periodic, special, or other reports or
information as may reasonably be requested by the Trustee in order to fulfill
its duties and obligations under this Agreement.
Section 9.13. FEDERAL INFORMATION RETURNS AND REPORTS TO
CERTIFICATEHOLDERS. (a) For Federal income tax purposes, the taxable year
of each of REMIC I and REMIC II shall be a calendar year and the Trustee shall
maintain or cause the maintenance of the books of each of REMIC I and REMIC II
Assets on the accrual method of accounting.
(b) The Trustee shall prepare and file or cause to be filed
with the Internal Revenue Service Federal tax information returns with respect
to each of REMIC I and REMIC II, the Trust Fund, if applicable, and the
Certificates containing such information and at the times and in the manner as
may be required by the Code or applicable Treasury regulations, and shall
furnish to each Holder of Certificates at any time during the calendar year for
which such returns or reports are made such statements or information at the
times and in the manner as may be required thereby. In connection with the
foregoing, the Trustee shall provide the name and address of the person who can
be contacted to obtain information required to be reported to the holders of
regular interests in each of REMIC I and REMIC II (the "REMIC Reporting Agent")
as required by IRS Form 8811. The Trustee shall make the elections to treat each
of REMIC I and REMIC II as a REMIC (which election shall apply to the taxable
period ending December 31, 19__ and each calendar year thereafter) in such
manner as the Code or applicable Treasury regulations may prescribe. The Trustee
shall sign all tax information returns filed pursuant to this Section and any
other returns as may be required by the Code, and in doing so shall rely
entirely upon, and shall have no liability for information provided by, or
calculations provided by, the Seller or the Master Servicer. The Trustee is
hereby designated as the "Tax Matters Person" (within the meaning of Treas. Reg.
ss. 1.860F-4(d)) for each of REMIC I and REMIC II. Any Holder of a Residual
Certificate will by acceptance thereof appoint the Trustee as agent and
attorney-in-fact for the purpose of acting as Tax Matters Person for each of
REMIC I and REMIC II during such time as the Trustee does not own any such
Residual Certificate. In the event that the Code or applicable Treasury
regulations prohibit the Trustee from signing tax or information returns or
other statements, or the Trustee from acting as Tax Matters Person (as an agent
or otherwise), the Trustee shall take whatever action that in its sole good
faith judgment is necessary for the proper filing of such information returns or
for the provision of a tax matters person, including designation of the Holder
of a Residual Certificate to sign such returns or act as tax matters person.
Each Holder of a Residual Certificate shall be bound by this Section.
(c) The Trustee shall provide upon request such information
(which shall be provided by the Master Servicer) as required in Section
860D(a)(6)(B) of the Code to the Internal Revenue Service, to any Person
purporting to transfer a Residual Certificate to a Person other than a
transferee permitted by Section 5.05(b), and to any regulated investment
company, real estate investment trust, common trust fund, partnership, trust,
estate, organization described in Section 1381 of the Code, or nominee holding
an interest in a pass-through entity described in Section 860E(e)(6) of the
Code, any record holder of which is not a transferee permitted by Section
5.05(b) (or which is deemed by statute to be an entity with a disqualified
member).
(d) The Trustee shall prepare and file or cause to be filed
any state income tax returns required with respect to each of REMIC I and REMIC
II or the Trust Fund.
ARTICLE X
Termination
Section 10.01. TERMINATION UPON REPURCHASE BY [CORPORATION 1]
OR ITS DESIGNEE OR LIQUIDATION OF ALL MORTGAGE LOANS. (a) Subject to Section
10.02, the respective obligations and responsibilities of the Seller, the Master
Servicer and the Trustee created hereby, other than the obligation of the
Trustee or the Master Servicer to make payments to Certificateholders as
hereinafter set forth and to the Trustee, shall terminate upon:
(i) the repurchase by or at the direction of the
Master Servicer or its designee of all Mortgage Loans and all
property remaining in the Trust at a price equal to (a)
______% of the Outstanding Principal Balance of each Mortgage
Loan (other than a Mortgage Loan related to REO Property) as
of the date of repurchase, net of the principal portion of any
unreimbursed Monthly Advances made by the purchaser, together
with interest at the applicable Mortgage Interest Rate accrued
but unpaid through and including the last day of the month of
repurchase, plus (b) the appraised value of any REO Property
(but not more than the Outstanding Principal Balance of the
related Mortgage Loan, together with interest at the
applicable Mortgage Interest Rate accrued on that balance but
unpaid through and including the last day of the month of
repurchase), less the good faith estimate of the Master
Servicer of liquidation expenses to be incurred in connection
with its disposal thereof, such appraisal to be calculated by
an appraiser mutually agreed upon by the Master Servicer and
the Trustee at the expense of the Master Servicer; or
(ii) the later of the making of the final payment or
other liquidation, or any advance with respect thereto, of the
last Mortgage Loan remaining in the Trust Fund or the
disposition of all property acquired with respect to any
Mortgage Loan; PROVIDED, HOWEVER, that in the event that an
advance has been made, but not yet recovered, at the time of
such termination, the Person having made such advance shall be
entitled to receive, notwithstanding such termination, any
payments received subsequent thereto with respect to which
such advance was made.
(b) In no event, however, shall the Trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late Amdassador of the United
States to the Court of St. James, living on the date of this Agreement.
(c) [Intentionally omitted.]
(d) The right of the Master Servicer or its designee to
repurchase all Mortgage Loans pursuant to Subsection 10.01(a)(i) above shall be
exercisable only if (i) the aggregate unpaid principal balance of such Mortgage
Loans at the time of any such repurchase is less than _______% of the Cut-Off
Date Balance or (ii) the Master Servicer based upon an Opinion of Counsel, has
determined that the REMIC status of either REMIC I or REMIC II has been lost or
that a substantial risk exists that such REMIC status will be lost for the
then-current taxable year. At any time thereafter, the Master Servicer may elect
to terminate the Trust at any time, and upon such election, the Master Servicer
or its designee shall repurchase all the Mortgage Loans.
(e) [Intentionally omitted].
(f) The Trustee shall give notice of any termination to the
Certificateholders, with a copy to the Rating Agencies, upon which the
Certificateholders shall surrender their Certificates to the Trustee for payment
of the final distribution and cancellation. Such notice shall be given by
letter, mailed not earlier than the 15th day and not later than the 25th day of
the month next preceding the month of such final distribution, and shall specify
(i) the Distribution Date upon which final payment of the Certificates will be
made upon presentation and surrender of the Certificates at the office of the
Trustee therein designated, (ii) the amount of any such final payment and (iii)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Trustee therein specified.
(g) If the option of the Master Servicer to repurchase or
cause the repurchase of all Mortgage Loans under Subsection 10.01(a)(i) above is
exercised, the Master Servicer and/or its designee, as the case may be, shall
deliver to the Trustee for deposit in the Certificate Account, by the Business
Day prior to the applicable Distribution Date, an amount equal to the repurchase
price for the Mortgage Loans being purchased by it and all property acquired
with respect to such Mortgage Loans remaining in the Trust. Upon the
presentation and surrender of the Certificates, the Trustee shall distribute an
amount equal to (i) the amount otherwise distributable to the Certificateholders
(other than the holders of the Class R-2 Certificates) on such Distribution Date
but for such repurchase, (ii) the Current Principal Amount and any accrued but
unpaid interest at the Pass-Through Rate to the Certificateholders of each
Class, and (iii) the remainder to the Class R-2 Certificateholders. Upon deposit
of the required repurchase price and delivery to the Trustee of an Officer's
Certificate from the Master Servicer certifying that such deposit in the
Certificate Account has been made, and following such final Distribution Date,
the Trustee shall promptly release to the Master Servicer and/or its designee,
as the case may be, the Mortgage Files for the remaining Mortgage Loans, and the
Accounts shall terminate, subject to the Trustee's obligation to hold any
amounts payable to Certificateholders in trust without interest pending final
distributions pursuant to Subsection 10.01(i).
(h) In the event that this Agreement is terminated by reason
of the payment or liquidation of all Mortgage Loans or the disposition of all
property acquired with respect to all Mortgage Loans under Subsection
10.01(a)(ii) above, the Master Servicer shall deliver to the Trustee for
deposit in the appropriate subaccount of the Certificate Account all
distributable amounts remaining in the Custody Account and shall cause the
Sub-Servicers to deliver to the Trustee for deposit in the appropriate
subaccount of the Certificate Account all distributable amounts remaining in
their Protected Accounts. Upon the presentation and surrender of the
Certificates, the Trustee shall distribute to the Certificateholders, in
accordance with their respective interests, all distributable amounts remaining
in the Certificate Account. Upon deposit by the Sub-Servicers of such
distributable amounts and delivery to the Trustee of an Officer's Certificate
from the Master Servicer certifying that such deposit has been made, and
following such final Distribution Date, the Trustee shall promptly release to
the Master Servicer the Mortgage Files for the remaining Mortgage Loans, and the
Accounts shall terminate, subject to the Trustee's obligation to hold any
amounts payable to the Certificateholders in trust without interest pending
final distributions pursuant to Subsection 10.01(i).
(i) If not all of the Certificateholders shall surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice, not all the Certificates shall have been
surrendered for cancellation, the Trustee may take appropriate steps, or appoint
any agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Certificates, and the cost thereof shall be paid
out of the funds and other assets which remain subject to this Agreement.
Section 10.02. ADDITIONAL TERMINATION REQUIREMENTS. (a) If the
option of the Master Servicer to repurchase all the Mortgage Loans under
Subsection 10.01(a)(i) above is exercised, the Trust and each of REMIC I and
REMIC II shall be terminated in accordance with the following additional
requirements, unless the Trustee has been furnished with an Opinion of Counsel
to the effect that the failure of the Trust to comply with the requirements of
this Section 10.02 will not (i) result in the imposition of taxes on "prohibited
transactions" as defined in Section 860F of the Code on each of REMIC I and
REMIC II or (ii) cause each of REMIC I and REMIC II to fail to qualify as a
REMIC at any time that any Regular Certificates are outstanding:
(i) within 90 days prior to the final Distribution
Date, at the written direction of the Master Servicer, the
Trustee shall adopt a plan of complete liquidation of the
Trust Fund and each of REMIC I and REMIC II provided to it by
the Master Servicer meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any
regulations thereunder as prepared by the Master Servicer;
(ii) at or after the time of adoption of such a plan
of complete liquidation and at or prior to the final
Distribution Date, the Trustee shall sell for cash all of the
assets of the Trust to or at the direction of the Master
Servicer; and
(iii) at the time of the making of the final payment
on the Certificates, the Trustee shall distribute or credit
from the Certificate Account (or cause to be distributed or
credited) (i) to the Certificateholders other than the Holders
of the Class X Certificates and the Class R-2 Certificates,
the Current Principal Amount of the Certificates plus (except
with respect to the Class PO Certificates) 30 days' interest
thereon at the applicable Pass-Through Rate, (ii) to the
Holders of the Class X Certificates, 30 days' interest on the
Notional Amount thereof at the applicable Pass-Through Rate,
and (iii) to the Class R-2 Certificateholders, all cash on
hand from the Certificate Account (other than cash retained to
meet claims); and the Trust and each of REMIC I and REMIC II
shall terminate at such time.
(b) By their acceptance of the Residual Certificates, the
Holders thereof hereby (i) agree to adopt such a plan of complete liquidation
upon the written request of the Master Servicer and to take such action in
connection therewith as may be reasonably requested by the Master Servicer and
(ii) appoint the Master Servicer as their attorney-in-fact, with full power of
substitution, for purposes of adopting such a plan of complete liquidation. The
Trustee shall adopt such plan of liquidation by filing the appropriate statement
on the final tax return of REMIC I and REMIC II.
ARTICLE XI
Miscellaneous Provisions
Section 11.01. INTENT OF PARTIES. The parties intend that
each of REMIC I and REMIC II shall be treated as a REMIC for federal income
tax purposes and that the provisions of this Agreement should be construed in
furtherance of this intent.
Section 11.02. AMENDMENT. (a) This Agreement may be amended
from time to time by the Seller, the Trustee and the Master Servicer, without
notice to or the consent of any of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions herein that may be defective
or inconsistent with any other provisions herein, to comply with any changes in
the Code or to make any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the provisions
of this Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced
by an Opinion of Independent Counsel, adversely affect in any material respect
the interests of any Certificateholder.
(b) This Agreement may also be amended from time to time by
the Seller, the Trustee and the Master Servicer, with the consent of the holders
of Certificates evidencing Fractional Undivided Interests aggregating not less
than _____% of the Trust Fund for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Certificateholders; PROVIDED,
HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) reduce the aforesaid percentage of Certificates the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all Certificates then outstanding, or (iii) cause either REMIC I or
REMIC II to fail to qualify as a REMIC for federal income tax purposes, as
evidenced by an Opinion of Independent Counsel which shall be provided to the
Trustee other than at the Trustee's expense.
(c) Promptly after the execution of any such amendment, the
Trustee shall furnish a copy of such amendment or written notification of the
substance of such amendment to each Certificateholder, with a copy to the Rating
Agencies.
(d) In the case of an amendment under Subsection 11.02(b)
above, it shall not be necessary for the Certificateholders to approve the
particular form of such an amendment. Rather, it shall be sufficient if the
Certificateholders approve the substance of the amendment. The manner of
obtaining such consents and of evidencing the authorization of the execution
thereof by Certificateholders shall be subject to such reasonable regulations as
the Trustee may prescribe.
Section 11.03. RECORDATION OF AGREEMENT. To the extent
permitted by applicable law, this Agreement is subject to recordation in all
appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere.
The Master Servicer shall effect such recordation, at its expense upon the
request in writing of a Certificateholder, but only if such direction is
accompanied by an Opinion of Counsel (provided at the expense of the
Certificateholder requesting recordation) to the effect that such recordation
would materially and beneficially affect the interests of the Certificateholders
or is required by law.
Section 11.04. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (a)
The death or incapacity of any Certificateholder shall not terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(b) Except as expressly provided in this Agreement, no
Certificateholders shall have any right to vote or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to establish the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholders be under any liability to any third Person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon, under or with respect to this Agreement against the
Seller, the Master Servicer or any successor to any such parties unless (i) such
Certificateholder previously shall have given to the Trustee a written notice of
a continuing default, as herein provided, (ii) the Holders of Certificates
evidencing Fractional Undivided Interests aggregating not less than _______% of
the Trust Fund shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to the Trustee such reasonable indemnity as it may require against
the costs and expenses and liabilities to be incurred therein or thereby, and
(iii) the Trustee, for 60 days after its receipt of such notice, request and
offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding.
(d) No one or more Certificateholders shall have any right by
virtue of any provision of this Agreement to affect the rights of any other
Certificateholders or to obtain or seek to obtain priority or preference over
any other such Certificateholder, or to enforce any right under this Agreement,
except in the manner herein provided and for the equal, ratable and common
benefit of all Certificateholders. For the protection and enforcement of the
provisions of this Section 11.04, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 11.05. ACTS OF CERTIFICATEHOLDERS. (a) Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Agreement to be given or taken by Certificateholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Certificateholders in person or by an agent duly appointed
in writing. Except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is expressly required, to the Seller. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee and the Seller, if made in the manner provided in this Section 11.05.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority. The fact and date of the execution of any such
instrument or writing, or the authority of the individual executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Certificates (notwithstanding any
notation of ownership or other writing on such Certificates, except an
endorsement in accordance with Section 5.02 made on a Certificate presented in
accordance with Section 5.04) shall be proved by the Certificate Register, and
neither the Trustee, the Seller, the Master Servicer nor any successor to any
such parties shall be affected by any notice to the contrary.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action of the holder of any Certificate shall bind
every future holder of the same Certificate and the holder of every Certificate
issued upon the registration of transfer or exchange thereof, if applicable, or
in lieu thereof with respect to anything done, omitted or suffered to be done by
the Trustee, the Seller, the Master Servicer or any successor to any such party
in reliance thereon, whether or not notation of such action is made upon such
Certificates.
(e) In determining whether the Holders of the requisite
percentage of Certificates evidencing Fractional Undivided Interests have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Certificates owned by the Trustee, the Seller, the Master Servicer or
any Sub-Servicer or any Affiliate thereof shall be disregarded, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates which the Trustee knows to be so owned shall be so disregarded.
Certificates which have been pledged in good faith to the Trustee, the Seller,
the Master Servicer or any Sub-Servicer or any Affiliate thereof may be regarded
as outstanding if the pledgor establishes to the satisfaction of the
Trustee the pledgor's right to act with respect to such Certificates and that
the pledgor is not an Affiliate of the Trustee, the Seller, the Master Servicer
or any Sub-Servicer, as the case may be.
Section 11.06. [Reserved]
Section 11.07. GOVERNING LAW. THIS AGREEMENT AND THE
CERTIFICATES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS RULES AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 11.08. NOTICES. All demands and notices hereunder
shall be in writing and shall be deemed given when delivered at or mailed by
registered mail, return receipt requested, postage prepaid, or by recognized
overnight courier, to (i) in the case of the Seller, 245 Park Avenue, New York,
New York 10167, Attention: ____________, or such other address as may hereafter
be furnished to the other parties hereto in writing; (ii) in the case of
[CORPORATION 1], ______________________, Attention:_________ or such other
address as may hereafter be furnished to the other parties hereto in writing;
(iii) in the case of the Trustee, at its Corporate Trust Office, or such other
address as may hereafter be furnished to the other parties hereto in writing; or
(iv) in the case of the Rating Agencies, ______________________, Attention:
_____________ and ________________________, Attention: _____________. Any notice
delivered to the Seller, the Master Servicer or the Trustee under this Agreement
shall be effective only upon receipt. Any notice required or permitted to be
mailed to a Certificateholder, unless otherwise provided herein, shall be given
by first-class mail, postage prepaid, at the address of such Certificateholder
as shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder receives such notice.
Section 11.09. SEVERABILITY OF PROVISIONS. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severed from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
Section 11.10. SUCCESSORS AND ASSIGNS. The provisions of
this Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties hereto.
Section 11.11. ARTICLE AND SECTION HEADINGS. The article
and section headings herein are for convenience of reference only, and
shall not limit or otherwise affect the meaning hereof.
Section 11.12. COUNTERPARTS. This Agreement may be executed
in two or more counterparts each of which when so executed and delivered
shall be an original but all of which together shall constitute one and the same
instrument.
Section 11.13. NOTICE TO RATING AGENCIES. The article and
section headings herein are for convenience of reference only, and shall not
limited or otherwise affect the meaning hereof. The Trustee shall use its best
efforts to promptly provide notice to each Rating Agency with respect to each of
the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the Trustee;
4. The repurchase or substitution of Mortgage Loans;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custody Account or the Certificate
Account.
In addition, in accordance with Section 6.06 and Section 3.16,
the Trustee and the Master Servicer, respectively, shall promptly furnish to
each Rating Agency copies of the following:
1. Each report to Certificateholders described in Section 6.06; and
2. Each annual independent public accountants' servicing report received as
described in Section 3.16.
<PAGE>
IN WITNESS WHEREOF, the Seller, [CORPORATION 1] and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized as of the day and year first above written.
BEAR STEARNS MORTGAGE SECURITIES INC.,
as Seller
By: __________________________
Name: ________________________
Title: _________________________
[CORPORATION 1],
as Master Servicer
By: __________________________
Name: ________________________
Title: _________________________
------------------------------
as Trustee
By: __________________________
Name: ________________________
Title: _________________________
<PAGE>
STATE OF __________)
) ss.:
COUNTY OF _________)
On the _______ day of ____________, 199_, before me, a notary
public in and for said State, personally appeared _____________________, known
to me to be a _________________ of Bear Stearns Mortgage Securities Inc., the
corporation that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ________________)
) ss.:
COUNTY OF _______________)
On the ________ day of ___________ , 199_, before me, a notary
public in and for said State, personally appeared ______________________, known
to me to be a ____________ of __________________, the corporation that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------
Notary Public
[Notarial Seal]
<PAGE>
STATE OF __________)
) ss.:
COUNTY OF _________)
On the _______day of ______________, 199_, before me, a notary
public in and for said State, personally appeared _____________________, known
to me to be a ______________ of ___________________________, the
________________ that executed the within instrument, and also known to me to be
the person who executed it on behalf of said bank and acknowledged to me that
such bank executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT A-1
FORM OF FACE OF CERTIFICATES
<PAGE>
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, BEAR
STEARNS MORTGAGE SECURITIES INC., [CORPORATION 1] (THE "COMPANY") OR THE TRUSTEE
REFERRED TO BELOW OR ANY OF THEIR RESPECTIVE AFFILIATES AND IS NOT GUARANTEED OR
INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" (A "REMIC"), AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE").
THE CURRENT PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DECREASED BY THE
PRINCIPAL PAYMENTS HEREON. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE
CERTIFICATES, THE CURRENT PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DIFFERENT
FROM THE DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY
ASCERTAIN ITS CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE NAMED HEREIN.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE &
CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
<TABLE>
<CAPTION>
MORTGAGE PASS-THROUGH CERTIFICATE, NO.
SERIES 199_-_
EVIDENCING A BENEFICIAL INTEREST IN A TRUST
CONSISTING PRIMARILY OF CONVENTIONAL, [FIRST] LIEN MORTGAGE LOANS SOLD BY
BEAR STEARNS MORTGAGE SECURITIES INC.
<S> <C> <C> <C>
CUT-OFF DATE : ___________, 199_ CLASS : --------------
FIRST DISTRIBUTION DATE : ___________, 199_ INITIAL PRINCIPAL AMOUNT
ASSUMED FINAL DISTRIBUTION DATE : ___________, 20__ OF THIS CERTIFICATE
("DENOMINATION") : --------------
MASTER SERVICER : _________________ APPROXIMATE ORIGINAL CLASS
PASS-THROUGH RATE : _____% PRINCIPAL AMOUNT : --------------
</TABLE>
THIS CERTIFIES THAT CEDE & CO.
is the registered owner of the Fractional Undivided Interest evidenced hereby in
the beneficial ownership interest of Certificates of the same Class as this
Certificate in a trust (the "Trust") consisting primarily of conventional one-
to four-family, fully amortizing, [first] lien mortgage loans (collectively,
the "Mortgage Loans") sold by Bear Stearns Mortgage Securities Inc. (the
"Company"). The Mortgage Loans were sold by [CORPORATION 1] to the Company.
[Corporation 1] will act as master servicer of the Mortgage Loans (the "Master
Servicer," which term includes any successors thereto under the Agreement
referred to below). The Trust was created pursuant to the Pooling and Servicing
Agreement dated as of the Cut-off Date specified above (the "Agreement"), by and
among the Company, as seller, [CORPORATION 1], as Master Servicer, and
____________________, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. To the extent not defined
herein, capitalized terms used herein shall have the meaning ascribed to them in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of its acceptance hereof assents and by which such
Holder is bound.
Interest on this Certificate will accrue during the month prior to the
month in which a Distribution Date (as hereinafter defined) occurs on the
Current Principal Amount hereof at a per annum rate equal to the Pass-Through
Rate. The Trustee will distribute on the _____ day of each month, or, if such
_____ day is not a Business Day, the immediately following Business Day (each, a
"Distribution Date"), commencing on the First Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the calendar month preceding the month of
such Distribution Date, an amount equal to the product of the Fractional
Undivided interest evidenced by this Certificate and the amount required to be
distributed to Holders of Certificates of the same Class as this Certificate.
The Assumed Final Distribution Date is the first anniversary of the Distribution
Date immediately following the latest scheduled maturity date of any Mortgage
Loan and is not likely to be the date on which the Current Principal Amount of
this Class of Certificates will be reduced to zero.
Distributions on this Certificate will be made by the Trustee by check
mailed to the address of the Person entitled thereto as such name and address
shall appear on the Certificate Register or, if such Person so requests by
notifying the Trustee in writing as specified in the Agreement and if such
Person holds Certificates with an initial aggregate Current Principal Amount
and/or initial aggregate notional amount of not less than $________________, in
immediately available funds (by wire transfer or otherwise) to the account
specified in writing by such Person to the Trustee. Notwithstanding the above,
the final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency appointed by the Trustee
for that purpose and designated in such notice.
Unless this Certificate has been countersigned by an authorized signatory
of the Trustee by manual signature, this Certificate shall not be entitled to
any benefit under the Agreement, or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
DATED: __________, 199_
[ ],
Countersigned: Not in its individual capacity
but solely as Trustee
By____________________________________
Authorized signatory of [ ] By_____________________________
[ ], not in its AUTHORIZED OFFICER
individual capacity but solely as Trustee
<PAGE>
FORM OF REVERSE OF CERTIFICATES
<PAGE>
BEAR STEARNS MORTGAGE SECURITIES INC.
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
This Certificate is one of a duly authorized issue of Certificates
designated as set forth on the face hereof (the "Certificates"), issued in
twenty-two Classes. The Certificates, in the aggregate, evidence the entire
beneficial ownership interest in the Trust formed pursuant to the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the Trust for payment hereunder and that the Trustee is
not liable to the Certificateholders for any amount payable under this
Certificate or the Agreement or, except as expressly provided in the Agreement,
subject to any liability under the Agreement. This Certificate does not purport
to summarize the Agreement and reference is made to the Agreement for the
interests, rights and limitations of rights, benefits, obligations and duties
evidenced hereby, and the rights, duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Master Servicer and the rights of the Certificateholders under the Agreement
from time to time by the Master Servicer and the Trustee with the consent of the
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than ______% (or in certain cases, Holders of Certificates of affected
Classes evidencing such percentage of the Fractional Undivided Interests
thereof). Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in lieu hereof whether or
not notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Certificate is registrable with the Trustee upon
surrender of this Certificate for registration of transfer at the offices or
agencies maintained by the Trustee in the ________ of ___________, State of
_________________, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by the Holder hereof
or such Holder's attorney duly authorized in writing, and thereupon one or more
new Certificates in authorized denominations representing a like aggregate
Fractional Undivided Interest will be issued to the designated transferee.
The Certificates are issuable only as registered Certificates without
coupons in the Classes and denominations specified in the Agreement. As provided
in the Agreement and subject to certain limitations therein set forth, this
Certificate is exchangeable for one or more new Certificates evidencing the same
Class and in the same aggregate Fractional Undivided Interest, as requested by
the Holder surrendering the same.
No service charge will be made to the Certificateholders for any such
registration of transfer, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The Master Servicer, the Trustee and any agent of any of them may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Master Servicer, the Trustee nor any
such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust created thereby
(other than the obligations to make payments to Certificateholders with respect
to the termination of the Agreement) shall terminate upon the earlier of (i) the
later of the (A) final payment or other liquidation (or Monthly Advance with
respect thereto) of the last Mortgage Loan remaining in the Trust and (B)
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and the remittance of all funds due under the
Agreement, or (ii) the optional repurchase by the party named in the Agreement
of all the Mortgage Loans and other assets of the Trust in accordance with the
terms of the Agreement. Such optional repurchase may be made only on or after
the Distribution Date on which the aggregate unpaid principal balance of the
Mortgage Loans is less than 10% of the aggregate Scheduled Principal Balance of
the Mortgage Loans at the Cut-Off Date. The exercise of such right will effect
the early retirement of the Certificates. The Trust also may be terminated on
any Distribution Date upon the determination, based upon an opinion of counsel,
that REMIC status of REMIC I or REMIC II has been lost or that a substantial
risk exists that such status will be lost for the then current year. In no
event, however, will the Trust created by the Agreement continue beyond the
expiration of 21 years after the death of certain persons identified in the
Agreement.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto --------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code assignee)
the within Certificate and hereby authorizes the transfer of registration of
such interest to the assignee on the Certificate Register of the Trust.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such
Certificate to the following address:
Dated: ------------------------------------
Signature by or on behalf of assignor
------------------------------------
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to ------------------------------------------------------------
- -------------------------------------------------------------------------------
for the account of ------------------------------------------------------------
account number ------------, or, if mailed by check to ------------------------
- -------------------------------------------------------------------------------
Applicable statements should be mailed to -------------------------------------
This information is provided by -----------------------------------------------
the assignee named above, or --------------------------------------------------
as its agent.
<PAGE>
EXHIBIT B
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT C
REPRESENTATIONS AND WARRANTIES OF [CORPORATION 1]
CONCERNING THE MORTGAGE LOANS
Capitalized terms used herein shall have the meanings set forth in the
Seller Contract and not in the Pooling and Servicing Agreement.
(a) the information set forth and to be set forth in the Final
Mortgage Loan Schedules hereto was and will be true and correct in all
material respects at the date or dates respecting which such
information is furnished, and the Seller's Information (as defined in
Section 14(a) hereof) does not include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements made, in light of the circumstances under which
they were made, not misleading (provided, however, that no
representation or warranty is made with respect to the portion of the
Seller's Information included in the Prospectus Supplement under the
headings "Description of the Mortgage Loans--General" and "Description
of the Mortgage Loans--The Master Servicer;
(b) the terms of the Mortgage Note and the Mortgage have not
been impaired, waived, altered or modified in any respect, except by
written instruments, if required by law in the jurisdiction where the
Mortgaged Property is located;
(c) except as otherwise set forth in the Preliminary Mortgage
Loan Schedule or the Final Mortgage Loan Schedule, the Mortgage File
for each Mortgage Loan contains a true, accurate and complete copy of
each of the documents contained in such Mortgage File, including all
amendments, modifications and, if applicable, waivers and assumptions
that have been executed in connection with such Mortgage Loan;
(d) immediately prior to the transfer to the Purchaser, the
Seller was the sole owner of beneficial title and holder of each
Mortgage and Mortgage Note relating to the Mortgage Loans and is
conveying the same free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or
security interests of any nature and the Seller has full right and
authority to sell or assign the same pursuant to this Agreement;
(e) each Mortgage is a valid and enforceable first lien on the
property securing the related Mortgage Note and each Mortgaged Property
is owned by the Mortgagor in fee simple (except with respect to common
areas in the case of condominiums, PUDs and DE MINIMIS PUDs) or by
leasehold for a term longer than the term of the related Mortgage,
subject only to (i) the lien of current real property taxes and
assessments, (ii) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of
the date of recording of such Mortgage, such exceptions
being acceptable to mortgage lending institutions generally
or specifically reflected in the appraisal obtained in connection with
the origination of the related Mortgage Loan or referred to in the
lender's title insurance policy delivered to the originator of the
related Mortgage Loan and (iii) other matters to which like properties
are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(f) as of the Cut-Off Date, no payment of principal of or
interest on or in respect of any Mortgage Loan is 30 or more days past
due;
(g) there is no mechanics' lien or claim for work, labor or
material affecting the premises subject to any Mortgage which is or may
be a lien prior to, or equal with, the lien of such Mortgage except
those which are insured against by the title insurance policy referred
to in (l) below;
(h) as of the Cut-Off Date, (i) no Mortgage Loan had been 30
days or more delinquent more than once during the preceding 12 months,
(ii) no Mortgage Loan had been delinquent for 60 days or more during
the preceding 12 months and (iii) there was no delinquent tax or
assessment lien against the property subject to any Mortgage, except
where such lien was being contested in good faith and a stay had been
granted against levying on the property;
(i) there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to
pay the unpaid principal and interest on such Mortgage Note;
(j) except to the extent insurance is in place which will
cover such damage, the physical property subject to any Mortgage is
free of material damage and is in good repair and there is no
proceeding pending or threatened for the total or partial condemnation
of any Mortgaged Property;
(k) each Mortgage Loan at the time it was made complied in all
material respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity and disclosure
laws; each Mortgage Loan is being serviced in all material respects in
accordance with applicable state and federal laws, including, without
limitation, usury, equal credit opportunity and disclosure laws;
(l) a lender's title insurance policy (on an ALTA or CLTA
form) or binder, or other assurance of title customary in the relevant
jurisdiction therefor in a form acceptable to Freddie Mac or Fannie
Mae, was issued on the date of the origination of each related Mortgage
Loan by a title insurance company qualified to do business in the
jurisdiction where the related Mortgaged Property is located, insuring
the Seller and its successors and assigns that the Mortgage is a first
priority lien on the related Mortgaged Property in
the original principal amount of the Mortgage Loan. Seller is the sole
insured under such lender's title insurance policy, and such policy,
binder or assurance is valid and remains in full force and effect, and
each such policy, binder or assurance shall contain all applicable
endorsements including a negative amortization endorsement, if
applicable;
(m) in the event the Mortgage constitutes a deed of trust,
either a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in
the Mortgage or if no duly qualified trustee has been properly
designated and so serves, the Mortgage contains satisfactory provisions
for the appointment of such trustee by the holder of the Mortgage at no
cost or expense to such holder, and no fees or expenses are or will
become payable by Purchaser to the trustee under the deed of trust,
except in connection with a trustee's sale after default by the
mortgagor;
(n) the original principal amount of each Mortgage Loan is not
more than _______% of the Original Value; with the exception of two
Group I Mortgage Loans with a Cut-Off Date Scheduled Principal Balance
of approximately $____________and seven Group II Mortgage Loans with a
Cut-Off Date Scheduled Principal Balance of approximately $__________,
each Mortgage Loan for which the outstanding principal as of the
Cut-Off Date of the related Mortgage Note exceeded _______% of the
Original Value is covered by a Primary Mortgage Insurance Policy issued
by a private mortgage insurer insuring against default under the
Mortgage Note in an amount at least equal to the excess of such
outstanding principal amount over _______% of such Original Value until
the principal balance of such Mortgage Loan is reduced below _________%
of the Original Value or, based upon a new appraisal, the principal
balance of such Mortgage Loan represents less than _______% of the new
appraised value; all of the insurers which have Primary Mortgage
Insurance Policies with respect to the Mortgage Loans meet Freddie
Mac's, Fannie Mae's and the Rating Agencies' standards. The weighted
average Loan-to-Value Ratio of the Group I Mortgage Loans and Group II
Mortgage Loans does not exceed ______% and ______%, respectively, and
the percentage (by aggregate principal balance) of Group I Mortgage
Loans and Group II Mortgage Loans having Loan-to-Value Ratios in excess
of _______% does not exceed _______% and _______%, respectively;
(o) [Omitted]
(p) at the time of origination, each Mortgaged Property was
the subject of an appraisal which conforms to the Seller's underwriting
requirements, and a true, accurate and complete copy of such appraisal
is contained in the Mortgage File;
(q) on the basis of a representation by the borrower at the
time of origination of the Mortgage Loans, at least ________% of the
Group I Mortgage Loans and _______% of the Group II Mortgage Loans (by
aggregate principal balance) will be secured by Mortgages on
owner-occupied primary residence properties;
(r) neither the Seller nor any servicer of the related
Mortgage Loans has advanced funds or knowingly received any advance of
funds by a party other than the Mortgagor, directly or indirectly, for
the payment of any amount required by the Mortgage, except for (i)
interest accruing from the date of the related Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is later, to the
date which precedes by 30 days the first Due Date under the related
Mortgage Note, and (ii) customary advances for insurance and taxes;
(s) each Mortgage Note, the related Mortgage and other
agreements executed in connection therewith are genuine, and each is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms except as such enforcement may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law); and all parties to
each Mortgage Note and the Mortgage had legal capacity to execute the
Mortgage Note and the Mortgage and each Mortgage Note and Mortgage has
been duly and properly executed by the Mortgagor;
(t) to the extent required under applicable law, each
originator and subsequent mortgagee or servicer of the Mortgage Loans
was authorized to transact and do business in the jurisdiction in which
the related Mortgaged Property is located at all times when it held or
serviced the Mortgage Loan; and any obligations of the holder of the
related Mortgage Note, Mortgage and other loan documents have been
complied with in all material respects; servicing of each Mortgage Loan
has been in accordance with Seller's servicing requirements and the
terms of the Mortgage Notes, the Mortgage and other loan documents,
whether such origination and servicing was done by the Seller, its
affiliates, or any third party which originated the Mortgage Loan on
behalf of, or sold the Mortgage Loan to, any of them, or any servicing
agent of any of the foregoing;
(u) the related Mortgage Note and Mortgage contain customary
and enforceable provisions such as to render the rights and remedies of
the holder adequate for the realization against the Mortgaged Property
of the benefits of the security, including realization by judicial, or,
if applicable, non-judicial foreclosure, and there is no homestead or
other exemption available to the Mortgagor which would interfere with
such right to foreclosure;
(v) the proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have
been complied with; and all costs, fees and expenses incurred in
making, closing or recording the Mortgage Loan have been paid, except
recording fees with respect to Mortgages not recorded as of the Closing
Date;
(w) as of the Closing Date, the improvements on each Mortgaged
Property securing a Mortgage Loan is insured (by an insurer which is
acceptable to the Seller) against loss by fire and such hazards as are
covered under a standard extended coverage endorsement in the locale in
which the Mortgaged Property is located, in an amount which is not less
than the lesser of the maximum insurable value of the improvements
securing such Mortgage Loan and the outstanding principal balance of
the Mortgage Loan, but in no event in an amount less than an amount
that is required to prevent the Mortgagor from being deemed to be a
co-insurer thereunder; if the improvement on the Mortgaged Property is
a condominium unit, it is included under the coverage afforded by a
blanket policy for the condominium project; if upon origination of the
related Mortgage Loan, the improvements on the Mortgaged Property were
in an area identified as a federally designated flood area, a flood
insurance policy is in effect in an amount representing coverage not
less than the lesser of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the restorable cost of improvements located on such
Mortgaged Property and (iii) the maximum coverage available under
federal law; and each Mortgage obligates the Mortgagor thereunder to
maintain the insurance referred to in the Mortgage at the Mortgagor's
cost and expense;
(x) there is no material monetary default existing under any
Mortgage or the related Mortgage Note and there is no material event
which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach or event
of acceleration; and neither the Seller, any of its affiliates nor any
servicer of any related Mortgage Loan has taken any action to waive any
default, breach or event of acceleration; no foreclosure action is
threatened or has been commenced with respect to the Mortgage Loan;
(y) no Mortgagor, at the time of origination of the applicable
Mortgage, was a debtor in any state or federal bankruptcy or insolvency
proceeding;
(z) each Mortgage Loan was originated by a savings and loan
association, savings bank, commercial bank, credit union, insurance
company or similar institution which is supervised and examined by a
federal or State authority, or by a mortgagee approved by the Secretary
of Housing and Urban Development pursuant to Sections 203 and 211 of
the National Housing Act;
(aa) all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same,
including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities;
(bb) the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision
laws and ordinances;
(cc) no instrument of release or waiver has been executed in
connection with the Mortgage Loans, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement
which has been approved by the primary mortgage guaranty insurer, if
any, and which has been delivered to the Trustee;
(dd) except as otherwise provided in the Preliminary Mortgage
Loan Schedule or the Final Mortgage Loan Schedule, no Mortgage Loan
provides for a balloon payment and each Mortgage Note contains
provisions providing for its full amortization by the end of its
original term and is payable on the first day of each month in monthly
installments of principal and interest, with interest payable in
arrears, over an original term of not more than 15 years in the case of
the 15-Year Mortgage Loans or 30 years in the case of the 30-Year
Mortgage Loans;
(ee) no Mortgage Loan was originated based on an appraisal of
the related Mortgaged Property made prior to completion of construction
of the improvements thereon unless a certificate of completion was
obtained prior to closing of the Mortgage Loan;
(ff) each of the Mortgaged Properties consists of a single
parcel of real property with a detached single-family residence erected
thereon, or a two- to four-family dwelling, or a townhouse, or an
individual condominium unit in a condominium project or an individual
unit in a planned unit development. No Mortgaged Property consists of a
single parcel of real property with a cooperative housing development
erected thereon. Any condominium unit or planned unit development
conforms with applicable lending guidelines established by the Seller
regarding such dwellings. Measured by principal balance, no more than
________% and ______% of the Group I Mortgage Loans and Group II
Mortgage Loans, respectively, are secured by an individual unit in a
low-rise or high-rise condominium project, none are secured by real
property with a townhouse erected thereon, and at least _______% and
______% of the Group I Mortgage Loans and the Group II Mortgage Loans,
respectively, are secured by real property with a detached
single-family residence erected thereon. None of the Mortgage Loans is
a mobile home or manufactured dwelling;
(gg) with the exception of two Group I Mortgage Loans,
none of the Mortgage Loans is a buydown Mortgage Loan;
(hh) as of the Cut-Off Date, (A) the Net Rate of each Group I
Mortgage Loan was not more than _______% per annum and not less than
_______% per annum, and the weighted average Net Rate of the Group I
Mortgage Loans was approximately _______% per annum and (B) the Net
Rate of each Group II Mortgage Loan was not more than _______% per
annum and not less than _______% per annum, and the weighted average
Net Rate of the Group II Mortgage Loans was approximately _______% per
annum;
(ii) the Mortgage Loans were not selected from mortgage loans
owned by the Seller in a manner to affect adversely the interests of
the Purchaser or the holders of the Certificates;
(jj) as of the Cut-Off Date, (A) the remaining term of each
__-Year Mortgage Loan is not more than ___ months and not less than ___
months in the case of the Group I Mortgage Loans or ___ months in the
case of the Group II Mortgage Loans and (B) the remaining term of each
__-Year Mortgage Loan is not more than ___ months and not less than ___
months in the case of the Group I Mortgage Loans or ___ months in the
case of the Group II Mortgage Loans;
(kk) as of the Cut-Off Date, no more than _______% and
_______% (by principal balance) of the Group I Mortgage Loans and the
Group II Mortgage Loans, respectively, are cash-out refinances;
(ll) as of the Cut-Off Date, no more than _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, are rate and term refinances;
(mm) as of the Cut-Off Date, no fewer than _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, are purchase money loans;
(nn) as of the Cut-Off Date, no more than _______%, _______%,
_______% and _______% of the Group I Mortgage Loans (by principal
balance) and no more than _______%, _______%, ________% and _______% of
the Group II Mortgage Loans (by principal balance) are secured by
properties located in the states of __________, ___________, __________
and ___________, respectively, and no more than _______% of the Group I
Mortgage Loans or Group II Mortgage Loans (by principal balance) are
located in any other state;
(oo) the original principal balances of the Group I Mortgage
Loans and the Group II Mortgage Loans ranged from approximately
$_____________ to approximately $____________ and approximately
$____________ to approximately $____________, respectively. The maximum
outstanding principal balance of any Group I Mortgage Loan and Group II
Mortgage Loan as of the Cut-off Date was approximately $_____________
and $____________, respectively, and the average outstanding principal
balance was approximately $_____________ and $____________,
respectively;
(pp) with respect to Mortgaged Properties at the time of
origination of the related Group I Mortgage Loans and Group II Mortgage
Loans, measured by aggregate unpaid principal balance as of the Cut-off
Date, at least _______% and ______%, respectively, of the Mortgaged
Properties are owner occupied primary residences, no more than ______%
and ________%, respectively, of the Mortgaged Properties are
second homes and approximately _______% and _______%, respectively, of
the Mortgaged Properties are investor owned properties. Each
Mortgaged Property is lawfully occupied under applicable law;
(qq) as of the Cut-off Date, (A) approximately _______% and
_________% (by principal balance) of the Group I Mortgage Loans and
Group II Mortgage Loans, respectively, are __-Year Mortgage Loans and
(B) approximately _______% and _______% (by principal balance) of the
Group I Mortgage Loans and Group II Mortgage Loans, respectively, are
__-Year Mortgage Loans;
(rr) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series I of the _____________ Loan
Series Program;
(ss) as of the Cut-off Date, approximately _______% and
________% (by principal balance) of the Group I Mortgage Loans and
Group II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series II of the ______________ Loan
Series Program; and
(tt) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series III of the ______________ Loan
Series Program.
(uu) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series III+ of the ______________
Loan Series Program.
(vv) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series IV of the _____________ Loan
Series Program.
(ww) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Series V of the ______________ Loan
Series Program.
(xx) as of the Cut-off Date, approximately _______% and
_______% (by principal balance) of the Group I Mortgage Loans and Group
II Mortgage Loans, respectively, were originated under, or in
accordance with the standards of, Other Underwriting Programs.
<PAGE>
EXHIBIT D
REQUEST FOR RELEASE
(for Trustee)
LOAN INFORMATION
Name of Mortgagor: _____________________________
Loan No.: ____________________________
TRUSTEE
Name: ____________________________
Address: ____________________________
Trustee Mortgage
File No.: _____________________________
MASTER SERVICER
Name: _____________________________
Address: _____________________________
Certificates: Mortgage Pass-Through Certificates,
Series 199_-_
The undersigned hereby acknowledges that it has received from
_______________________, as Trustee for the holders of Bear Stearns Mortgage
Securities Inc. Mortgage Pass-Through Certificates, Series 199_-_, the documents
referred to below (the "Documents"). All capitalized terms not otherwise defined
in this Request for Release shall have the meanings given them in the Pooling
and Servicing Agreement dated as of _________, 199_ (the "Pooling and Servicing
Agreement") among the Trustee, [CORPORATION 1] and Bear Stearns Mortgage
Securities Inc.
( ) Mortgage Note dated ________, 19__, in the original
principal sum of $____________, made by _____________,
payable to, or endorsed to the order of, the Trustee.
( ) Mortgage recorded on ______________, 199_, as
instrument no. _____________ in the County Recorder's Office of the
County of _______________, State of ____________ in book/reel/docket
_______________ of official records at page/image ________.
( ) Deed of Trust recorded on _______________ as instrument no.
_________ in the County Recorder's Office of the County of _________,
State of _______________ in book/reel/docket __________ of official
records at page/image ____________________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded
on ______________ as instrument no. ______ in the County Recorder's
Office of the County of _______________, State of _______________ in
book/reel/docket __________ of official records at page/image
________________.
( ) Other documents, including any amendments, assignments
or other assumptions of the Mortgage Note or Mortgage:
( ) ----------------------------
( ) ----------------------------
( ) ----------------------------
( ) ----------------------------
The undersigned hereby acknowledges and agrees as follows:
(1) The Master Servicer shall, and if the Master Servicer
releases the Documents to a Sub-Servicer or related Insurer the Master
Servicer shall cause such Sub-Servicer or related Insurer to, hold and
retain possession of the Documents in trust for the benefit of the
Trustee, solely for the purposes provided in the Agreement.
(2) The Master Servicer shall not cause or permit the Documents
to become subject to, or encumbered by, any claim, liens, security
interest, charges, writs of attachment or other impositions nor shall
the Master Servicer assert or seek to assert any claims or rights of
setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return the Documents to the
Trustee when the need therefor no longer exists, and in any event
within 21 days of the Master Servicer's receipt thereof, unless the
Mortgage Loan relating to the Documents has been liquidated and the
proceeds thereof have been remitted to the Certificate Account or the
Documents are being used to pursue foreclosure or other legal
proceedings and except as expressly provided in the Agreement.
(4) Prior to the return of the Documents to the Trustee, the
Master Servicer shall, and if the Master Servicer releases such
Documents to a Sub-Servicer or related Insurer, the Master Servicer
shall cause such Sub-Servicer or related Insurer to, retain the
Documents in its control unless the Documents have been delivered to an
attorney, or to a public trustee or other public official as required
by law, to initiate or pursue legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or
nonjudicially, and the Master Servicer has delivered to the Trustee a
certificate of a Servicing Officer certifying as to the name and
address of the Person to which the Documents were delivered and the
purpose or purposes of such delivery.
(5) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of the
Master Servicer shall at all times be earmarked for the account of the
Trustee, and the Master Servicer shall keep the Documents and any
proceeds separate and distinct from all other property in the
possession, custody or control of the Master Servicer.
Date: ______________________, 19__
[Name of Master Servicer]
By: _______________________________________
Its: ______________________________________
<PAGE>
EXHIBIT E
Affidavit pursuant to
Section 860E(e)(4) of the
Internal Revenue Code of
1986, as amended, and for
other purposes
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of ] [the United States], on behalf of which
he makes this affidavit.
2. That (i) the Investor is not a "disqualified organization"
as defined in Section 860E(e)(5) of the Internal Revenue Code of 1986, as
amended, and will not be a disqualified organization as of [Closing Date] [date
of purchase]; (ii) it is not acquiring the Bear Stearns Mortgage Securities Inc.
Mortgage Pass-Through Certificates, Series 199_-_, Class R-1 or Class R-2
Certificates (the "Residual Certificates") for the account of a disqualified
organization; (iii) it consents to any amendment of the Pooling and Servicing
Agreement that shall be deemed necessary by Bear Stearns Mortgage Securities
Inc. (upon advice of counsel) to constitute a reasonable arrangement to ensure
that the Residual Certificates will not be owned directly or indirectly by a
disqualified organization; and (iv) it will not transfer such Residual
Certificates unless (a) it has received from the transferee an affidavit in
substantially the same form as this affidavit containing these same four
representations and (b) as of the time of the transfer, it does not have actual
knowledge that such affidavit is false.
3. That the Investor is one of the following: (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof or (iii) an estate or trust that is subject to U.S. federal
income tax regardless of the source of its income.
4. That the Investor's taxpayer identification number is
___________.
5. That no purpose of the acquisition of the Residual
Certificates is to avoid or impede the assessment or collection of tax.
6. That the Investor understands that, as the holder of the
Residual Certificates, the Investor may incur tax liabilities in excess of any
cash flows generated by such Residual Certificates.
7. That the Investor intends to pay taxes associated with
holding the Residual Certificates as they become due.
IN WITNESS WHEREOF, the Investor has caused this instrument to
be executed on its behalf, pursuant to authority of its Board of Directors, by
its [Title of Officer] this day of , 199_.
[NAME OF INVESTOR]
By_____________
[Name of Officer]
[Title of Officer]
[Address of Investor for
receipt of distributions]
Address of Investor
for receipt of tax
information:
<PAGE>
Personally appeared before me the above-named [Name of Officer],
known or proved to me to be the same person who executed the foregoing
instrument and to be the [Title of Officer] of the Investor, and acknowledged to
me that he executed the same as his free act and deed and the free act and deed
of the Investor.
Subscribed and sworn before me this day of , 199_.
- ----------------------------------
NOTARY PUBLIC
COUNTY OF
STATE OF
My commission expires the day of , 19 .
--- ------------- --
<PAGE>
EXHIBIT F-1
FORM OF INVESTMENT LETTER
[Date]
[Name of Seller]
[Address of Seller]
[Name of Trustee]
[Address of Trustee]
Re: Bear Stearns Mortgage Securities Inc., Series 1999_-_
Mortgage Pass-Through Certificates(the "Certificates"),
including the Class B-4, Class B-5 and Class B-6 Certificates
(the "Privately Offered Certificates")
Dear Sirs:
In connection with our purchase of Privately Offered Certificates, we
confirm that:
(i) we understand that the Privately Offered
Certificates are not being registered under
the Securities Act of 1933, as amended (the
"Act") or any applicable state securities or
"Blue Sky" laws, and are being sold to us in
a transaction that is exempt from the
registration requirements of such laws;
(ii) any information we desired concerning the
Certificates, including the Privately
Offered Certificates, the trust in which the
Certificates represent the entire beneficial
ownership interest (the "Trust") or any
other matter we deemed relevant to our
decision to purchase Privately Offered
Certificates has been made available to us;
(iii) we are able to bear the economic risk of
investment in Privately Offered
Certificates; we are an institutional
"accredited investor" as defined in Section
501(a) of Regulation D promulgated under the
Act and a sophisticated institutional
investor;
(iv) we are acquiring Privately Offered
Certificates for our own account, not as
nominee for any other person, and not with
a present view to any distribution or other
disposition of the Privately Offered
Certificates;
(v) we agree the Privately Offered Certificates
must be held indefinitely by us (and may not
be sold, pledged, hypothecated or in any way
disposed of) unless subsequently registered
under the Act and any applicable state
securities or "Blue Sky" laws or an
exemption from the registration requirements
of the Act and any applicable state
securities or "Blue Sky" laws is available;
(vi) we agree that in the event that at some
future time we wish to dispose of or
exchange any of the Privately Offered
Certificates (such disposition or exchange
not being currently foreseen or
contemplated), we will not transfer or
exchange any of the Privately Offered
Certificates unless:
(A) (1) the sale is to an
Eligible Purchaser (as defined below), (2) a
letter to substantially the same effect as
either this letter or, if the Eligible
Purchaser is a Qualified Institutional Buyer
as defined under Rule 144A of the Act, the
Rule 144A and Related Matters Certificate in
the form attached to the Pooling and
Servicing Agreement (as defined below) is
executed promptly by the purchaser and
delivered to the addressees hereof and (3)
all offers or solicitations in connection
with the sale, whether directly or through
any agent acting on our behalf, are limited
only to Eligible Purchasers and are not made
by means of any form of general solicitation
or general advertising whatsoever; and
(B) if the Privately
Offered Certificate is not registered under
the Act (as to which we acknowledge you have
no obligation), the Privately Offered
Certificate is sold in a transaction that
does not require registration under the Act
and any applicable state securities or "blue
sky" laws and, if State Street Bank and
Trust Company (the "Trustee") so requests, a
satisfactory Opinion of Counsel is furnished
to such effect, which Opinion of Counsel
shall be an expense of the transferor or the
transferee;
(vii) we agree to be bound by all of the terms
(including those relating to restrictions
on transfer) of the Pooling and Servicing
(as defined below), pursuant to which the
Trust was formed; we have reviewed
carefully and understand the terms of the
Pooling and Servicing Agreement;
(viii) we are not "benefit plan
investors," as such term is defined in 29
C.F.R. ss. 2510.3-101 (other than benefit
plan investors which are not subject to
Title I of ERISA), nor a trustee,
fiduciary or other party acting on behalf
of any such "benefit plan investors;"
(ix) We understand that each of the Class B-4,
B-5 and B-6 Certificates bears, and will
continue to bear, a legend to substantiate
the following effect: "THIS CERTIFICATE
HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS. THE
HOLDER HEREOF, BY PURCHASING THIS
CERTIFICATE, AGREES THAT THIS CERTIFICATE
MAY BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY IN COMPLIANCE
WITH THE ACT AND OTHER APPLICABLE LAWS
AND ONLY (1) PURSUANT TO RULE 144A UNDER
THE ACT ("RULE 144A") TO A PERSON THAT
THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A (A "QIB"),
PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF A QIB, WHOM
THE HOLDER HAS INFORMED, IN EACH CASE,
THAT THE REOFFER, RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (2) PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE ACT (IF AVAILABLE) OR (3) IN
CERTIFICATED FORM TO AN "INSTITUTIONAL
ACCREDITED INVESTOR" WITHIN THE MEANING
THEREOF IN RULE 501(A)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE ACT
PURCHASING NOT FOR DISTRIBUTION IN
VIOLATION OF THE ACT, SUBJECT TO (A) THE
RECEIPT BY THE TRUSTEE OF A LETTER
SUBSTANTIALLY IN THE FORM PROVIDED IN THE
AGREEMENT AND (B) THE RECEIPT BY THE
TRUSTEE OF AN OPINION OF COUNSEL AS TO
COMPLIANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE UNITED STATES. THIS
CERTIFICATE MAY NOT BE TRANSFERRED TO
"BENEFIT PLAN INVESTORS," AS SUCH TERM IS
DEFINED IN 29 C.F.R. SS. 2510.3-101
(OTHER THAN BENEFIT PLAN INVESTORS WHICH
ARE NOT SUBJECT TO TITLE I OF ERISA),
UNLESS THE PROPOSED TRANSFEREE PROVIDES A
BENEFIT PLAN OPINION TO THE TRUSTEE."
"ELIGIBLE PURCHASER" means a corporation, partnership or other entity
which we have reasonable grounds to believe and do believe (i) can make
representations with respect to itself to substantially the same effect as the
representations set forth herein, and (ii) is either a Qualified Institutional
Buyer as defined under Rule 144A of the Act or an institutional "Accredited
Investor" as defined under Rule 501 of the Act.
Terms not otherwise defined herein shall have the meanings assigned to
them in the Pooling and Servicing Agreement dated as of __________, 199_ among
Bear Stearns Mortgage Securities Inc., ___________ and ____________ (the
"Pooling and Servicing Agreement").
IN WITNESS WHEREOF, this document has been executed by the undersigned
who is duly authorized to do so on behalf of the undersigned Eligible Purchaser
on the ____ day of ________, 19__.
Very truly yours,
[PURCHASER]
By:__________________________
(Authorized Officer)
By:__________________________
Attorney-in-fact
<PAGE>
EXHIBIT F-2
FORM OF RULE 144A AND RELATED MATTERS CERTIFICATE
[Date]
[Name of Seller]
[Address of Seller]
[Name of Trustee]
[Address of Trustee]
Re: Bear Stearns Mortgage Securities Inc., Series 199_-_
Pass-Through Certificates(the "Certificates"), including the
Class B-4, Class B-5 and Class B-6 Certificates
(the "Privately Offered Certificates")
Dear Sirs:
In connection with our purchase of Privately Offered
Certificates, the undersigned certifies to each of the parties to whom this
letter is addressed that it is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act of 1933, as amended (the "Act")) as follows:
1. It owned and/or invested on a discretionary basis eligible
securities (excluding affiliate's securities, bank deposit notes and
CD's, loan participations, repurchase agreements, securities owned but
subject to a repurchase agreement and swaps), as described below:
Date: _____________, 19__ (must be on or after the close of
its most recent fiscal year)
Amount: $_________________; and
2. The dollar amount set forth above is:
a. greater than $100 million and the undersigned is one of the
following entities:
(1) |_| an insurance company as defined in
Section 2(13) of the Act; or1
- ----------------------------
1 A purchase by an insurance company for one or more of its separate
accounts, as defined by Section 2(a)(37) of the Investment Company Act of
1940, which are neither registered nor required to be registered
thereunder, shall be deemed to be a purchase for the account of such
insurance company.
(2) |_| an investment company under the Investment Company Act
or any business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940; or
(3) |_| a Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; or
(4) |_| a plan (i) established and maintained by
a state, its political subdivisions, or any
agency or instrumentality of a state or its
political subdivisions, the laws of which
permit the purchase of securities of this
type, for the benefit of its employees and
(ii) the governing investment guidelines of
which permit the purchase of securities of
this type; or
(5) |_| a business development company as
defined in Section 202(a)(22) of the
Investment Advisers Act of 1940; or
(6) |_| a corporation (other than a U.S. bank,
savings and loan association or equivalent
foreign institution), partnership,
Massachusetts or similar business trust, or
an organization described in Section
501(c)(3) of the Internal Revenue Code; or
(7) |_| a U.S. bank, savings and loan
association or equivalent foreign
institution, which has an audited net worth
of at least $25 million as demonstrated in
its latest annual financial statements; or
(8) |_| an investment adviser registered under
the Investment Advisers Act; or
b. |_| greater than $10 million, and the
undersigned is a broker-dealer registered with
the SEC; or
c. |_| less than $10 million, and the undersigned is a
broker-dealer registered with the SEC and will only
purchase Rule 144A securities in transactions in
which it acts as a riskless principal (as defined in
Rule 144A); or
d. |_| less than $100 million, and the
undersigned is an investment company registered under
the Investment Company Act of 1940, which, together
with one or more registered investment companies
having the same or an affiliated investment adviser,
owns at least $100 million of eligible securities; or
e. |_| less than $100 million, and the undersigned is
an entity, all the equity owners of which are
qualified institutional buyers.
The undersigned further certifies that it is purchasing a
Privately Offered Certificate for its own account or for the account of others
that independently qualify as "Qualified Institutional Buyers" as defined in
Rule 144A. It is aware that the sale of the Privately Offered Certificates is
being made in reliance on its continued compliance with Rule 144A. It is aware
that the transferor may rely on the exemption from the provisions of Section 5
of the Act provided by Rule 144A. The undersigned understands that the Privately
Offered Certificates may be resold, pledged or transferred only to (i) a person
reasonably believed to be a Qualified Institutional Buyer that purchases for its
own account or for the account of a Qualified Institutional Buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance in Rule
144A, or (ii) an institutional "accredited investor," as such term is defined
under Rule 501 of the Act in a transaction that otherwise does not constitute a
public offering.
The undersigned agrees that if at some future time it wishes
to dispose of or exchange any of the Privately Offered Certificates, it will not
transfer or exchange any of the Privately Offered Certificates to a Qualified
Institutional Buyer without first obtaining a Rule 144A and Related Matters
Certificate in the form hereof from the transferee and delivering such
certificate to the addressees hereof. Prior to making any transfer of Privately
Offered Certificates, if the proposed Transferee is an institutional "accredited
investor," the transferor shall obtain from the transferee and deliver to the
addressees hereof an Investment Letter in the form attached to the Pooling and
Servicing Agreement dated as of ___________, 199_ among Bear Stearns Mortgage
Securities Inc., as Seller, [CORPORATION 1], as Master Servicer, and
______________, as Trustee, pursuant to which the Certificates were issued.
The undersigned certifies that it is not a "benefit plan
investor," as such term is defined in 29 C.F.R. ss. 2510.3-101 (other than a
benefit plan investor which is not subject to Title I of ERISA) ("Benefit Plan
Investor"), nor a trustee, fiduciary or other party who is acquiring a Privately
Offered Certificate directly or indirectly for or on behalf of "Benefit Plan
Investors."
<PAGE>
IN WITNESS WHEREOF, this document has been executed by the
undersigned who is duly authorized to do so on behalf of the undersigned
Qualified Institutional Buyer on the ____ day of _______, 19__.
-------------------------
Name of Institution
-------------------------
Signature
-------------------------
Name
Title2
- ----------------
2 Must be President, Chief Financial Officer, or other executive officer.
<PAGE>
EXHIBIT G
FORM OF SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT
This SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT (the
"Agreement") is made and entered into as of __________________, 19___, between
_____________ (the "Company") and ______________ (the "Purchaser").
PRELIMINARY STATEMENT
_______________________________ is the holder of the entire
interest in The Mortgage Pass-Through Certificates, Series 199_-_, Class B-6
Certificates (the "Class B-6 Certificates"). The Class B-6 Certificates were
issued pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") dated as of ___________, 199_ between the Company (in its capacity
as master servicer thereunder, the "Master Servicer"), Bear Stearns Mortgage
Securities Inc. and ______________, as Trustee.
________________________________ intends to resell all of the
Class B-6 Certificates directly to the Purchaser on or promptly after the date
hereof.
In connection with such sale, the parties hereto have agreed
that the Company, as Master Servicer, will engage in certain special servicing
procedures relating to foreclosures for the benefit of the Purchaser, and that
the Purchaser will deposit funds in a collateral fund to cover any losses
attributable to such procedures as well as all advances and costs in connection
therewith, as set forth herein.
In consideration of the mutual agreements herein contained,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Purchaser agree that the following provisions shall become effective and
shall be binding on and enforceable by the Company and the Purchaser upon the
acquisition by the Purchaser of the Class B-6 Certificates.
ARTICLE I
DEFINITIONS
Section 1.01. DEFINED TERMS.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in New York City or _______________ are
required or authorized by law or executive order to be closed.
COLLATERAL FUND: The fund established and maintained
pursuant to Section 3.01 hereof.
COLLATERAL FUND PERMITTED INVESTMENTS: Either (i) obligations
of, or obligations fully guaranteed as to principal and interest by, the United
States, or any agency or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States, (ii) repurchase
agreements on obligations specified in clause (i) provided that the unsecured
obligations of the party agreeing to repurchase such obligations are at the time
rated by each Rating Agency in the highest long-term rating category, (iii)
federal funds, certificates of deposit, time deposits and banker's acceptances
of any U.S. depository institution or trust company incorporated under the laws
of the United States or any state provided that the debt obligations of such
depository institution or trust company at the date of acquisition thereof have
been rated by each Rating Agency in the highest short-term rating category, (iv)
commercial paper of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has the highest
short term rating of each Rating Agency, and (v) other obligations or securities
that are acceptable to each Rating Agency as a Collateral Fund Permitted
Investment hereunder and will not, as evidenced in writing, result in a
reduction or withdrawal in the then current rating of the Certificates and, for
each of the preceding clauses, the maturity thereof shall be not later than the
earlier to occur of (A) 30 days from the date of the related investment and (B)
the Business Day preceding the next succeeding Distribution Date.
COMMENCEMENT OF FORECLOSURE: The first official action
required under local law in order to commence foreclosure proceedings or to
schedule a trustee's sale under a deed of trust, including (i) in the case of a
mortgage, any filing or service of process necessary to commence an action to
foreclose or (ii) in the case of a deed of trust, the posting, publishing,
filing or delivery of a notice of sale, but not including in either case (x) any
notice of default, notice of intent to foreclose or sell or any other action
prerequisite to the actions specified in (i) or (ii) above and, upon the consent
of the Purchaser which will be deemed given unless expressly withheld within two
Business Days of notification, (y) the acceptance of a deed-in-lieu of
foreclosure (whether in connection with a sale of the related property or
otherwise) or (z) initiation and completion of a short pay-off.
CURRENT APPRAISAL: With respect to any Mortgage Loan as to
which the Purchaser has made an Election to Delay Foreclosure, an appraisal of
the related Mortgaged Property obtained by the Purchaser as nearly
contemporaneously as practicable to the time of the Purchaser's election,
prepared based on the Company's customary requirements for such appraisals.
ELECTION TO DELAY FORECLOSURE: Any election by the Purchaser
to delay the Commencement of Foreclosure, made in accordance with Section
2.02(b).
ELECTION TO FORECLOSURE: Any election by the Purchaser to
proceed with the Commencement of Foreclosure, made in accordance with Section
2.03(a).
REQUIRED COLLATERAL FUND BALANCE: As of any date of
determination, an amount equal to the aggregate of all amounts previously
required to be deposited in the Collateral Fund pursuant to Section 2.02(d)
(after adjustments for all withdrawals and deposits prior to such date pursuant
to Section 2.02(e)) and Section 2.03(b) (after adjustment for all withdrawals
and deposits prior to such date pursuant to Section 2.03(c)) and Section 3.02,
reduced by all withdrawals therefrom prior to such date pursuant to Section
2.02(g) and Section 2.03(d).
Section 1.02. DEFINITIONS INCORPORATED BY REFERENCE.
All capitalized terms not otherwise defined in this Agreement
shall have the meanings assigned in the Pooling and Servicing Agreement.
ARTICLE II
SPECIAL SERVICING PROCEDURES
Section 2.01. REPORTS AND NOTICES.
(a) In connection with the performance of its duties under the
Pooling and Servicing Agreement relating to the realization upon defaulted
Mortgage Loans, the Company as Master Servicer shall provide to the Purchaser
the following notices and reports:
(i) Within five Business Days after each Distribution Date (or
included in or with the monthly statements to Certificateholders
pursuant to the Pooling and Servicing Agreement), the Company, as
Master Servicer, shall provide to the Purchaser a report, using the
same methodology and calculations in its standard servicing reports,
indicating for the Trust Fund the number of Mortgage Loans that are (A)
thirty days, (B) sixty days, (C) ninety days or more delinquent or (D)
in foreclosure, and indicating for each such Mortgage Loan the loan
number and outstanding principal balance.
(ii) Prior to the Commencement of Foreclosure in connection
with any Mortgage Loan, the Company shall provide the Purchaser with a
notice (sent by facsimile transmission) of such proposed and imminent
foreclosure, stating the loan number and the aggregate amount owing
under the Mortgage Loan. Such notice may be provided to the Purchaser
in the form of a copy of a referral letter from the Company to an
attorney requesting the institution of foreclosure or a copy of a
request to foreclose received by the Company from the related primary
servicer which has been approved by the Company.
(b) If requested by the Purchaser, the Company shall make its
servicing personnel available (during their normal business hours) to respond to
reasonable inquiries, in writing by facsimile transmission, by the Purchaser in
connection with any Mortgage Loan identified in a report under subsection (a)(i)
or (a)(ii) which has been given to the Purchaser, provided, that (1) the Company
shall only be required to provide information that is readily
accessible to its servicing personnel and is non-confidential and (2) the
Company shall respond within five Business Days orally or in writing by
facsimile transmission.
(c) In addition to the foregoing, the Company shall provide to
the Purchaser such information as the Purchaser may reasonably request
concerning each Mortgage Loan that is at least sixty days delinquent and each
Mortgage Loan which has become real estate owned, through the final liquidation
thereof, provided, that the Company shall only be required to provide
information that is readily accessible to its servicing personnel and is
non-confidential.
Section 2.02. PURCHASER'S ELECTION TO DELAY FORECLOSURE
PROCEEDINGS.
(a) The Purchaser shall be deemed to direct the Company that
in the event that the Company does not receive written notice of the Purchaser's
election pursuant to subsection (b) below within 24 hours (exclusive of any
intervening non-Business Days) of transmission of the notice provided by the
Company under Section 2.01(a)(ii) subject to extension as set forth in Section
2.02(b), the Company may proceed with the Commencement of Foreclosure in respect
of such Mortgage Loan in accordance with its normal foreclosure policies without
further notice to the Purchaser. Any foreclosure that has been initiated may be
discontinued (i) without notice to the Purchaser if the Mortgage Loan has been
brought current or if a refinancing or prepayment occurs with respect to the
Mortgage Loan (including by means of a short payoff approved by the Company) or
(ii) with notice to the Purchaser if the Company has reached the terms of a
forbearance agreement with the borrower. In such latter case the Company may
complete such forbearance agreement unless instructed otherwise by the Purchaser
within two Business Days of notification.
(b) In connection with any Mortgage Loan with respect to which
a notice under Section 2.01(a)(ii) has been given to the Purchaser, the
Purchaser may elect to request that the Company delay the Commencement of
Foreclosure until such time as the Purchaser determines that the Company may
proceed with the Commencement of Foreclosure. Such election must be evidenced by
written notice received within 24 hours (exclusive of any intervening
non-Business Days) of transmission of the notice provided by the Company under
Section 2.01(a)(ii). The Purchaser shall send a copy of such notice of election
to each Rating Agency as soon as practicable thereafter. Such 24 hour period
shall be extended for no longer than an additional four Business Days after the
receipt of the information if the Purchaser requests additional information
related to such foreclosure within such 24 hour period; PROVIDED, HOWEVER, that
the Purchaser will have at least one Business Day to make such election
following its receipt of any requested additional information. Any such
additional information shall (i) not be confidential in nature and (ii) be
obtainable by the Company from existing reports, certificates or statements or
otherwise be readily accessible to its servicing personnel. The Purchaser agrees
that it has no right to deal with the mortgagor. However, if the Company's
normal foreclosure policies include acceptance of a deed-in-lieu of foreclosure
or short payoff, the Purchaser will be notified and given two Business Days to
respond. The Company shall have the right to reject the notice of election by
written notice to the Purchaser within 24 hours of receipt of such notice of
election, in which event the Company may proceed with the Commencement of
Foreclosure.
(c) With respect to any Mortgage Loan as to which the
Purchaser has made an Election to Delay Foreclosure which has not been rejected,
the Purchaser shall obtain a Current Appraisal as soon as practicable, and shall
provide the Company with a copy of such Current Appraisal.
(d) Within two Business Days of making any Election to Delay
Foreclosure which has not been rejected, the Purchaser shall remit by wire
transfer to the Trustee, for deposit in the Collateral Fund, an amount, as
calculated by the Company, equal to the sum of (i) _________% of the greater of
the Scheduled Principal Balance of the Mortgage Loan and the value shown in the
Current Appraisal referred to in subsection (c) above (or, if such Current
Appraisal has not yet been obtained, the Company's estimate thereof, in which
case the required deposit under this subsection shall be adjusted upon obtaining
such Current Appraisal), and (ii) three months' interest on the Mortgage Loan at
the applicable Mortgage Interest Rate. If any Election to Delay Foreclosure
which has not been rejected extends for a period in excess of three months (such
excess period being referred to herein as the "Excess Period"), the Purchaser
shall remit by wire transfer in advance to the Trustee for deposit in the
Collateral Fund the amount of each additional month's interest, as calculated by
the Company, equal to interest on the Mortgage Loan at the applicable Mortgage
Interest Rate for the Excess Period. The terms of this Agreement will no longer
apply to the servicing of any Mortgage Loan upon the failure of the Purchaser to
deposit the above amounts relating to the Mortgage Loan within two Business Days
of (i) the Election to Delay Foreclosure which has not been rejected or (ii) the
beginning of the related Excess Period, as the case may be.
(e) With respect to any Mortgage Loan as to which the
Purchaser has made an Election to Delay Foreclosure which has not been rejected,
the Company or the Trustee may withdraw from the Collateral Fund from time to
time amounts necessary to reimburse the Company for all related Monthly Advances
and Liquidation Expenses thereafter made by the Company as Master Servicer in
accordance with the Pooling and Servicing Agreement. To the extent that the
amount of any such Liquidation Expense is determined by the Company based on
estimated costs, and the actual costs are subsequently determined to be higher,
the Company may, or the Trustee shall at the Company's direction, withdraw the
additional amount from the Collateral Fund to reimburse the Company. In the
event that the Mortgage Loan is brought current by the mortgagor, the amounts so
withdrawn from the Collateral Fund shall be redeposited therein as and to the
extent that reimbursement therefor from amounts paid by the mortgagor is not
prohibited pursuant to the Pooling and Servicing Agreement as of the date
hereof. Except as provided in the preceding sentence, amounts withdrawn from the
Collateral
Fund to cover Monthly Advances and Liquidation Expenses shall not be redeposited
therein or otherwise reimbursed to the Purchaser. If and when any such Mortgage
Loan is brought current by the mortgagor, all amounts remaining in the
Collateral Fund in respect of such Mortgage Loan (after adjustment for all
previous withdrawals and deposits pursuant to this subsection and after
reimbursement to the Master Servicer for all related Monthly Advances) shall be
released to the Purchaser.
(f) With respect to any Mortgage Loan as to which the
Purchaser has made an Election to Delay Foreclosure which has not been
rejected, the Company shall continue to service the Mortgage Loan in accordance
with its customary procedures (other than the delay in Commencement of
Foreclosure as provided herein). If and when, following such election, the
Purchaser shall notify the Company that it believes that it is appropriate to do
so, the Company shall proceed with the Commencement of Foreclosure; provided
that, in any event, if the Mortgage Loan is not brought current by the Mortgagor
by the time the Mortgage Loan becomes 6 months delinquent, the Purchaser's
election shall no longer be effective and the Company shall be entitled to
proceed with the Commencement of Foreclosure.
(g) Upon the occurrence of a liquidation with respect to any
Mortgage Loan as to which the Purchaser made an Election to Delay Foreclosure
which has not been rejected and as to which the Company proceeded with the
Commencement of Foreclosure in accordance with subsection (f) above, the Company
shall calculate the amount, if any, by which the value shown on the Current
Appraisal obtained under subsection (c) exceeds the actual sales price obtained
for the related Mortgaged Property (net of Liquidation Expenses and unreimbursed
Monthly Advances related to the extended foreclosure period), and the Company
shall, or the Trustee shall at the direction of the Company, withdraw the amount
of such excess from the Collateral Fund and shall remit the same to the Trust
Fund for application as additional Liquidation Proceeds pursuant to the Pooling
and Servicing Agreement. After making such withdrawal, all amounts remaining in
the Collateral Fund in respect of such Mortgage Loan (after adjustment for all
withdrawals and deposits pursuant to subsection (e) and after reimbursement to
the Master Servicer for all related Monthly Advances) shall be released to the
Purchaser.
Section 2.03. Purchaser's Election to Commence
FORECLOSURE PROCEEDINGS.
(a) In connection with any Mortgage Loan identified in a
report under Section 2.01(a)(i)(B), the Purchaser may elect to instruct the
Company to proceed with the Commencement of Foreclosure as soon as practicable.
Such election must be evidenced by written notice received by the Company by
5:00 p.m., New York City time, on the third Business Day following the delivery
of such report under Section 2.01(a)(i). The Company shall have the right to
reject the notice of election by written notice to the Purchaser within 24 hours
of receipt of such notice of election, in which event, the Company may delay the
Commencement of Foreclosure.
(b) Within two Business Days of making any Election to
Foreclose which has not been rejected, the Purchaser shall remit to the Trustee,
for deposit in the Collateral Fund, an amount, as calculated by the Company,
equal to _________% of the current Scheduled Principal Balance of the Mortgage
Loan and three months' interest on the Mortgage Loan at the applicable Mortgage
Rate. If and when any such Mortgage Loan is brought current by the mortgagor,
all amounts in the Collateral Fund in respect of such Mortgage Loan (after
adjustment for all withdrawals and deposits pursuant to subsection (c) below)
shall be released to the Purchaser. The terms of this Agreement will no longer
apply to the servicing of any Mortgage Loan upon the failure of the Purchaser to
deposit the above amounts relating to the Mortgage Loan within two Business Days
of the Election to Foreclose.
(c) With respect to any Mortgage Loan as to which the
Purchaser has made an Election to Foreclose which has not been rejected, the
Company shall continue to service the Mortgage Loan in accordance with its
customary procedures. In connection therewith, the Company shall have the same
rights to make withdrawals for Monthly Advances and Liquidations Expenses from
the Collateral Fund as are provided under Section 2.02(e), and the Company shall
make reimbursements thereto to the limited extent provided under such
subsection. The Company shall not be required to proceed with the Commencement
of Foreclosure which has not been rejected if (i) the same is stayed as a result
of the mortgagor's bankruptcy or is otherwise barred by applicable law, or to
the extent that all legal conditions precedent thereto have not yet been
complied with, or (ii) the Company believes there is a breach of representations
or warranties by the Company, which may result in a repurchase or substitution
of such Mortgage Loan, or (iii) the Company has or expects to have the right
under the Pooling and Servicing Agreement to purchase the defaulted Mortgage
Loan and intends to exercise such right or (iv) the Company reasonably believes
the Mortgaged Property may be contaminated with or affected by hazardous wastes
or hazardous substances (and the Company supplies the Purchaser with information
supporting such belief) or (v) the same is prohibited by or is otherwise
inconsistent with the provisions of the Pooling and Servicing Agreement. Any
foreclosure that has been initiated may be discontinued (i) without notice to
the Purchaser if the Mortgage Loan has been brought current or if a refinancing
or prepayment occurs with respect to the Mortgage Loan (including by means of a
short payoff approved by the Purchaser) or (ii) with notice to the Purchaser if
the Company has reached the terms of a forbearance agreement unless instructed
otherwise by the Purchaser within two Business Days of notification.
(d) Upon the occurrence of a liquidation with respect to any
Mortgage Loan as to which the Purchaser made an Election to Foreclose which has
not been rejected and as to which the Company proceeded with the Commencement of
Foreclosure in accordance with subsection (c) above, the Company shall calculate
the amount, if any, by which the Scheduled Principal Balance of the Mortgage
Loan at the time of liquidation (plus all unreimbursed Monthly Advances and
Liquidation Expenses in connection therewith other than those previously paid
from the Collateral Fund) exceeds the actual sales price obtained for the
related Mortgaged Property, and the Company shall, or the Trustee shall at the
direction of the Company, withdraw the amount of such excess from the Collateral
Fund and shall remit the same to the Trust Fund for application as additional
Liquidation Proceeds pursuant to the Pooling and Servicing Agreement. After
making such withdrawal, all amounts remaining in the Collateral Fund (after
adjustment for all withdrawals and deposits pursuant to subsection (c) above and
after reimbursement to the Master Servicer for all related Monthly Advances) in
respect of such Mortgage Loan shall be released to the Purchaser.
Section 2.04. TERMINATION.
(a) With respect to all Mortgage Loans included in the Trust
Fund, the Purchaser's right to make any Election to Delay Foreclosure or any
Election to Foreclose and the Company's obligations under Section 2.01 shall
terminate on the earliest to occur of the following: (i) at such time as the
Current Principal Amount of the Class B-6 Certificates has been reduced to zero,
(ii) if the greater of (x) ________% (or such lower or higher percentage
that represents the Company's actual loss experience with respect to the
Mortgage Loans) of the aggregate principal balance of all Mortgage Loans that
are in foreclosure or are more than 90 days delinquent on a contractual basis
and the aggregate book value of REO Properties or (y) the aggregate amount that
the Company estimates through its normal servicing practices will be required to
be withdrawn from the Collateral Fund with respect to Mortgage Loans as to which
the Purchaser has made an Election to Delay Foreclosure or an Election to
Foreclose which has not been rejected exceeds (z) the then-current Current
Principal Amount of the Class B-6 Certificates, or (iii) upon any transfer by
the Purchaser of any interest (other than a minority interest therein, but only
if the transferee provides written acknowledgment to the Company of the
Purchaser's right hereunder and that such transferee will have no rights
hereunder) in the Class B-6 Certificates (whether or not such transfer is
registered under the Pooling and Servicing Agreement), including any such
transfer in connection with a termination of the Trust Fund. Unless earlier
terminated as set forth herein, this Agreement and the respective rights,
obligations and responsibilities of the Purchaser and the Company hereunder
shall terminate upon the later to occur of (i) the final liquidation of the last
Mortgage Loan as to which the Purchaser made any Election to Delay Foreclosure
or any Election to Foreclose and the withdrawal of all remaining amounts in the
Collateral Fund as provided herein and (ii) ten (10) Business Days' notice.
(b) The Purchaser's rights pursuant to Section 2.02 or 2.03 of
this Agreement shall terminate with respect to a Mortgage Loan as to which the
Purchaser has exercised its rights under Section 2.02 or 2.03 hereof (so long as
such exercise has not been rejected), upon Purchaser's failure to deposit any
amounts required pursuant to Section 2.02(d) or 2.03(b) after one Business Day's
notice of such failure.
ARTICLE III
COLLATERAL FUND; SECURITY INTEREST
Section 3.01. COLLATERAL FUND.
Upon payment by the Purchaser of the initial amount required
to be deposited in the Collateral Fund pursuant to Article II, the Company shall
request the Trustee to establish and maintain with the Trustee a segregated
account entitled "Bear Stearns Mortgage Securities Inc. Mortgage Pass-Through
Certificates, Series 199_-_ Collateral Fund, for the benefit of the Company and
[the Trustee] on behalf of Certificateholders, as secured parties" (the
"Collateral Fund"). Amounts held in the Collateral Fund shall continue to be the
property of the Purchaser, subject to the first priority security interest
granted hereunder for the benefit of such secured parties, until withdrawn from
the Collateral Fund pursuant to the Section 2.02 or 2.03 hereof.
Upon the termination of this Agreement and the liquidation of
all Mortgage Loans as to which the Purchaser has made any Election to Delay
Foreclosure or any Election to Foreclose pursuant to Section 2.04 hereof, the
Company shall distribute to the Purchaser all amounts remaining in the
Collateral Fund together with any investment earnings thereon (after giving
effect to all withdrawals therefrom permitted under this Agreement).
The Purchaser shall not take or direct the Company or the
Trustee to take any action contrary to any provision of the Pooling and
Servicing Agreement. In no event shall the Purchaser (i) take or cause the
Trustee or the Company to take any action that could cause the Trust Fund to
fail to qualify as a REMIC or cause the imposition on the Trust Fund of any
"prohibited transaction" or "prohibited contribution" taxes or (ii) cause the
Trustee or the Company to fail to take any action necessary to maintain the
status of the Trust Fund as a REMIC.
Section 3.02. COLLATERAL FUND PERMITTED INVESTMENTS.
The Company shall, at the written direction of the Purchaser,
direct the Trustee to invest the funds in the Collateral Fund in the name of the
Trustee in Collateral Fund Permitted Investments. Such direction shall not be
changed more frequently then quarterly. In the absence of any direction, the
Trustee shall invest such funds in investments permitted pursuant to clause
(iii) of the definition of Collateral Fund Permitted Investments herein.
All income and gain realized from any investment as well as
any interest earned on deposits in the Collateral Fund (net of any losses on
such investments) and any payments of principal made in respect of any
Collateral Fund Permitted Investment shall be deposited in the Collateral Fund
upon receipt. All costs and realized losses associated with the purchase and
sale of Collateral Fund Permitted Investments shall be borne by the Purchaser
and the amount of net realized losses shall be promptly deposited by the
Purchaser in the Collateral Fund. The Company shall periodically (but not more
frequently than monthly) direct the Trustee to distribute to the Purchaser upon
request an amount of cash, to the extent cash is available therefor in the
Collateral Fund, equal to the amount by which the balance of the Collateral
Fund, after giving effect to all other distributions to be made from the
Collateral Fund on such date, exceeds the Required Collateral Fund Balance. Any
amounts so distributed shall be released from the lien and security interest of
this Agreement.
Section 3.03. GRANT OF SECURITY INTEREST.
In order to secure the obligations of the Purchaser hereunder
to the Company and the Trustee for the benefit of Certificateholders (other than
its obligations under Section 4.10), the Purchaser hereby grants to the Company
and to the Trustee for the benefit of the Certificateholders a security interest
in and lien on all of the Purchaser's right, title and interest, whether now
owned or hereafter acquired, in and to: (1) the Collateral Fund, (2) all amounts
deposited in the Collateral Fund and Collateral Fund Permitted Investments in
which such amounts are invested (and the distributions and proceeds of such
investments) and (3) all cash and non-cash proceeds of any of the foregoing,
including proceeds of the voluntary or involuntary conversion thereof (all of
the foregoing collectively, the "Collateral").
The Purchaser acknowledges the lien on and security interest
in the Collateral for the benefit of the Company and the Trustee on behalf of
the Certificateholders. The Purchaser shall take all actions requested by the
Company as may be reasonably necessary to perfect the security interest created
under this Agreement in the Collateral and cause it to be prior to all
other security interests and liens, including the execution and delivery to the
Company or at its direction the Trustee for filing of appropriate financing
statements in accordance with applicable law.
Section 3.04. COLLATERAL SHORTFALLS.
In the event that amounts on deposit in the Collateral Fund
at any time are insufficient to cover any withdrawals therefrom that the
Company or the Trustee is then entitled to make hereunder, the Purchaser shall
be obligated to pay such amounts to the Company or the Trustee immediately upon
demand. Such obligation shall constitute a general corporate obligation of the
Purchaser. The failure to pay such amounts within two Business Days of such
demand (except for amounts to cover interest on a Mortgage Loan pursuant to
Sections 2.02(d) and 2.03(b)), shall cause an immediate termination of the
Purchaser's right to make any Election to Delay Foreclosure or Election to
Foreclose and the Company's obligations under this Agreement with respect to all
Mortgage Loans to which such insufficiencies relate, without the necessity of
any further notice or demand on the part of the Company.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. AMENDMENT.
This Agreement may be amended from time to time by the Company
and the Purchaser by written agreement signed by the Company and the Purchaser
provided that no such amendment shall have a material adverse effect on the
holders of other Classes of Certificates.
Section 4.02. COUNTERPARTS.
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
Section 4.03. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
Section 4.04. NOTICES.
All demands, notices and direction hereunder shall be in
writing or by telecopy and shall be deemed effective upon receipt to:
(a) in the case of the Company,
--------------------------------
--------------------------------
--------------------------------
or such other address as may hereafter be furnished in writing by the Company,
or
(a) in the case of the Purchaser,
--------------------------------
--------------------------------
--------------------------------
Attention: ____________________
Phone: ________________________
Fax: __________________________
Section 4.05. SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever, including
regulatory, held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 4.06. SUCCESSOR AND ASSIGNS.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and the respective successors and
assigns of the parties hereto; provided, however, that the rights under this
Agreement cannot be assigned by the Purchaser without the consent of the
Company.
Section 4.07. ARTICLE AND SECTION HEADINGS.
The article and section headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
Section 4.08. THIRD PARTY BENEFICIARIES.
The Trustee on behalf of Certificateholders is the intended
third party beneficiary of this Agreement.
Section 4.09. CONFIDENTIALITY.
The Purchaser agrees that all information supplied by or on
behalf of the Company pursuant to Sections 2.01 or 2.02, including individual
account information, is the property of the Company and the Purchaser agrees to
use such information solely for the purposes set forth in this Agreement and to
hold such information confidential and not to disclose such information.
Section 4.10. INDEMNIFICATION.
The Purchaser agrees to indemnify and hold harmless the
Company and the Trustee against any and all losses, claims, damages or
liabilities to which it may be subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
actions taken by the Company in accordance with the provisions of this Agreement
and which actions conflict or are alleged to conflict with the Company's or the
Trustee's obligations under the Pooling and Servicing Agreement. The Purchaser
hereby agrees to reimburse the Company and the Trustee on demand for the
reasonable legal or other expenses incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action.
Section 4.11. REPRESENTATIONS AND WARRANTY
The Purchaser represents and warrants that it is not an
"affiliate" (as defined in the Securities Act of 1933, as amended) of the
Company.
Section 4.12. EXPENSES OF TRUSTEE. The Purchaser shall pay the
reasonable fees and expenses of the Trustee in connection with the
Trustee's duties under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
[THE COMPANY]
By:________________________
Name:
Title:
[PURCHASER]
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT H
FORM OF INITIAL CERTIFICATION
[Seller]
[Master Servicer]
Re: ooling and Servicing Agreement dated as of ___________, 199_ among
Bear Stearns Mortgage Securities Inc., as seller, [CORPORATION 1], as
master servicer, and ___________, as trustee re: Mortgage Pass-Through
Certificates, Series 199_-_
Ladies and Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby certifies that, except
as otherwise noted on the attached exception report, that as to each Mortgage
Loan listed on the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or listed on the attachment hereto) it has reviewed the Mortgage File and
the Mortgage Loan Schedule and has determined that: (i) all documents required
to be included in the Mortgage File pursuant to the Pooling and Servicing
Agreement are in its possession; (ii) such documents have been reviewed by it
and appear regular on their face, have, where applicable, been executed and
relate to such Mortgage Loan; and (iii) based on examination by it, and only as
to such documents, the information set forth in the Mortgage Loan Schedule as to
Mortgagor Name, original principal balance and loan number respecting such
Mortgage Loan is correct and accurately reflects the information in the Mortgage
Loan File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representation that any documents specified in subclauses (iv), (v) and (vii) of
Section 2.01(b) should be included in any Mortgage File. The Trustee makes no
representations as to: (i) the validity, legality, enforceability or genuineness
of any of the documents contained in each Mortgage File of any of the Mortgage
Loans identified on the Mortgage Loan Schedule or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
[TRUSTEE]
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT I
FORM OF FINAL CERTIFICATION
[Seller]
[Master Servicer]
Re: Pooling and Servicing Agreement dated as of __________, 199_ among Bear
Stearns Mortgage Securities Inc., as seller, [CORPORATION 1], as master
servicer, and as trustee re: Mortgage Pass-Through Certificates, Series
199_-_
Ladies and Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby certifies that, except
as otherwise noted on the attached exception report, that as to each Mortgage
Loan listed on the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or listed on the attachment hereto) it has received the documents set forth
in Section 2.01 and has determined that (i) all documents required to be
included in the Mortgage File pursuant to the Pooling and Servicing Agreement
are in its possession; (ii) such documents have been reviewed by it and appear
regular on their face, have, where applicable, been executed and relate to such
Mortgage Loan; and (iii) based on examination by it, and only as to such
documents, the information set forth in the Mortgage Loan Schedule as to
Mortgagor name, original principal balance and loan number respecting such
Mortgage Loan is correct and accurately reflects the information in the Mortgage
Loan File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representation that any documents specified in subclauses (iv), (v) and (vii) of
Section 2.01(b) should be included in any Mortgage File. The Trustee makes no
representations as to: (i) the validity, legality, enforceability or genuineness
of any of the documents contained in each Mortgage File of any of the Mortgage
Loans identified on the Mortgage Loan Schedule or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
[TRUSTEE]
By:_______________________
Name:
Title:
