<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
FILE NO. 333-13617
SUPPLEMENT
TO PROSPECTUS SUPPLEMENT DATED DECEMBER 26, 1997
(TO PROSPECTUS DATED JUNE 24, 1997)
$776,145,899
(APPROXIMATE)
BEAR STEARNS MORTGAGE SECURITIES INC.
DEPOSITOR
NORTH AMERICAN MORTGAGE COMPANY
MASTER SERVICER
PHH MORTGAGE SERVICES CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-7
------------------
This Supplement relates to the offering by the Seller of the Mortgage
Pass-Through Certificates of the Series referenced above. Notwithstanding any
contrary statement on page S-31, S-70 or S-100 of the Prospectus Supplement
dated December 26, 1997 prepared in connection with the offering of the Offered
Certificates of the Series referenced above, BSMSI or its designee may
repurchase from the Trust all Mortgage Loans remaining outstanding and any REO
Property remaining in the Trust only on any Distribution Date on which the
aggregate unpaid balance of the Mortgage Loans is less than 5% of the aggregate
Cut-off Date Scheduled Principal Balance of the Mortgage Loans.
January 8, 1998
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 24, 1997)
$776,145,899
(APPROXIMATE)
BEAR STEARNS MORTGAGE SECURITIES INC.
DEPOSITOR
NORTH AMERICAN MORTGAGE COMPANY
MASTER SERVICER
PHH MORTGAGE SERVICES CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-7
The Mortgage Pass-Through Certificates, Series 1997-7 (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 10% 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 Moody's Investor Services, Inc. ('Moody's') and Duff & Phelps
Credit Rating Co. ('DCR').
(cover continued on next page)
------------------
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN BSMSI, THE
TRUSTEE, NAMC, PHH, BSMCC OR ANY OF THEIR RESPECTIVE AFFILIATES, NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL ENTITY, BSMSI, THE TRUSTEE, NAMC, PHH, BSMCC 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>
<S> <C> <C>
$ 966,733 (1) Class P Certificates
$ 64,234,000 6.35% Class 1-A-1 Certificates
(2) 0.65% Class 1-A-X1 Certificates
$ 57,398,000 6.50% Class 1-A-2 Certificates
(2) 0.50% Class 1-A-X2 Certificates
$ 119,518,000 7.00% Class 1-A-3 Certificates
$ 13,772,000 7.00% Class 1-A-4 Certificates
$ 26,016,235 (3) Class 1-A-5 Certificates
$ 5,574,908 (4) Class 1-A-6 Certificates
$ 25,000,000 (3) Class 1-A-7 Certificates
$ 7,142,857 (4) Class 1-A-8 Certificates
$ 84,772,445 7.00% Class 1-A-9 Certificates
$ 108,113,000 7.00% Class 2-A-1 Certificates
$ 6,014,000 7.00% Class 2-A-2 Certificates
$ 4,110,000 7.00% Class 2-A-3 Certificates
$ 13,885,999 7.00% Class 2-A-4 Certificates
(5) (5) Class X Certificates
$ 14,349,468 7.00% Class B-1 Certificates
$ 5,627,243 7.00% Class B-2 Certificates
$ 2,250,897 7.00% Class B-3 Certificates
$ 96,087,329 7.25% Class 3-A Certificates
(5) (5) Class 3-X Certificates
$ 4,465,865 7.25% Class 3-B-1 Certificates
$ 1,786,347 7.25% Class 3-B-2 Certificates
$ 1,103,331 7.25% Class 3-B-3 Certificates
$ 41,533,352 7.00% Class 4-A Certificates
(5) (5) Class 4-X Certificates
$ 716,052 7.00% Class 4-B-1 Certificates
$ 260,383 7.00% Class 4-B-2 Certificates
$ 130,192 7.00% Class 4-B-3 Certificates
$ 69,056,699 (6) Class 5-A Certificates
$ 1,614,546 (6) Class 5-B-1 Certificates
$ 430,545 (6) Class 5-B-2 Certificates
$ 215,273 (6) Class 5-B-3 Certificates
$ 100 7.00% Class R-1 Certificates
$ 100 7.00% Class R-2 Certificates
</TABLE>
(Footnotes on next page)
------------------
The Offered Certificates will be purchased by Bear, Stearns & Co. Inc. (the
'Underwriter') from BSMSI 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 BSMSI are expected to be approximately 100.9% of the
aggregate principal balance of the Offered Certificates plus accrued interest
thereon, but before deducting expenses payable by BSMSI in connection with the
Offered Certificates, estimated to be $450,000.
The Offered 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 December 30, 1997.
BEAR, STEARNS & CO. INC.
The date of this Prospectus Supplement is December 26, 1997
<PAGE>
(footnotes from previous page)
- ------------------
(1) The Class P Certificates are principal only certificates and will not bear
interest. The Current Principal Amount of the Class P Certificates initially
will be the amount shown above and is composed of five components
('Component P-1,' 'Component P-2,' 'Component P-3,' 'Component P-4,' and
'Component P-5') equal to the PO Percentage (as defined herein) of each
Discount Mortgage Loan in Mortgage Loan Groups 1, 2, 3, and 4, respectively,
and in the case of Component P-5, a fixed amount of principal payable from
all Group 5 Mortgage Loans.
(2) The notional principal amounts (each, a 'Notional Amount') of the Class
1-A-X1 Certificates and the Class 1-A-X2 Certificates on any Distribution
Date will be equal to the Current Principal Amount of the Class 1-A-1
Certificates and the Class 1-A-2 Certificates, respectively, as of such
date.
(3) During the initial Interest Accrual Period, interest will accrue on the
Class 1-A-5 and Class 1-A-7 Certificates at the rate of 7.00% and 6.5875%
per annum, respectively. During each Interest Accrual Period thereafter,
interest will accrue on the Class 1-A-5 Certificates at a per annum rate of
1.00% above LIBOR, determined monthly as described herein, subject to a
maximum rate of 8.50% and a minimum rate of 1.00%, and interest will accrue
on the Class 1-A-7 Certificates at a per annum rate of 0.90% above LIBOR,
determined monthly as described herein, subject to a maximum rate of 9.00%
and a minimum rate of 0.90%.
(4) During the initial Interest Accrual Period, interest will accrue on the
Class 1-A-6 and Class 1-A-8 Certificates at the rate of 7.00% and 8.44375%
per annum, respectively. During each Interest Accrual Period thereafter,
interest will accrue on the Class 1-A-6 Certificates at a per annum rate
equal to 35.00%--(4.6667 x LIBOR) determined monthly as described herein,
subject to a maximum rate of 35.00% and a minimum rate of 0.00%, and
interest will accrue on the Class 1-A-8 Certificates at a per annum rate
equal to 28.35%--(3.5 x LIBOR) determined monthly as described herein,
subject to a maximum rate of 28.35% and a minimum rate of 0.00%.
(5) The Class X Certificates, the Class 3-X Certificates and the Class 4-X
Certificates will have Notional Amounts equal to the aggregate Scheduled
Principal Balances of the Group 1 and Group 2 Mortgage Loans, the Group 3
Mortgage Loans and the Group 4 Mortgage Loans, respectively, and will bear
interest on their Notional Amounts at variable Pass-Through Rates equal, in
the case of the Class X Certificates, to the weighted average of the excess,
if any, of (a) the Net Rates on each Group 1 and Group 2 Mortgage Loan over
(b) 7.00% per annum; in the case of the Class 3-X Certificates, to the
weighted average of the excess, if any, of (a) the Net Rates on each Group 3
Mortgage Loan over (b) 7.25% per annum; and in the case of the Class 4-X
Certificates, to the weighted average of the excess, if any, of (a) the Net
Rates on each Group 4 Mortgage Loan over (b) 7.00% per annum. The
Pass-Through Rates for the Class X Certificates, the Class 3-X Certificates
and the Class 4-X Certificates for the initial Interest Accrual Period are
expected to be approximately 0.5586%, 0.9052% and 0.2253% per annum,
respectively. The Notional Amount of the Class X Certificates is composed of
two components ('Component X-1' and 'Component X-2') equal to the Scheduled
Principal Balances of the Group 1 and Group 2 Mortgage Loans, respectively.
(6) All Group 5 Certificates (as defined herein) other than the Component P-5
will bear interest at a variable rate equal to the weighted average of the
Net Rates of the Group 5 Mortgage Loans.
---------------------------------------------------------------------
(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 five groups ('Mortgage Loan Group 1,' 'Mortgage Loan
Group 2,' 'Mortgage Loan Group 3,' 'Mortgage Loan Group 4' and 'Mortgage Loan
Group 5' and each, a 'Mortgage Loan Group'), each of which constitutes a
separate sub-trust, generally consisting of conventional, first lien, fixed rate
mortgages secured by one- to four-family residences, and individual condominium
units located primarily in California, Texas and Massachusetts and having
original terms to stated maturity ranging from 15 to 30 years (each a 'Mortgaged
Property'). The characteristics of the Mortgage Loans comprising all five
Mortgage Loan Groups are described herein under 'Description of the
S-2
<PAGE>
Mortgage Loans' and in Annex A hereto. Approximately $349,506,156 of the
Mortgage Loans (the 'NAMC Mortgage Loans') were originated or acquired by North
American Mortgage Company ('NAMC'). Approximately $433,452,055 of the Mortgage
Loans (the 'PHH Mortgage Loans') were originated or acquired by PHH Mortgage
Services Corporation ('PHH'). All the Mortgage Loans will be acquired by Bear
Stearns Mortgage Securities Inc. ('BSMSI') on the date of issuance of the
Certificates from Bear Stearns Mortgage Capital Corporation ('BSMCC'), an
affiliate of BSMSI and the Underwriter, which acquired the Mortgage Loans from
NAMC and PHH in December 1997.
Principal and interest on the Certificates are payable as described herein
on the 25th day of each month or, if such day is not a business day, then on the
next succeeding business day, beginning in January 1998 (each, a 'Distribution
Date'). Interest will accrue on the 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--Realized Losses') 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 Certificates and there can
be no assurance that one will develop. The Underwriter intends to establish a
market in the Offered Certificates but is not obligated to do so. There is no
assurance that any such market, if established, will continue.
THE YIELD TO INVESTORS IN EACH CLASS OF CERTIFICATES, PARTICULARLY THE
CLASS P, CLASS 1-A-X1, CLASS 1-A-X2, CLASS X, CLASS 3-X AND CLASS 4-X
CERTIFICATES, WILL BE SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS IN THE RELATED MORTGAGE LOAN GROUP
OR IN THE CASE OF THE CLASS P CERTIFICATES, ALL OF THE DISCOUNT MORTGAGE LOANS
(AS DEFINED HEREIN) IN MORTGAGE LOAN GROUP 1, 2, 3 AND 4 AND ALL OF THE MORTGAGE
LOANS IN MORTGAGE LOAN GROUP 5, AND IN THE CASE OF THE CLASS X, CLASS B-1, CLASS
B-2 AND CLASS B-3 CERTIFICATES, ALL MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1 AND
MORTGAGE LOAN GROUP 2, WHICH 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, THE RISK THAT A SLOWER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS 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 THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED
YIELD. MOREOVER, AS A RESULT OF THE METHOD OF CALCULATION OF THE PASS-THROUGH
RATES PAYABLE ON THE NOTIONAL AMOUNTS OF THE CLASS X, THE CLASS 3-X AND THE
CLASS 4-X CERTIFICATES AND THE PASS-THROUGH RATE ON THE GROUP 5 CERTIFICATES,
THE YIELD TO MATURITY OF SUCH CLASSES WILL BE ADVERSELY AFFECTED BY PRINCIPAL
PREPAYMENTS OF THE MORTGAGE LOANS IN THE RELATED MORTGAGE LOAN GROUP OR GROUPS
WITH RELATIVELY HIGH NET RATES. INVESTORS IN THE CLASS X, THE CLASS 3-X AND THE
CLASS 4-X CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS IN MORTGAGE
LOAN GROUPS 1 AND 2, MORTGAGE LOAN GROUP 3 AND MORTGAGE LOAN GROUP 4,
RESPECTIVELY, COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH CERTIFICATES TO
RECOVER FULLY THEIR INITIAL INVESTMENTS. BECAUSE THE MAJORITY OF THE PAYMENTS ON
THE CLASS P CERTIFICATES ARE DERIVED PRINCIPALLY FROM PRINCIPAL PAYMENTS ON THE
DISCOUNT MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1, 2, 3 AND 4, THE YIELD TO
MATURITY OF THE CLASS P CERTIFICATES WILL BE ADVERSELY AFFECTED IF THE DISCOUNT
MORTGAGE LOANS IN ANY SUCH MORTGAGE LOAN GROUP PREPAY MORE SLOWLY THAN
ANTICIPATED. THE YIELD TO INVESTORS IN THE CERTIFICATES, AND PARTICULARLY THE
SUBORDINATE CERTIFICATES (AS DEFINED HEREIN), ALSO WILL BE ADVERSELY AFFECTED BY
REALIZED LOSSES AND NET INTEREST SHORTFALLS (EACH, AS DEFINED HEREIN). NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE
LOANS, THE AMOUNT AND TIMING OF REALIZED LOSSES OR NET INTEREST SHORTFALLS, OR
AS TO THE RESULTING YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES. SEE
'SUMMARY--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 and Class R-2 Certificates will be
designated as
S-3
<PAGE>
'regular interests' in a REMIC and the Class R-1 and Class R-2 Certificates will
each represent a 'residual interest' in a REMIC. See 'Federal Income Tax
Considerations' herein and 'Certain Federal Income Tax Consequences' 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.
Certain limited representations and warranties concerning the Mortgage
Loans will be made by BSMCC. The obligations of BSMCC to repurchase or
substitute for a BSMCC 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
applicable Mortgage Loan. NAMC will act as master servicer of the NAMC Mortgage
Loans. PHH will act as master servicer of the PHH Mortgage Loans.
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 (the '1933 Act'), and Section 21E of the Securities Exchange
Act of 1934, as amended (the '1934 Act'). 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 BSMSI pursuant to
its Prospectus dated June 24, 1997, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
S-4
<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
1997-7 (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 1 Mortgage Loans, Group 2 Mortgage
Loans, Group 3 Mortgage Loans, Group 4
Mortgage Loans and Group 5 Mortgage Loans
(each of which constitutes a separate
sub-trust) having aggregate principal
balances as of the Cut-off Date of
approximately $423,863,389, $138,860,875,
$105,079,196, $43,397,142 and $71,757,609,
respectively. The Certificates will be
issued pursuant to a Pooling and Servicing
Agreement (the "Agreement") to be dated as
of December 1, 1997 ") among Bear Stearns
Mortgage Securities Inc., as depositor
("BSMSI"), North American Mortgage Company
("NAMC"), as a master servicer, PHH
Mortgage Services Corporation ("PHH"), as
a master servicer, and The First National
Bank of Chicago, as trustee (the
"Trustee").
Offered Certificates....................
<TABLE>
<S> <C> <C>
Class P Certificates (1) $ 966,733
Class 1-A-1 Certificates 6.35% $ 64,234,000
Class 1-A-X1 Certificates 0.65% (2)
Class 1-A-2 Certificates 6.50% $ 57,398,000
Class 1-A-X2 Certificates 0.50% (2)
Class 1-A-3 Certificates 7.00% $ 119,518,000
Class 1-A-4 Certificates 7.00% $ 13,772,000
Class 1-A-5 Certificates (3) $ 26,016,235
Class 1-A-6 Certificates (4) $ 5,574,908
Class 1-A-7 Certificates (3) $ 25,000,000
Class 1-A-8 Certificates (4) $ 7,142,857
Class 1-A-9 Certificates 7.00% $ 84,772,445
Class 2-A-1 Certificates 7.00% $ 108,113,000
Class 2-A-2 Certificates 7.00% $ 6,014,000
Class 2-A-3 Certificates 7.00% $ 4,110,000
Class 2-A-4 Certificates 7.00% $ 13,885,999
Class X Certificates (5) (5)
Class B-1 Certificates 7.00% $ 14,349,468
Class B-2 Certificates 7.00% $ 5,627,243
Class B-3 Certificates 7.00% $ 2,250,897
Class 3-A Certificates 7.25% $ 96,087,329
Class 3-X Certificates (5) (5)
Class 3-B-1 Certificates 7.25% $ 4,465,865
Class 3-B-2 Certificate 7.25% $ 1,786,347
</TABLE>
S-5
<TABLE>
<S> <C> <C>
Class 3-B-3 Certificate 7.25% $ 1,103,331
Class 4-A Certificates 7.00% $ 41,533,352
Class 4-X Certificates (5) (5)
Class 4-B-1 Certificates 7.00% $ 716,052
Class 4-B-2 Certificates 7.00% $ 260,383
Class 4-B-3 Certificates 7.00% $ 130,192
Class 5-A Certificates (6) $ 69,056,699
Class 5-B-1 Certificates (6) $ 1,614,546
Class 5-B-2 Certificates (6) $ 430,545
Class 5-B-3 Certificates (6) $ 215,273
Class R-1 Certificates 7.00% $ 100
Class R-2 Certificates 7.00% $ 100
</TABLE>
1) The Class P Certificates are principal
only certificates and will not bear
interest. The Current Principal Amount of
the Class P Certificates initially will be
the amount shown above and is composed of
five components ("Component P-1,"
"Component P-2," "Component P-3,"
"Component P-4," and "Component P-5")
equal to the PO Percentage of each
Discount Mortgage Loan in Mortgage Loan
Groups 1, 2, 3 and 4, respectively, and in
the case of Component P-5, a fixed amount
of principal payable from all Group 5
Mortgage Loans.
(2) The notional principal amount
("Notional Amount") of the Class 1-A-X1
Certificates and the Class 1-A-X2
Certificates on any Distribution Date will
be equal to the Current Principal Amount
of the Class 1-A-1 Certificates and the
Class 1-A-2 Certificates, respectively, as
of such date.
(3) During the initial Interest Accrual
Period, interest will accrue on the Class
1-A-5 and Class 1-A-7 Certificates at the
rate of 7.00% and 6.5875% per annum,
respectively. During each Interest Accrual
Period thereafter, interest will accrue on
the Class 1-A-5 Certificates at a per
annum rate of 1.00% above LIBOR,
determined monthly as described herein,
subject to a maximum rate of 8.50% and a
minimum rate of 1.00%, and interest will
accrue on the Class 1-A-7 Certificates at
a per annum rate of 0.90% above LIBOR,
determined monthly as described herein,
subject to a maximum rate of 9.00% and a
minimum rate of 0.90%.
(4) During the initial Interest Accrual
Period, interest will accrue on the Class
1-A-6 and Class 1-A-8 Certificates at the
rate of 7.00% and 8.44375% per annum,
respectively. During each Interest Accrual
Period thereafter, interest will accrue on
the Class 1-A-6 Certificates at a per
annum rate equal to 35.00% - (4.6667 x
LIBOR) determined monthly as described
herein, subject to a maximum rate of
35.00% and a minimum rate of 0.00%, and
interest will accrue on the Class 1-A-8
Certificates at a per annum rate equal to
28.35% - (3.5 x LIBOR) determined monthly
as described herein, subject to a maximum
rate of 28.35% and a minimum rate of
0.00%.
S-6
<PAGE>
(5) The Class X Certificates, the Class
3-X Certificates and the Class 4-X
Certificates will have Notional Amounts
equal to the aggregate Scheduled Principal
Balances of the Group 1 and Group 2
Mortgage Loans, the Group 3 Mortgage Loans
and the Group 4 Mortgage Loans,
respectively, and will bear interest on
their Notional Amounts at variable
Pass-Through Rates equal, in the case of
the Class X Certificates, to the weighted
average of the excess, if any, of (a) the
Net Rates on each Group 1 and 2 Mortgage
Loan over (b) 7.00% per annum; in the case
of the Class 3-X Certificates, to the
weighted average of the excess, if any, of
(a) the Net Rates on each Group 3 Mortgage
Loan over (b) 7.25% per annum; and in the
case of the Class 4-X Certificates, to the
weighted average of the excess, if any, of
(a) the Net Rates on each Group 4 Mortgage
Loan over (b) 7.00% per annum. The
Pass-Through Rates for the Class X
Certificates, the Class 3-X Certificates
and the Class 4-X Certificates for the
initial Interest Accrual Period are
expected to be approximately 0.5586%,
0.9052% and 0.2253% per annum,
respectively. The Notional Amount of the
Class X Certificates is composed of two
components ("Component X-1" and "Component
X-2") equal to the Scheduled Principal
Balances of the Group 1 and Group 2
Mortgage Loans, respectively.
(6) All Group 5 Certificates (as defined
herein) other than the Component P-5 will
bear interest at a variable rate equal to
the weighted average of the Net Rates of
the Group 5 Mortgage Loans.
The original principal amount of one or more
Classes of Certificates may be increased
or decreased by BSMSI by up to 10%,
depending upon the Mortgage Loans actually
acquired by BSMSI 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 the following Classes of
"Other Certificates," in the indicated
approximate original principal amounts,
which will provide credit support to the
Offered Certificates, but which are not
offered hereby:
<TABLE>
<S> <C> <C>
Class B-4 Certificates (1) $ 1,969,535
Class B-5 Certificates (1) $ 1,125,448
Class B-6 Certificates (1) $ 1,406,812
Class 3-B-4 Certificates (2) $ 683,015
Class 3-B-5 Certificates (2) $ 367,777
Class 3-B-6 Certificates (2) $ 525,397
Class 4-B-4 Certificates (3) $ 108,492
Class 4-B-5 Certificates (3) $ 108,493
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C> <C>
Class 4-B-6 Certificates (3) $ 86,795
Class 5-B-4 Certificates (4) $ 179,394
Class 5-B-5 Certificates (4) $ 143,515
Class 5-B-6 Certificates (4) $ 107,637
</TABLE>
----------
(1) Interest accrues at the same rate as
interest accrues on the Class B-1,
Class B-2 and Class B-3
Certificates.
(2) Interest accrues at the same rate as
interest accrues on the Class 3-B-1,
Class 3-B-2 and Class 3-B-3
Certificates.
(3) Interest accrues at the same rate as
interest accrues on the Class 4-B-1,
Class 4-B-2 and Class 4-B-3
Certificates.
(4) Interest accrues at the same rate as
interest accrues on the Class 5-B-1,
Class 5-B-2 and Class 5-B-3
Certificates.
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 P, Class 1-A-1, Class 1-A-X1,
Class 1-A-2, Class 1-A-X2, Class
1-A-3, Class 1-A-4, Class 1-A-5,
Class 1-A-6, Class 1-A-7, Class
1-A-8, Class 1-A-9, Class 2-A-1,
Class 2-A-2, Class 2-A-3, Class
2-A-4, Class X, Class B-1, Class B-2,
Class B-3, Class 3-A, Class 3-X,
Class 3-B-1, Class 3-B-2, Class
3-B-3, Class 4-A, Class 4-X, Class
4-B-1, Class 4-B-2, Class 4-B-3,
Class 5-A, Class 5-B-1, Class 5-B-2,
Class 5-B-3, Class R-1, and Class
R-2.
Other Certificates................. Class B-4, Class B-5, Class B-6, Class
3-B-4, Class 3-B-5, Class 3-B-6,
Class 4-B-4, Class 4-B-5, Class
4-B-6, Class 5-B-4, Class 5-B-5 and
Class 5-B-6 Certificates (not offered
hereby).
Group 1 Certificates............... The Class 1-A-1, Class 1-A-X1, Class
1-A-2, Class 1-A-X2, Class 1-A-3,
Class 1-A-4, Class 1-A-5, Class
1-A-6, Class 1-A-7, Class 1-A-8 and
Class 1-A-9 Certificates and
Component X-1 and Component P-1.
Group 2 Certificates............... The Class 2-A-1, Class 2-A-2, Class
2-A-3, Class 2-A-4, Class R-1 and
Class R-2 Certificates and Component
X-2 and Component P-2.
Group B Certificates............... The Class B-1, Class B-2, Class B-3,
Class B-4, Class B-5 and Class B-6
Certificates.
Group 3 Certificates............... The Class 3-A, Class 3-X, Class 3-B-1,
Class 3-B-2, Class 3-B-3, Class
3-B-4, Class 3-B-5 and Class 3-B-6
Certificates and Component P-3.
Group 4 Certificates............... The Class 4-A, Class 4-X, Class 4-B-1,
Class 4-B-2, Class 4-B-3, Class
4-B-4, Class 4-B-5 and Class 4-B-6
Certificates and Component P-4.
S-8
<PAGE>
Group 5 Certificates............... The Class 5-A, Class 5-B-1, Class 5-B-2,
Class 5-B-3, Class 5-B-4, Class 5-B-5
and Class 5-B-6 Certificates and
Component P-5.
Group 1 Senior Certificates........ The Group 1 Certificates.
Group 2 Senior Certificates........ The Group 2 Certificates.
Group 3 Senior Certificates........ The Class 3-A and Class 3-X Certificates
and Component P-3.
Group 4 Senior Certificates........ The Class 4-A and Class 4-X Certificates
and Component P-4.
Group 5 Senior Certificates........ The Class 5-A Certificates and Component
P-5.
Senior Certificates................ The Group 1 Senior, Group 2 Senior,
Group 3 Senior, Group 4 Senior and
Group 5 Senior Certificates.
Super Senior Certificates.......... The Class 2-A-1 Certificates.
Senior Support Certificates........ The Class 2-A-4 Certificates.
P Components....................... The Component P-1, Component P-2,
Component P-3, Component P-4 and
Component P-5.
Stripped P Components.............. The Component P-1, Component P-2,
Component P-3 and Component P-4.
Interest Only Certificates......... The Class 1-A-X1, Class 1-A-X2, Class X,
Class 3-X and Class 4-X Certificates.
Group B Subordinate Certificates... The Group B Certificates.
Group 3 Subordinate Certificates... The Class 3-B-1, Class 3-B-2,
Class 3-B-3, Class 3-B-4, Class 3-B-5
and Class 3-B-6 Certificates.
Group 4 Subordinate Certificates... The Class 4-B-1, Class 4-B-2,
Class 4-B-3, Class 4-B-4, Class 4-B-5
and Class 4-B-6 Certificates.
Class 5 Subordinate Certificates... The Class 5-B-1, Class 5-B-2,
Class 5-B-3, Class 5-B-4, Class 5-B-5
and Class 5-B-6 Certificates.
Subordinate Certificates........... The Group B Subordinate, Group 3
Subordinate, Group 4 Subordinate and
Group 5 Subordinate Certificates.
Group 1 Senior P&I Certificates.... All Group 1 Senior Certificates (other
than the Component P-1).
Group 2 Senior P&I Certificates.... All Group 2 Senior Certificates (other
than the Component P-2)
S-9
<PAGE>
Group 3 Senior P&I Certificates.... All Group 3 Senior Certificates (other
than the Component P-3).
Group 4 Senior P&I Certificates.... All Group 4 Senior Certificates (other
than the Component P-4).
Group 5 Senior P&I Certificates.... All Group 5 Senior Certificates
Regular Certificates............... All Classes of Certificates other than
the Class R-1 and Class R-2
Certificates.
Residual Certificates.............. The Class R-1 and Class R-2
Certificates.
Physical Certificates.............. The Residual Certificates and the other
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 a nominee of The
Depository Trust Company, and
beneficial interests will be held by
investors through the book-entry
facilities of The Depository Trust
Company, as described herein, in
minimum denominations of $25,000 and
increments of $1.00 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 Class R-1 and Class R-2 Certificates
will each be issued in certificated
fully-registered form in a single
certificate of $100.
Depositor............................. BSMSI, a wholly-owned subsidiary of
BSMCC. See "Bear Stearns Mortgage
Securities Inc." in the Prospectus.
Seller................................ BSMCC, pursuant to a Mortgage Loan
Purchase Agreement, dated as of
December 26, 1997, between BSMCC and
BSMSI.
Master Servicers...................... NAMC will act as master servicer with
respect to the NAMC Mortgage Loans,
and PHH will act as master servicer
with respect to the PHH Mortgage
Loans. Each of NAMC and PHH is
referred to as a "Master Servicer,"
and they are collectively referred to
as the "Master Servicers." See "The
Pooling and Servicing Agreement."
Cut-off Date.......................... December 1, 1997.
Closing Date.......................... On or about December 30, 1997.
The Mortgage Pool..................... The Mortgage Loans in the aggregate (the
"Mortgage Pool") consist of first
lien, fixed rate mortgage loans
secured by one- to four-family
residences and individual condominium
units located primarily in
California, Texas and Massachusetts
and having original terms to stated
maturity ranging from 15 to 30 years.
Approximately
S-10
<PAGE>
$349,506,156 of the Mortgage Loans
were originated or acquired by NAMC
(the "NAMC Mortgage Loans") and
approximately $433,452,055 of the
Mortgage Loans were originated or
acquired by PHH (the "PHH Mortgage
Loans")
The Mortgage Loans have been divided
into five groups ("Group 1 Mortgage
Loans, " "Group 2 Mortgage Loans,"
"Group 3 Mortgage Loans," "Group 4
Mortgage Loans" and "Group 5 Mortgage
Loans" (each, a "Mortgage Loan
Group"), each of which constitutes a
separate sub-trust, as more fully
described below and in "Description
of the Mortgage Loans" and Annex I.
See Annex I herein for additional
statistical information regarding
each Mortgage Loan Group.
All of the Mortgage Loans are
conventional mortgage loans. All of
the Mortgage Loans with Loan-to-Value
Ratios (as defined herein) in excess
of 80% have primary mortgage
insurance.
All of the Mortgage Loans in Mortgage
Loan Groups 1 and 2 are so-called
Jumbo Loans. "Jumbo Loans" are
mortgage loans that have principal
balances at origination that exceed
the then applicable limitations for
purchase by the Federal National
Mortgage Association ("FNMA") and
Freddie Mac (formerly the Federal
Home Loan Mortgage Corporation)
("Freddie Mac"). Approximately
77.37% of the Mortgaged Properties
for the Mortgage Loans in Mortgage
Loan Group 2 are located in
California. All of the Mortgage
Loans in Mortgage Loan Group 3 have
a Cut-off Date Scheduled Principal
Balance less than $367,284. The
original term to stated maturity of
each of the Mortgage Loans in
Mortgage Loan Group 4 was 15 years.
All of the Mortgage Loans in
Mortgage Loan Group 5 are Relocation
Loans. "Relocation Loans" are
mortgage loans made to employees of
corporations who have a substantial
portion of the costs related to the
mortgage loan reimbursed by their
employer. Some of the expenses
eligible for consideration include
closing costs and discount points or
real estate commissions. Because
mortgagors of Relocation Loans
generally are more likely to be
transferred by their employers than
mortgagors in general, Relocation
Loans are generally believed to
prepay faster than other loans with
similar characteristics that are not
Relocation Loans. NAMC will act as
Master Servicer with respect to
36.80%, 65.09%, 96.91% and 3.00% of
the Group 1, Group 2, Group 3 and
Group 4 Mortgage Loans by Scheduled
Principal Balance as of the Cut-off
Date. PHH will act as the Master
Servicer with respect to all of the
remaining Mortgage Loans.
Set forth below is certain information
regarding the Mortgage Loans in each
Mortgage Loan Group and the related
Mortgaged Properties as of the
Cut-off Date. All such information
is provided on an approximate basis.
All weighted average information
provided below, reflects weighting
of the Mortgage Loans by their
respective Scheduled Principal
Balances as of the Cut-off Date. In
each case, such Scheduled Principal
Balance has been calculated on the
S-11
<PAGE>
assumption that the principal
portion of all scheduled payments
(as defined herein) due in respect
of each Mortgage Loan on or before
the Cut-off Date have been received.
<TABLE>
<CAPTION>
Group 1 Mortgage Loans
----------------------
<S> <C>
Number of Mortgage Loans.................... 1,318
Aggregate
Scheduled Principal Balance............... $423,863,389
Minimum Scheduled Principal Balance......... $214,744
Maximum Scheduled Principal Balance......... $891,901
Average Scheduled Principal Balance......... $321,596
Minimum Mortgage Rate....................... 6.875% per annum
Maximum Mortgage Rate....................... 9.750% per annum
Weighted Average Mortgage Rate.............. 7.784% per annum
Weighted Average Net Rate................... 7.550% per annum
Minimum Remaining Term......................
to Stated Maturity ....................... 236 months
Maximum Remaining Term
to Stated Maturity ....................... 360 months
Weighted Average Remaining
Term to Stated Maturity................... 357 months
Weighted Average Original Loan-to-Value
Ratio..................................... 76.45%
Location of Mortgaged Property
California............................... 49.38%
New Jersey............................... 5.68%
Massachusetts............................ 4.50%
Other.................................... 40.44%
Group 2 Mortgage Loans
----------------------
Number of Mortgage Loans.................... 425
Aggregate...................................
Scheduled Principal Balance.............. $138,860,875
Minimum Scheduled Principal Balance......... $215,862
Maximum Scheduled Principal Balance......... $1,249,140
Average Scheduled Principal Balance......... $326,731
Minimum Mortgage Rate....................... 6.625% per annum
Maximum Mortgage Rate....................... 9.125% per annum
Weighted Average Mortgage Rate.............. 7.809% per annum
Weighted Average Net Rate................... 7.562% per annum
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Minimum Remaining Term
to Stated Maturity....................... 239 months
Maximum Remaining Term
to Stated Maturity....................... 360 months
Weighted Average Remaining
Term to Stated Maturity................... 359 months
Weighted Average Original Loan-to-Value
Ratio..................................... 74.83%
Location of Mortgaged Property
California............................... 77.37%
Nevada................................... 2.47%
Massachusetts............................ 1.93%
Other.................................... 18.23%
Group 3 Mortgage Loans
----------------------
Number of Mortgage Loans................... 954
Aggregate Scheduled
Principal Balance.......................... $105,079,196
Minimum Scheduled Principal Balance........ $39,692
Maximum Scheduled Principal Balance........ $367,283
Average Scheduled Principal Balance........ $110,146
Minimum Mortgage Rate...................... 7.000% per annum
Maximum Mortgage Rate...................... 9.875% per annum
Weighted Average Mortgage Rate............. 8.410% per annum
Weighted Average Net Rate.................. 8.151% per annum
Minimum Remaining Term
to Stated Maturity....................... 191 months
Maximum Remaining Term
to Stated Maturity....................... 360 months
Weighted Average Remaining Term
to Stated Maturity....................... 357 months
Weighted Average Original Loan-to-Value
Ratio.................................... 77.40%
Location of Mortgaged Property
California.............................. 26.96%
Texas................................... 12.52%
Massachusetts........................... 6.91%
Other .................................. 53.61%
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
Group 4 Mortgage Loans
----------------------
<S> <C>
Number of Mortgage Loans.................... 133
Aggregate Scheduled
Principal Balance........................ $43,397,142
Minimum Scheduled Principal Balance......... $84,752
Maximum Scheduled Principal Balance......... $844,736
Average Scheduled Principal Balance......... $326,294
Minimum Mortgage Rate....................... 6.500% per annum
Maximum Mortgage Rate....................... 8.000% per annum
Weighted Average Mortgage Rate.............. 7.367% per annum
Weighted Average Net Rate................... 7.152% per annum
Minimum Remaining Term
to Stated Maturity....................... 146 months
Maximum Remaining Term
to Stated Maturity....................... 180 months
Weighted Average Remaining Term
to Stated Maturity....................... 178 months
Weighted Average Original Loan-to-Value
Ratio..................................... 70.53%
Location of Mortgaged Property
California............................... 50.00%
Texas.................................... 6.29%
Colorado................................. 4.36%
Other ................................... 39.35%
Group 5 Mortgage Loans
----------------------
Number of Mortgage Loans..................... 214
Aggregate Scheduled
Principal Balance......................... $71,757,609
Minimum Scheduled Principal Balance.......... $231,814
Maximum Scheduled Principal Balance.......... $809,368
Average Scheduled Principal Balance.......... $335,316
Minimum Mortgage Rate........................ 6.500% per annum
Maximum Mortgage Rate........................ 8.250% per annum
Weighted Average Mortgage Rate............... 7.314% per annum
Weighted Average Net Rate.................... 7.091% per annum
Minimum Remaining Term
to Stated Maturity........................ 179 months
Maximum Remaining Term
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
to Stated Maturity........................ 360 months
Weighted Average Remaining Term
to Stated Maturity........................ 353 months
Weighted Average Original Loan-to-Value
Ratio...................................... 77.91%
Location of Mortgaged Property
California................................ 24.64%
Massachusetts............................. 8.17%
Texas..................................... 7.89%
Other .................................... 59.30%
Net Rate................................ The "Net Rate" for each Mortgage Loan is the Mortgage Rate less the
sum of the applicable Master Servicing Fee and Trustee's Fee
(each, as defined in the Agreement) 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 for each Mortgage Loan will be
0.25% per annum with respect to Mortgage Loans serviced by NAMC
and between 0.20% and 1.075% per annum with respect to Mortgage
Loans serviced by PHH. Any PHH Master Servicing Fee in excess of
0.20% per annum will be set aside to pay for lender funded
mortgage insurance and will not be treated as servicing
compensation to PHH and will not be available to make
Compensating Interest Payments (as defined herein). It is
expected that the Trustee's Fee will be 0.005% per annum of the
Scheduled Principal Balance of each Mortgage Loan as of the
related Due Date. For any Distribution Date, the "Due Date" for
a Mortgage Loan will be the date in each month on which its
Monthly Payment (as defined under "Description of the
Certificates - Distributions of Principal" herein) is due if
such due date is the first day of a month and otherwise is
deemed to be the first day of the following month.
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 related Due
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, as defined under "Description of the Certificates -
Realized Losses" 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 immediately preceding
Prepayment Period (as defined herein); provided that the
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
Scheduled Principal Balance of any Liquidated Mortgage Loan (as
defined herein) is zero.
Distribution Dates...................... The 25th day of each month, or if such day is not a business day,
then the next succeeding business day, beginning in January 1998
(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 the related 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 in which
the Distribution Date occurs (each, a "Prepayment Period").
Distributions on the Certificates....... General. As more fully described herein, distributions with respect
to each Class of Certificates of a Certificate Group will be
payable primarily from certain collections and other recoveries
on the Mortgage Loans in the related Mortgage Loan Group except
that the Class P Certificates will be payable primarily from the
collections and other recoveries on the Discount Mortgage Loans
in Mortgage Loan Groups 1, 2, 3 and 4 and all Mortgage Loans in
Mortgage Loan Group 5 and the Class X and the Group B
Subordinate Certificates will be payable primarily from the
collections and other recoveries on the Mortgage Loans in both
Mortgage Loan Groups 1 and 2. On each Distribution Date, (i) the
Group 1 Senior Certificates and the Group 2 Senior Certificates
will be entitled to receive all amounts distributable to them
for such Distribution Date before any distributions are made to
the Group B Subordinate Certificates on such date, (ii) the
Group 3 Senior Certificates, Group 4 Senior Certificates and
Group 5 Senior Certificates will be entitled to receive all
amounts distributable to them for such Distribution Date before
any distributions are made to the Group 3 Subordinate
Certificates, the Group 4 Subordinate Certificates and the Group
5 Subordinate Certificates, respectively, on such date and (iii)
the Subordinate Certificates of each Class of a Certificate
Group 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 of
such Certificate Group with a higher numerical Class
designation. In general, an amount equal to the Available Funds
for each Mortgage Loan Group for such Distribution Date will be
allocated first, to pay interest due the holders of the interest
bearing Class or Classes of Senior Certificates of the related
Certificate Group (or Groups in
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
the case of the Class X Certificates); second, to pay interest
due the holders of the interest bearing Class or Classes of
Senior Certificates of the related Certificate Group (or Groups
in the case of the Class X Certificates), which remains unpaid
from prior periods; third, to reduce the Current Principal
Amounts (as defined herein) of the Senior Certificates of the
related Certificate Group (or Groups in the case of the Class P
Certificates) with respect to principal on the Mortgage Loans in
the related Mortgage Loan Group (or Groups in the case of the
Class P Certificates); fourth, in the case of Available Funds
from Mortgage Loan Groups 1, 2, 3 and 4, subject to the
limitations described herein, to pay the applicable Component P
Deferred Amount (as defined herein) for the P Component of the
related Certificate Group for such Distribution Date to the
Class P Certificates, but only from amounts that would otherwise
be distributable on such Distribution Date as principal on the
Subordinate Certificates of the related Certificate Group (or in
the case of Certificate Groups 1 and 2 combined, the Group B
Subordinate Certificates); and fifth, (i) in the case of
Mortgage Loan Group 1 and Mortgage Loan Group 2, to pay interest
on and then principal of each Class of Group B Subordinate
Certificates and (ii) in the case of the other Mortgage Loan
Groups, to pay interest on and then principal of each Class of
Subordinate Certificates of the related Certificate Group in the
order of their numerical Class designations. The available funds
for all Mortgage Loan Groups 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.
Interest. Interest will accrue during the preceding Interest Accrual
Period for each Class (other than the Class P Certificates) at
the rate for such Class set forth or determined as provided on
the cover page hereof (each, a "Pass-Through Rate") on the
Current Principal Amount (or in the case of the Class 1-A-X1,
Class 1-A-X2, Class X, Class 3-X or Class 4-X Certificates, the
Notional Amount) of such Class immediately preceding such
Distribution Date. With respect to each Distribution Date, the
"Interest Accrual Period" for each Class of Certificates will be
the calendar month preceding the month in which the Distribution
Date occurs, except for the Class 1-A-5 and Class 1-A-6
Certificates, which will be the period beginning on the 25th day
of the month preceding the month in which the Distribution Date
occurs and ending on the 24th day of the month in which the
Distribution Date occurs, in each case commencing in December
1997. Interest will be calculated on the basis of a 360-day year
comprised of twelve 30-day months.
The Class P Certificates are principal only Certificates and will not
bear interest.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
Interest accrued on the Class 2-A-3 Certificates during each Interest
Accrual Period will not be distributed as interest to such Class
through the Group 1 and 2 Cross-Over Date (as defined herein)
but will be added to the principal amount thereof on the related
Distribution Date.
On each Distribution Date, interest will be distributable on each
interest-bearing Class of Senior Certificates from the Available
Funds for its related Mortgage Loan Group, and (i) from Mortgage
Loan Group 1 and Mortgage Loan Group 2 with respect to the Group
B Subordinate Certificates and (ii) from Mortgage Loan Group 3,
Mortgage Loan Group 4 and Mortgage Loan Group 5 with respect to
the Group 3 Subordinate Certificates, the Group 4 Subordinate
Certificates and the Group 5 Subordinate Certificates,
respectively, 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
Notional Amount, as applicable, 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, after the Distribution Date on
which the Current Principal Amounts of the Subordinate
Certificates in the related Certificate Group (or Groups in the
case of Group 1 and Group 2 Certificates) are reduced to zero
(the "Group 1 and 2 Cross-Over Date", the "Group 3 Cross-Over
Date" the "Group 4 Cross-Over Date" the "Group 5 Cross-Over
Date" and each, a "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
applicable to its related Mortgage Loan Group (or Groups in the
case of Group B Subordinate Certificates).
Such Net Interest Shortfall will be allocated among the Certificates
in proportion to the amount of Accrued Certificate Interest that
would have been allocated thereto in the absence of such
shortfalls. The interest portion of Realized Losses in a
Mortgage Loan Group (or Groups in the case of Mortgage Loan
Group 1 and 2) will be allocated first to the Subordinate
Certificates in the related Certificate Group in reverse order
of their numerical designations commencing with the Class B-6
Certificates, the Class 3-B-6 Certificates, the Class 4-B-6
Certificates and the Class 5-B-6 Certificates, respectively, and
following the applicable Cross-Over Date, such Realized Losses
will be
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
allocated pro rata to the Classes of Senior Certificates (other
than the Class P Certificates) in the related Certificate Group
except that after the Group 1 and 2 Cross-Over Date, the Senior
Support Certificates will bear the interest portion of any
Realized Losses otherwise allocable to the Super Senior
Certificates.
Any Interest Shortfalls resulting from prepayments on NAMC or PHH
Mortgage Loans during the related Prepayment Period will be
offset by the related Master Servicer to the extent such
Interest Shortfalls do not exceed the related Master Servicing
Fee in connection with such Distribution Date (the amount of
such fee so used, a "Compensating Interest Payment").
Compensating Interest Payments with respect to an NAMC Mortgage
Loan or a PHH Mortgage Loan in a Mortgage Loan Group will be
made first from the Master Servicing Fee of NAMC or PHH, as the
case may be, with respect to the NAMC Mortgage Loans or the PHH
Mortgage Loans in such Mortgage Loan Group and only if such
funds are insufficient therefor, from any available remaining
Master Servicing Fee of the relevant Master Servicer relating to
the other Mortgage Loan Groups. Neither Master Servicer will be
required to make Compensating Interest Payments with respect to
Interest Shortfalls relating to Mortgage Loans of the other
Master Servicer. 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 1-A-X1, Class 1-A-X2, Class X, Class 3-X or Class 4-X
Certificate) or a P Component as of any Distribution Date will
equal such Certificate's or Component's initial principal amount
on the Closing Date, plus in the case of the Class 2-A-3
Certificates, all amounts added to the principal balance thereof
with respect to the Accrual Amount (as defined herein), as
reduced by (i) all amounts distributed on previous Distribution
Dates on such Certificate or Component on account of principal,
(ii) the principal portion of all Realized Losses previously
allocated to such Certificate or Component taking account of the
applicable Group Loss Allocation Limitation (as defined herein)
and (iii) in the case of a Subordinate Certificate, such
Certificate's pro rata share, if any, of the applicable
Subordinate Certificate Writedown Amount (as defined herein) and
the applicable Component P Deferred Payment Writedown Amount (as
defined herein), in each case for previous Distribution Dates
and such Certificate's pro rata share, if any, of the applicable
Component P Deferred Payment Writedown Amount (as defined
herein) for previous Distribution Dates.
The Notional Amounts of the Class 1-A-X1 Certificates and the Class
1-A-X2 Certificates on any Distribution Date will be equal to
the
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Current Principal Amounts of the Class 1-A-1 and Class 1-A-2
Certificates, respectively.
The Notional Amounts of the Class X Certificates, the Class 3-X
Certificates and the Class 4-X Certificates will be equal to the
aggregate Scheduled Principal Balances of the Group 1 and Group
2 Mortgage Loans, the Group 3 Mortgage Loans and the Group 4
Mortgage Loans, respectively. The Notional Amount of the Class X
Certificates is composed of two components ("Component X-1" and
"Component X-2") equal to the Scheduled Principal Balances of
the Group 1 and Group 2 Mortgage Loans, respectively.
Principal. Principal will be distributable monthly on the Senior
Certificates of each Certificate Group (other than the Class
1-A-X1, Class 1-A-X2, Class X, Class 3-X and Class 4-X
Certificates) on each Distribution Date in an aggregate amount
equal to the applicable Senior P & I Optimal Principal Amount,
plus in the case of Certificate Groups 1, 2, 3 and 4, the
applicable Component P Principal Distribution Amount (each as
defined herein), plus in the case of the Group 2 Certificates
through the Group 1 and 2 Cross-Over Date, an amount equal to
the Accrued Certificate Interest on the Class 2-A-3
Certificates, for such Distribution Date, to the extent of the
Available Funds for the relevant Mortgage Loan Group for such
Distribution Date remaining after distributions of interest are
made on the Senior Certificates of the relevant Certificate
Group on such date. Subject to such limitation, the applicable
Senior P & I Optimal Principal Amount and in the case of
Certificate Groups 1, 2, 3 and 4, the applicable Component P
Principal Distribution Amount will be allocated among the Senior
Certificates of the relevant Certificate Group offered hereby in
the manner described herein.
Principal will be distributed monthly on each Class of Subordinate
Certificates of a Certificate Group 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
Available Funds for the relevant Mortgage Loan Group (or Groups
in the case of the Group B Subordinate Certificates) remaining
after (i) distributions of interest and principal have been made
on each Class of Senior Certificates of such Certificate Group
entitled thereto and each Class of Subordinate Certificates of
such Certificate Group, if any, with a lower numerical Class
designation than such Class, (ii) in the case of Certificate
Groups 1, 2, 3 and 4, any applicable Component P Deferred Amount
relating to the P Component of such Certificate Group for such
Distribution Date has, subject to the limitations described
herein, been distributed in respect of the Class P Certificates
and (iii) distributions of interest have been made on such Class
of Subordinate Certificates.
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The Class 1-A-1 and Class 1-A-2 Certificates are planned
amortization classes and are sometimes collectively referred to
as the "PAC I Certificates." The Class 1-A-3 and Class 1-A-4
Certificates also are planned amortization classes and are
sometimes collectively referred to as the "PAC II Certificates,"
and together with the PAC I Certificates, as the "PAC
Certificates." To the extent that funds are available to make
distributions in reduction of the Current Principal Amounts of
each of the Classes of PAC Certificates on each Distribution
Date, each such Class will be entitled to receive the amount, if
any, required to reduce the outstanding Current Principal Amount
thereof (prior to giving effect to distributions in reduction
thereof to be made on such Distribution Date) for such
Distribution Date to the planned balance (each a "Planned
Balance") for such Class set forth in Annex B hereof.
No distributions of principal are intended to be made with respect
to the Class 1-A-9 and Class 2-A-4 Certificates prior to the
Distribution Date in January 2003.
Distributions of principal of 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.
Component P Deferred Amount. On each Distribution Date, the PO
Percentage (as defined herein) of the principal portion of any
Realized Loss in respect of a Mortgage Loan in Mortgage Groups
1, 2, 3 and 4 with a Net Rate less than 7.00%, 7.00%, 7.25% and
7.00%, respectively, (each, a "Discount Mortgage Loan") will be
allocated to the P Component of the related Certificate Group.
See "Description of the Certificates - Allocation of Losses;
Subordination." On each Distribution Date through the applicable
Cross-Over Date for Certificate Groups 1, 2, 3 and 4, the
Stripped P Components will be entitled to receive, to the extent
of Available Funds for the related Mortgage Loan Group remaining
after distributions of interest and principal on the Senior P&I
Certificates for such Certificate Group have been made on such
Distribution Date any applicable Component P Deferred Amount
relating to such Stripped P Component for such Distribution
Date; provided, that distributions in respect of any such
Component P Deferred Amount on any Distribution Date will not
exceed the excess, if any, of (x) the Available Funds for the
relevant Mortgage Loan Group remaining after giving effect to
the distributions pursuant to clauses first through third under
"Description of the Certificates--Distributions on the
Certificates" for such Certificate Group herein over (y) the sum
of the amount of Accrued Certificate Interest for such
Distribution Date and Accrued Certificate Interest remaining
undistributed from previous Distribution Dates on all Classes of
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Subordinate Certificates of such Certificate Group (or in the
case of the Stripped P Components for Group 1 and Group 2, the
Group B Subordinate Certificates). Distributions in respect of
the applicable Component P Deferred Amount for the Stripped P
Component of a Certificate Group shall not reduce the Current
Principal Amount of such Stripped P Component. The Component
P-1, Component P-2, Component P-3, and Component P-4 Deferred
Amount (each a "Component P Deferred Amount" and in the
aggregate the "Component P Deferred Amount") means, as to each
related Stripped P Component and each Distribution Date through
the applicable Cross-Over Date for each Certificate Group, the
aggregate of all amounts allocable on such dates to the Stripped
P Component of such Certificate Group in respect of the
principal portion of Realized Losses in respect of Discount
Mortgage Loans in the related Mortgage Loan Group and the
applicable Component P Cash Shortfall (as defined herein) for
such Stripped P Component and all amounts previously allocated
in respect of such losses and such shortfalls to such Stripped P
Component, 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
all other Certificates on such date and (ii) the proceeds, if
any, of the assets of the Trust remaining after the Current
Principal Amount or Notional Amount, as applicable, 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 Group 1 Senior Certificates and the Group
2 Senior Certificates will be provided by the Group B
Subordinate Certificates. Credit enhancement for the Group 3
Senior Certificates, the Group 4 Senior Certificates and the
Group 5 Senior Certificates will be provided by the Group 3
Subordinate Certificates, the Group 4 Subordinate Certificates
and the Group 5 Subordinate Certificates, respectively. Credit
enhancement for each Class of Subordinate Certificates of a
Certificate Group will be provided by the Class or Classes of
Subordinate Certificates of such Certificate Group with higher
numerical Class designations.
Credit Enhancement --
Subordination........................ The rights of the holders of the Group B Subordinate Certificates
to receive distributions with respect to the Group 1 Mortgage
Loans and the Group 2 Mortgage Loans will be subordinated to
such rights of the holders of the Group 1 Senior Certificates
and the Group 2 Senior Certificates and of each Class of the
Group B
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Subordinate Certificates having a lower numerical Class
designation than such Class. The rights of the holders of the
Group 3 Subordinate Certificates, the Group 4 Subordinate
Certificates and the Group 5 Subordinate Certificates to receive
distributions with respect to the Group 3 Mortgage Loans, the
Group 4 Mortgage Loans and the Group 5 Mortgage Loans,
respectively, will be subordinated to such rights of the holders
of the Group 3 Senior Certificates, the Group 4 Senior
Certificates and the Group 5 Senior Certificates, respectively,
and to each Class of Subordinate Certificates of the related
Certificate Group having a lower numerical designation than such
Class. The subordination of the Group B Subordinate Certificates
to the Group 1 Senior Certificates and the Group 2 Senior
Certificates and of each of the other Groups of Subordinate
Certificates to its related Group of Senior Certificates and the
further subordination among the Subordinate Certificates of a
Certificate Group, are each intended to increase the likelihood
of timely receipt by the holders of the 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, including Special Hazard Losses, Fraud Losses
and Bankruptcy Losses (each as defined herein). However, in
certain circumstances, the amount of available subordination may
be exhausted and shortfalls in distributions on the Offered
Certificates could result. Holders of Senior Certificates of a
Certificate Group will bear their pro rata share of any Realized
Losses with respect to Mortgage Loans in the related Mortgage
Loan Group in excess of the available total subordination
amount; provided that on and after the Group 1 and 2 Cross-Over
Date, the Super Senior Certificates and the Senior Support
Certificates will bear Realized Losses disproportionately with
the other Group 2 Senior Certificates due to the credit
enhancement provided by the Senior Support Certificates to the
Super Senior Certificates. See "Description of the Certificates
- Distributions on the Certificates," "--Allocation of Losses;
Subordination" and " - Subordination" herein.
As of the Closing Date, (i) the aggregate Current Principal Amounts
of the Group B Subordinate Certificates and of the Other
Certificates which are part of the Group B Subordinate
Certificates will equal approximately 4.75% and 0.80% of the
aggregate Current Principal Amounts of all the Classes of the
Group 1 Certificates, the Group 2 Certificates and the Group B
Certificates, (ii) the aggregate Current Principal Amounts of
the Group 3 Subordinate Certificates and of the Other
Certificates which are part of the Group 3 Subordinate
Certificates will equal approximately 8.50% and 1.50% of the
aggregate Current Principal Amounts of all of the Classes of
Group 3 Certificates, (iii) the aggregate Current Principal
Amounts of the Group 4 Subordinate Certificates and of the Other
Certificates which are
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part of the Group 4 Subordinate Certificates will equal
approximately 3.25% and 0.70% of the aggregate Current Principal
Amounts of all the Classes of Group 4 Certificates, and (iv) the
aggregate Current Principal Amounts of the Group 5 Subordinate
Certificates and of the Other Certificates which are part of the
Group 5 Subordinate Certificates will equal approximately 3.75%
and 0.60% of the aggregate Current Principal Amounts of all of
the Classes of Group 5 Certificates.
In addition, to extend the period during which the Group B
Subordinate Certificates remain available as credit enhancement
to the Group 1 Senior Certificates and the Group 2 Senior
Certificates, and the Group 3 Subordinate Certificates, the
Group 4 Subordinate Certificates and the Group 5 Subordinate
Certificates remain available as credit enhancement to the Group
3 Senior Certificates, the Group 4 Senior Certificates, and the
Group 5 Senior Certificates, respectively, the entire amount of
any prepayments and certain other unscheduled recoveries of
principal with respect to the Mortgage Loans in the related
Mortgage Loan Group or Groups will be allocated to the Senior
Certificates in the related Certificate Group to the extent
described herein during the first five years after the related
Cut-off Date (with such allocation being subject to reduction
over an additional five year period thereafter as described
herein). This allocation has the effect of accelerating the
amortization of the Senior Certificates in each Certificate
Group as a whole while, in the absence of losses in respect of
the Mortgage Loans in the related Mortgage Loan Group,
increasing the percentage interest in the principal balance of
the Mortgage Loans in such Mortgage Loan Group or Groups
evidenced by the related Subordinate Certificates. See
"Description of the Certificates - Distributions on the
Certificates" and " - Subordination" herein.
Monthly Advances........................ Each Master Servicer will be obligated to advance delinquent
scheduled payments of principal and interest on Mortgage Loans
which it services under certain circumstances (each such
advance, a "Monthly Advance"). See "The Pooling and Servicing
Agreement - Monthly Advances" herein.
Allocation of Losses.................... Realized Losses (other than a Debt Service Reduction) on the
Mortgage Loans in each Mortgage Loan Group will be allocated as
follows: (i) the applicable Non-PO Percentage of the principal
portion of such Realized Losses will be allocated to the
Certificates of each Certificate Group (other than the Stripped
P Components of Certificate Groups 1, 2, 3 and 4), first, to the
Subordinate Certificates of such Certificate Group in the
inverse order of their numerical Class designations and then pro
rata to the Senior Certificates of such Certificate Group (other
than the Stripped P Component of Certificate Groups 1, 2, 3 and
4) until, in each case, the Current Principal Amount of each
such Class of Certificates is reduced to zero (except that after
the Group 1 and
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2 Cross-Over Date, the Senior Support Certificates will bear
Realized Losses otherwise allocable to the Super Senior
Certificates); and (ii) the applicable PO Percentage of any such
loss will be allocated, to the extent described herein, among
the Subordinate Certificates of such Certificate Group in the
inverse order of their numerical Class designation, through the
operation of the applicable Component P Deferred Payment
Writedown Amount for the Stripped P Component of Certificate
Groups 1, 2, 3 and 4. See "Description of the Certificates -
Allocation of Losses; Subordination" herein.
Neither the Offered Certificates nor the Mortgage Loans are insured
or guaranteed by a governmental agency or instrumentality or by
BSMSI, the Trustee, Name, PHH, BSMCC, or any affiliate thereof
or any other person.
Yield and Prepayment
Considerations....................... General Considerations. The yield to maturity of each Class of
Certificates will be affected by the amount and timing of
principal payments on the Mortgage Loans in the related
Mortgage Loan Group or Groups, the allocation of Available
Funds 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. 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 anticipated rate of
prepayments on the Mortgage Loans, the amount and timing of
Realized Losses or Net Interest Shortfalls or as to 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
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principal on the Mortgage Loans. In general, the Mortgage Loans
may be prepaid at any time without penalty.
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 Mortgage Loans may
significantly affect an investor's yield. In general, the
earlier a prepayment of principal on the 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
Certificateholders (other than the holders of the Class 1-A-5
and Class 1-A-6 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 (except
with respect to the Class 1-A-5 and Class 1-A-6 Certificates),
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.
Discounts and Premiums. In the case of any Certificates purchased at
a discount (including the Class P Certificates), 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 Certificates purchased at a premium (including each Class of
Interest Only Certificates), 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 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
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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.
Weighted Average Interest Rates. Because the Pass-Through Rate
applicable (i) to each of the Class X Certificates, the Class
3-X Certificates and the Class 4-X Certificates will equal or be
based upon the weighted average of the excess, if any, of the
Net Rates of each Mortgage Loan in the applicable Group or
Groups of Mortgage Loans over a specified percentage for each
such Group or Groups and (ii) to each Class of the Group 5
Certificates (other than the Component P-5) will be based upon
the weighted average of the Net Rates of all of the Mortgage
Loans in Mortgage Loan Group 5, disproportionate prepayments of
Mortgage Loans with higher Net Rates in the related Mortgage
Loan Group or Groups will adversely affect the yield on such
Classes. Mortgage Loans with higher Net Rates will have higher
Mortgage Rates as well, and such Mortgage Loans are likely to
prepay at rates that are faster than those applicable to
Mortgage Loans with lower Mortgage Rates with adverse effects on
the yields on the Certificates.
Subordination of Certain Classes of Certificates. The rights of the
holders of the Group B Subordinate Certificates to receive
distributions with respect to the Group 1 Mortgage Loans and the
Group 2 Mortgage Loans will be subordinated to such rights of
the holders of the Group 1 Senior Certificates and the Group 2
Senior Certificates and of each Class of the Group B Subordinate
Certificates having a lower numerical Class designation than
such Class. The rights of the holders of the Group 3 Subordinate
Certificates, the Group 4 Subordinate Certificates and the Group
5 Subordinate Certificates to receive distributions with respect
to the Group 3 Mortgage Loans, the Group 4 Mortgage Loans and
the Group 5 Mortgage Loans, respectively, will be subordinated
to such rights of the holders of the Group 3 Senior
Certificates, the Group 4 Senior Certificates and the Group 5
Senior Certificates, respectively, and to each Class of
Subordinate Certificates of the related Certificate Group having
a lower numerical designation than such Class. The level of
subordination available as support to the Senior Certificates of
a Certificate Group will be directly affected by the rate and
timing of prepayments and the occurrence of Realized Losses.
Prepayments. The applicable Non-PO Percentage (as defined herein) of
prepayments on the Mortgage Loans in any Mortgage Loan
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Group will be allocated solely to the Senior P&I Certificates
(other than the Interest Only Certificates) of the related
Certificate Group during 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 five years
until the Senior P&I Certificates (other than the Interest Only
Certificates) of a Certificate Group and the related Subordinate
Certificates share pro rata in such allocations. The entire
amount of the applicable PO Percentage of any prepayment on
Mortgage Loans in Mortgage Loan Groups 1, 2, 3 and 4 will be
allocated solely to the Stripped P Components of the Class P
Certificates as long as such Certificates are outstanding.
Consequently, during not less than the first ten years after the
Closing Date, prepayments will have the effect of accelerating
the amortization of the Senior P&I Certificates (other than the
Interest Only Certificates) and the Stripped P Components while
increasing the percentage interest in the respective Group of
Mortgage Loans evidenced by the related Subordinate
Certificates. In addition, in order to maintain the relative
subordination among the Subordinate Certificates of a
Certificate Group, the applicable Non-PO Percentage of
prepayments and certain other unscheduled recoveries of
principal in respect of the Mortgage Loans of the related
Mortgage Group or Groups will not be distributable to the
holders of any Class of Subordinate Certificates of such
Certificate Group on any Distribution Date for which the related
Class Prepayment Distribution Trigger is not satisfied except as
otherwise described herein. If the Class Prepayment Distribution
Trigger is not satisfied with respect to any Class of
Subordinate Certificates of a Certificate Group, the
amortization of those Classes of Subordinate Certificates with a
lower numerical class designation may occur more rapidly then
would otherwise have been the case and, in the absence of losses
in respect of the Mortgage Loans of the related Mortgage Loan
Group or Groups, the percentage interest in the principal
balance of the Mortgage Loans evidenced by such Class of
Subordinate Certificates may increase.
Sequential Pay Senior P&I Certificates. The Classes of Senior P&I
Certificates of the Certificate Groups 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 Mortgage Loans of the related Mortgage Loan Group 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 experienced both before and after the
commencement of principal distributions on such Classes. In
addition, because principal distributions are paid to certain
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Classes of Senior P&I Certificates (other than the Interest Only
Certificates) of a Certificate Group before other Classes of
Senior P&I Certificates (other than the Interest Only
Certificates) of such Certificate Group, holders of Senior P&I
Certificates (other than the Interest Only Certificates) that
receive principal later bear a greater risk of being allocated
Realized Losses on the Mortgage Loans of the related Mortgage
Loan Group than holders of such Classes that receive principal
earlier.
PAC Certificates. The Group 1 Senior Certificates have been
structured to provide for relatively stable distributions of
principal to the PAC Certificates. Using the modeling
assumptions described in "Description of the Certificates --
Distributions on the Certificates -- Distributions in Reduction
of the Current Principal Amount of the PAC Certificates" herein,
the outstanding principal balance of each of the Classes of the
PAC I Certificates and the PAC II Certificates will be reduced
to its respective Planned Balance (as defined herein) for each
Distribution Date if prepayments on the Mortgage Loans in
Mortgage Loan Group 1 occur at a constant rate within the range
of approximately 125% to approximately 400% SPA (as defined
herein) with respect to the PAC I Certificates and at a constant
rate within the range of approximately 175% to approximately
275% SPA with respect to the PAC II Certificates. To the extent
that prepayments on the Group 1 Mortgage Loans occur at a
constant rate below approximately 125% SPA with respect to the
PAC I Certificates or below approximately 175% SPA with respect
to the PAC II Certificates, the Group 1 Available Funds
allocable as payments of principal on each Distribution Date may
be insufficient to make distributions of principal on the PAC I
and PAC II Certificates, respectively, in amounts sufficient to
reduce their Current Principal Amounts in accordance with their
Planned Balances 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 rate higher
than approximately 400% SPA with respect to the PAC I
Certificates and higher than approximately 275% SPA with respect
to the PAC II Certificates, the weighted average lives of such
Certificates may be shortened.
Interest Only Certificates. Because the Notional Amounts of the Class
X, Class 3-X and Class 4-X Certificates will be based upon the
Scheduled Principal Balances of the Group 1 and Group 2 Mortgage
Loans, the Group 3 Mortgage Loans and the Group 4 Mortgage
Loans, respectively, the yield on the Class X, Class 3-X and
Class 4-X Certificates will be sensitive to the rate and timing
of principal payments of the Group 1 and Group 2 Mortgage Loans,
the Group 3 Mortgage Loans and the Group 4 Mortgage Loans,
respectively. The yield on the Class 1-A-X1 and Class 1-A-X2
Certificates also will be sensitive to the rate and timing of
principal payments of the Group 1 Mortgage
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Loans, because the Notional Amounts of the Class 1-A-X1 and
Class 1-A-X2 Certificates are based on the Current Principal
Amounts of the Class 1-A-1 and Class 1-A-2 Certificates,
respectively. A rapid rate of principal payments on the
applicable Group or Groups of Mortgage Loans will have a
materially negative effect on the yield to investors in the
related Class of Interest Only 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 each such Class of Certificates to recover fully
their initial investments. See "Yield and Prepayment
Considerations -- Yield on the Interest Only Certificates."
Class P Certificates. The amounts payable with respect to the
Stripped P Components of the Class P Certificates generally
derive only from principal payments on the Discount Mortgage
Loans in the related Mortgage Loan Group. As a result, the yield
on the Stripped P Components of the Class P Certificates will be
adversely affected by slower than expected payments of principal
(including prepayments, defaults and liquidations) on the
Discount Mortgage Loans in the related Mortgage Loan Group.
Because Discount Mortgage Loans in each Mortgage Loan Group have
lower Net Rates than the Non-Discount Mortgage Loans of such
Mortgage Loan Group, and because the Mortgage Loans with lower
Net Rates are likely to have lower Mortgage Rates, the Discount
Mortgage Loans of each Mortgage Loan Group are generally likely
to prepay at a slower rate than the Non-Discount Mortgage Loans
of such Mortgage Loan Group. See "Yield and Prepayment
Considerations -- Yield on the Class P 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 REMIC that substantially exceed the principal
and interest payable thereon during such periods.
Liquidity............................... There is currently no secondary market for the Certificates, and
there can be no assurance that one will develop. Bear, Stearns &
Co. Inc. intends to establish a market in the 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
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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
Cut-off Date Scheduled Principal Balance of the Mortgage Loans,
BSMSI 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 Agreement. The
Trust may also be terminated and the Certificates retired on any
Distribution Date upon the determination by BSMSI, 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. 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 and Class R-2 Certificates) will be
designated as regular interests in REMIC I and are herein
referred to as the "Regular Certificates" or the "REMIC Regular
Certificates." The Class R-1 Certificates and Class R-2
Certificates will be designated as the residual interest in
REMIC I and REMIC II, respectively (collectively, the "Residual
Certificates" or the "REMIC Residual Certificates"). See
"Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences" 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
Offered 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 Offered Certificates will cause the
</TABLE>
S-31
<PAGE>
<TABLE>
<S> <C>
assets of the Trust ("Trust Assets") to be considered plan
assets pursuant to the plan asset regulations set forth in 29
C.F.R. Section 2510.3-101, thereby subjecting the Plan to the
prohibited transaction rules with respect to the Trust Assets
and the Trustee or the Master Servicers 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 Offered
Certificates.
Subject to the considerations set forth under "ERISA Considerations"
herein and in the Prospectus, the purchase or holding of the
Senior Certificates (other than the Senior Support 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 Subordinate Certificates and the Senior Support Certificates
generally may be purchased by, on behalf of, or with plan assets
of, a Plan, if 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 applicable Certificates
and the operation, servicing and management of the Trust and its
assets, 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 - REMIC
Residual Certificates - Tax on Disposition of REMIC Residual
Certificates; 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 The
First National Bank of Chicago, acting as agent for the Holders
of the Residual Certificates as tax matters person (the "Tax
Matters Person"), which may be withheld to avoid a risk of REMIC
disqualification or REMIC-level tax. See "Certain Federal Income
Tax Consequences - REMIC Residual Certificates - Tax on
Disposition of REMIC Residual Certificates; 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
S-32
<PAGE>
</TABLE>
<TABLE>
<S> <C>
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 the Residual Certificates, see
"Certain Federal Income Tax Consequences - REMIC Residual
Certificates - Mismatching of Income and Deductions; Excess
Inclusions" 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 Moody's
Investors Service, Inc. ("Moody's") and Duff & Phelps Credit
Rating Co. ("DCR"). Moody's and DCR are referred to herein as
the "Rating Agencies."
</TABLE>
Rating
--------------------------------
Class Moody's DCR
----- ------------- -----------
Class P Aaa AAA
Class 1-A-1 Aaa AAA
Class 1-A-X1 Aaa AAA
Class 1-A-2 Aaa AAA
Class 1-A-X2 Aaa AAA
Class 1-A-3 Aaa AAA
Class 1-A-4 Aaa AAA
Class 1-A-5 Aaa AAA
Class 1-A-6 Aaa AAA
Class 1-A-7 Aaa AAA
Class 1-A-8 Aaa AAA
Class 1-A-9 Aaa AAA
Class 2-A-1 Aaa AAA
Class 2-A-2 Aaa AAA
Class 2-A-3 Aaa AAA
Class 2-A-4 Aaa AAA
Class X Aaa AAA
Class B-1 - AA
Class B-2 - A
Class B-3 - BBB
Class 3-A Aaa AAA
Class 3-X Aaa AAA
Class 3-B-1 - AA
Class 3-B-2 - A
Class 3-B-3 - BBB
Class 4-A Aaa AAA
Class 4-X Aaa AAA
Class 4-B-1 - AA
Class 4-B-2 - A
Class 4-B-3 - BBB
Class 5-A Aaa AAA
Class 5-B-1 - AA
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<PAGE>
Rating
--------------------------------
Class Moody's DCR
----- ------------- -----------
Class 5-B-2 - A
Class 5-B-3 - BBB
Class R-1 Aaa AAA
Class R-2 Aaa AAA
<TABLE>
<S> <C>
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 "Rating" herein.
BSMSI 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, Class 3-B-1, Class 4-B-1
and Class 5-B-1 Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as they are rated in
one of the two highest rating categories 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" herein and in the
Prospectus.
</TABLE>
S-34
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
The Mortgage Pool will consist of approximately 3,044 Mortgage Loans.
In general, these are first lien, fixed rate mortgages secured by one- to
four-family residences and individual condominium units located primarily in the
States of California, Texas and Massachusetts and having original terms to
stated maturity raging from 15 to 30 years. All of the Mortgage Loans are
conventional mortgage loans. All of the Mortgage Loans with Loan-to-Value Ratios
(as defined herein) in excess of 80% have primary mortgage insurance. The
Cut-off Date Scheduled Principal Balance of each Mortgage Loan Group set forth
herein is subject to a permitted variance of up to 10%. The Mortgage Loans have
been divided into five groups ("Group 1 Mortgage Loans," "Group 2 Mortgage
Loans," "Group 3 Mortgage Loans," "Group 4 Mortgage Loans" and "Group 5 Mortgage
Loans"), each of which constitutes a separate sub-trust. The following
paragraphs and the tables set forth in Annex A set forth additional information
with respect to the Mortgage Pool in the aggregate and each Mortgage Loan
Group.*
Approximately $349,506,156 of the Mortgage Loans (the "NAMC Mortgage
Loans") were originated or acquired by the North American Mortgage Corporation
("NAMC"). Approximately $433,452,055 of the Mortgage Loans (the "PHH Mortgage
Loans") were originated or acquired by PHH Mortgage Services Corporation
("PHH"). In December 1997, BSMCC acquired the NAMC Mortgage Loans from NAMC and
the PHH Mortgage Loans from PHH. As of the Cut-off Date, none of the NAMC
Mortgage Loans and none of the PHH Mortgage Loans, in each case by Cut-off Date
Scheduled Principal Balance, were delinquent.
All of the Mortgage Loans in Mortgage Loan Groups 1 and 2 are so-called
Jumbo Loans. "Jumbo Loans" are mortgage loans that have principal balances at
origination that exceed the then applicable limitations for purchase by the
Federal National Mortgage Association ("FNMA") and Freddie Mac (formerly the
Federal Home Loan Mortgage Corporation) ("Freddie Mac"). Approximately 77.37% of
the Mortgaged Properties for the Mortgage Loans in Mortgage Loan Group 2 are
located in California. All of the Mortgage Loans in Mortgage Loan Group 3 have
Cut-off Date Scheduled Principal Balances of less than approximately $367,284.
The original term to stated maturity of each of the Mortgage Loans in Mortgage
Loan Group 4 was 15 years. All of the Mortgage Loans in Mortgage Loan Group 5
are Relocation Loans. "Relocation Loans" are mortgage loans made to employees of
corporations who have a substantial portion of the costs related to the mortgage
loan reimbursed by their employer. Some of the expenses eligible for
consideration include closing costs and discount points or real estate
commissions. Because mortgagors of Relocation Loans generally are more likely to
be transferred by their employers than mortgagors in general, Relocation Loans
are generally believed to prepay faster than other loans with similar
characteristics that are not Relocation Loans.
THE MASTER SERVICERS
General. Pursuant to the Agreement, NAMC will act as Master Servicer
with respect to the NAMC Mortgage Loans, which Mortgage Loans will be serviced
either by NAMC or through sub-servicers. PHH will act as Master Servicer of the
PHH Mortgage Loans, which Mortgage Loans will be serviced either by PHH or
sub-servicers, pursuant to the Agreement. With respect to those Mortgage Loans
serviced by others, each Master
- ---------------------------
* The description herein and in Annex A hereof of the Mortgage Loans and the
Mortgage Loan Groups is based upon estimates of the composition thereof as of
the Cut-off Date, as adjusted to reflect the Scheduled Principal Balances as of
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 the
dates on which BSMCC acquired the NAMC Mortgage Loans from NAMC and the PHH
Mortgage Loans from PHH, respectively, (ii) requirements of Moody's or DCR or
(iii) delinquencies or otherwise. In any such event, other mortgage loans may be
included in the Trust. BSMSI believes that the estimated information set forth
herein with respect to the Mortgage Loans and the Mortgage Loan Groups as
presently constituted is representative of the characteristics thereof at the
time the Certificates are issued, although certain characteristics of the
Mortgage Loans and the Mortgage Loan Groups may vary.
S-35
<PAGE>
Servicer will remain liable for its servicing obligations under the Agreement as
if such Master Servicer alone were servicing such Mortgage Loans. The NAMC
Mortgage Loans were originated under the programs described under "-- NAMC
Underwriting Standards" herein. PHH originated all of the PHH Mortgage Loans as
described under "-- PHH Underwriting Standards" herein.
The information set forth in the following paragraphs with respect to
NAMC and PHH has been provided by NAMC and PHH, respectively. Neither BSMSI,
BSMCC, the Underwriter, the Trustee, nor any of their respective affiliates have
made or will make any representation as to the accuracy or completeness of the
information provided by NAMC or PHH.
NAMC
On October 15, 1997 Dime Bancorp, Inc. ("DBI"), the holding company of
The Dime Savings Bank of New York, FSB ("DSB"), issued DBI common stock to the
shareholders of NAMC in exchange for their NAMC stock. DBI then directed its
wholly-owned subsidiary, DSB, to merge DSB's wholly-owned subsidiary, 47th St.
Property Corporation (an entity established as a merger subsidiary by DSB for
this transaction) with and into NAMC, with NAMC surviving as the remaining legal
entity. During November 1997, DSB merged its wholly-owned mortgage banking
subsidiary, Dime Mortgage, Inc. ("DMI"), with and into NAMC, with NAMC surviving
as the remaining legal entity.
DSB intends to originate all of its residential mortgage loans through
its NAMC subsidiary, with the exception of loans in New York and New Jersey,
which will be closed by DSB and, for agency deliveries, which will be
simultaneously sold servicing-released to NAMC. NAMC will service loans from the
former DSB servicing operation in Albion, New York and will have its executive
offices in Tampa, Florida (the former DMI headquarters). Certain operational
functions will continue to be performed in Santa Rosa, California, which was
formerly the NAMC headquarters site.
NAMC originates, acquires, sells and services mortgage loans which are
principally first-lien mortgage loans secured by single (one- to four) family
residences. NAMC also sells the servicing rights associated with a portion of
such mortgage loans.
NAMC originates mortgage loans through wholesale, retail, and
telemarketing. Substantially all mortgage loans originated by NAMC through such
sources are underwritten, funded and closed by NAMC. During 1996, NAMC
originated approximately $9.5 billion in mortgage loans. As of November 30,
1997, NAMC's largest mortgage loan origination markets were in California,
Texas, Minnesota, Florida and Arizona. As of November 30, 1997, NAMC operated
160 origination offices located in 38 states.
NAMC customarily sells all of the mortgage loans it originates,
generally retaining the right to service such loans. NAMC sells the majority of
the conventional mortgage loans it originates under purchase and guarantee
programs sponsored by Freddie Mac and FNMA. NAMC's mortgage loans insured by FHA
or partially guaranteed by VA or the Farmers Home Administration are pooled to
form GNMA securities. NAMC sells FNMA, Freddie Mac and GNMA securities to
investment banking firms that are usually primary dealers in government
securities. Mortgage loans not conforming to requirements of such agencies are
sold to private institutional investors.
NAMC also engages in mortgage loan servicing, which includes the
processing of mortgage loan payments and the administration of mortgage loans.
The primary source of servicing is from mortgage loans it has originated and
sold. At June 30, 1997, NAMC's loan servicing portfolio totaled $12.7 billion.
In addition to its mortgage banking activity, NAMC wholly owns an
insurance agency known as North American Mortgage Insurance Services ("NAMIS").
NAMIS is a California corporation that offers a full range of insurance products
in most states where NAMC originates mortgage loans.
S-36
<PAGE>
At November 30, 1997, NAMC had approximately 3,573 employees. NAMC's
executive offices are located at 6200 Courtney Campbell Causeway, Suite 300,
Tampa, FL 33607, and its telephone number is (813) 636-5500.
NAMC Underwriting Standards
General. The underwriting guidelines utilized in the "Flex Series
Program" are generally less restrictive than the standards set forth by Freddie
Mac and FNMA, particularly with respect to loan-to-value ratios, borrower
income, required documentation, borrower occupancy of the mortgaged property
and/or property types. The Flex Series Program consists of two mortgage loan
programs. Each program has different loan amounts, reserve requirements, debt
service-to-income ratios and Loan-to-Value Ratio restrictions. The "Gold Flex
Program" is more restrictive with less credit risk than the "Flex Extra
Program." The Flex Extra Program offers higher loan amounts, investor properties
to 90% Loan-to-Value Ratios and expanded underwriting guidelines.
The Gold Flex Program underwriting guidelines for purchase money or
rate/term refinance loans secured by primary residences generally allow
Loan-to-Value Ratios at origination of up to 95% for mortgage loans with
original principal balances of up to $300,000, up to 90% for mortgage loans with
original principal balances of up to $400,000, up to 75% for mortgage loans with
original principal balances of up to $650,000 and up to 60% for mortgage loans
with original principal balances of up to $1,000,000, 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.
The Flex Extra Program underwriting guidelines for purchase money or rate/term
refinance loans secured by primary residences generally allow Loan-to-Value
Ratios at origination of up to 95% for mortgage loans with original principal
balances of up to $400,000, up to 90% for mortgage loans with original principal
balances of up to $500,000, up to 80% for mortgage loans with original principal
balances of up to $650,000 and up to 70% for mortgage loans with original
principal balances of up to $1,500,000, 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. Under the Gold Flex
Program and the Flex Extra Program, for cash-out refinance loans, the maximum
Loan-to-Value Ratio generally is 75% and 80%, respectively, and the maximum
"cash out" amount permitted is based in part on the Loan-to-Value Ratio of the
related mortgage loan.
The debt service-to-income ratios in the Flex Series Program generally
exceed those of FNMA or Freddie Mac. Such ratios vary depending on a number of
underwriting criteria, including Loan-to-Value Ratios, and are determined on a
loan-by-loan basis, but generally range between 38%-40% and may be higher due to
certain compensating factors.
The Flex Series Program allows for approval of an application pursuant
to (a) the Full/Alternative Documentation Program, (b) the Limited Documentation
Program, or (c) the "No Ratio" Program. The Full/Alternative Documentation
Program requires the following documents: (i) Uniform Residential Loan
Application (FNMA Form 1003 or Freddie Mac Form 65), (ii) Statement of Assets
and Liabilities (FNMA Form 1003A or Freddie Mac 65A), (iii) A tri-merged credit
report (generally from three separate repositories) and/or a standard factual
data credit report, (iv) Verification of Employment Form (or federal tax returns
for self-employed borrowers) providing a complete two year employment history,
(v) Verification of Deposit Form for all liquid assets, verifying minimum cash
reserves based upon the Loan-to-Value Ratio and borrower's income, and (vi) a
Uniform Residential Appraisal Report (FNMA 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 form the most recent full month for verification of income and the
most recent three months personal bank statements for verification of liquid
assets. In addition, self-employed borrowers must provide federal tax returns
for the previous two to three years, including K-1's, federal business tax
returns for two years, year-to-date financial statements, a business credit
report and a signed IRS Form 4506 (Request for Copy of Tax Returns).
S-37
<PAGE>
Under the Limited Documentation Program, which is available to
borrowers in every Flex Series Program, NAMC obtains from prospective borrowers
either a verification of deposit or bank statements for the most recent
two-month period preceding the mortgage loan application. Under these programs
the borrower provides income information on the mortgage loan application, and
the debt service-to-income ratio is calculated. Although, income is not
verified, employment is verbally verified prior to closing the loan. Mortgage
loans underwritten under the Limited Documentation Program are limited to
borrowers with credit histories that demonstrate an established ability to repay
indebtedness in a timely fashion. Permitted maximum Loan-to-Value Ratios
(including secondary financing) under the Limited Documentation generally is
limited. The "No Ratio" Program, available to borrowers in the Flex Extra
Program, is designed for a mortgage loan which requires a minimum 20% 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). Although income is not verified,
employment is verbally verified prior to closing the loan. The certification of
assets is confirmed by written verification of deposits and supported by bank
statements.
Under all Flex Series Programs, a FICO Score is obtained from two to
three major credit repositories. "FICO Scores" are statistical credit scores
obtained by many mortgage lenders in connection with the loan application to
help assess a borrower's creditworthiness. FICO Scores are generated by models
developed by a third party and are made available to lenders through three
national credit bureaus. The FICO Score is based on a borrower's historical
credit data, including, among other things, payment history, delinquencies on
accounts, levels of outstanding indebtedness, length of credit history, types of
credit and bankruptcy experience. FICO Scores range from approximately 250 to
approximately 900, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score. However,
a FICO Score purports only to be a measurement of the relative degree of risk a
borrower represents to a lender, i.e., that a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. In addition, FICO Scores were not developed specifically for
use in connection with mortgage loans, but for consumer loans in general.
Therefore, a FICO Score does not take into consideration the affect of mortgage
loan characteristics on the probability of repayment by the borrower.
For all Gold Flex mortgage loans, a FICO Score of 675 is required. FICO
Scores below 675 generally are allowed with compensating factors, one of which
may be an acceptable pmiAURA(SM) (as defined below) score as determined by PMI
and NAMC.
For all Flex Extra mortgage loans, a FICO Score of 660 with exemplary
credit references from the borrower is required. FICO Scores below 660 with
satisfactory credit references will be considered as well with compensating
factors, one of which may be an acceptable pmiAURA(SM) score as determined by
PMI and NAMC. If a FICO Score is not available or obtainable, a satisfactory
pmiAURA(SM) score is required.
Generally, the minimum allowable FICO Score is 620. However, on a
limited case by case basis, with significant compensating factors, lower FICO
Scores may be considered.
Additionally, NAMC may utilize a pmiAURA(SM) mortgage score, created
from the risk analysis platform of PMI Mortgage Insurance Co. ("PMI"). The PMI
Automated Underwriting and Risk Analysis system ("pmiAURA(SM)") is an automated
residential mortgage loan underwriting system developed by PMI in 1987 in
conjunction with the Allstate Research and Planning Center. PmiAURA(SM) is
designed to help estimate the relative likelihood of foreclosure over the life
of the loan that is scored. The system is licensed to a number of residential
mortgage lenders and investors, including North American Mortgage Company, and
is designed to assist such lenders and investors in analyzing credit and
property risk, tracking loan quality and improving underwriting efficiencies.
PmiAURA(SM) considers loan, property and borrower characteristics, borrower
credit information, property appraisal information as well as geodemographic
information for approximately 100 metropolitan statistical areas. Severity risk
is not measured. The pmiAURA(SM) system provides a pmiAURA(SM) score which is a
statistical risk predictive score. A pmiAURA(SM) score does not give assurance
about whether there will or will not be a default in the payment of, a
foreclosure on, or a mortgage insurance claim paid on a particular mortgage
loan, nor
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<PAGE>
is the score a guarantee, prediction or forecast concerning loan performance or
a recommendation to purchase, sell or hold a loan, or to purchase, sell or hold
any security. PmiAURA(SM) scores are on a scale of 1-999 (scores of 998 and 999
indicate inadequate data to render an accurate score). Higher scores indicate
greater risk. A score of 100 indicates average foreclosure risk. A score of 100
represents the average score for PMI data sets for the base period used in
system development. Relative risk is expressed in a linear manner such that a
score of 200 is considered twice as risky as a score of 100.
Approximately 0.58% and approximately 0.83% of the NAMC Mortgage Loans
included in the Group 2 Mortgage Loans and the Group 3 Mortgage Loans,
respectively, 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 differences to be made
up from Buydown Funds placed in a custodial account (a "Buydown" Account").
With respect to each Buydown Loan, not later than the Withdrawal Date
in each month during the Buydown period, the related servicer will be required
to deposit into the related Buydown Account the amount, if any, of the Buydown
Funds for such Buydown Loan that, when added to the amount due from the
mortgagor or such Buydown Loan, equals the full monthly payment which would be
due on the Buydown Loan on the related Due Date if it were not subject to the
Buydown plan.
Delinquency and Foreclosure Experience. The following table sets forth
the delinquency and foreclosure experience of mortgage loans serviced by NAMC as
of the dates indicated. NAMC's portfolio of mortgage loans may differ
significantly from the NAMC Mortgage Loans in terms of interest rates, principal
balances, geographic distribution, types of properties and other possibly
relevant characteristics. There can be no assurance, and no representation is
made, that the delinquency and foreclosure experience with respect to the NAMC
Mortgage Loans will be similar to that reflected in the table below, nor is any
representation made as to the rate at which losses may be experienced on
liquidation of defaulted NAMC Mortgage Loans. The actual delinquency experience
on the NAMC Mortgage Loans will depend, among other things, upon the value of
the real estate securing such NAMC Mortgage Loans and the ability of borrowers
to make required payments.
S-39
<PAGE>
Delinquency and Foreclosure Experience in NAMC's Portfolio of
One- to-Four-Family, Residential Mortgage Loans
<TABLE>
<CAPTION>
As of December 31, As of June 30,
------------------------------------------------------------------ --------------------
1994* 1995* 1996* 1997
------------------- -------------------- ------------------- --------------------
Percent of Percent of Percent Percent of
No. of Servicing No. of Servicing No. of Servicing No. of Servicing
Loans Portfolio Loans Portfolio Loans Portfolio Loans Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan delinquent for:
30-59 days 2,287 1.41% 3,015 1.84% 3,248 2.06% 2,785 1.93%
60-89 days 497 0.31 611 0.37 735 0.47 628 0.44
90 days and over 635 0.39 669 0.42 604 0.38 582 0.40
Total Delinquencies 3,419 2.10 4,295 2.63 4,587 2.91 3 2.77
Foreclosure pending 537 0.33 705 0.43 1,061 0.67 942 0.65
Total 3,956 2.43% 5,000 3.06 5,648 3.58 4,937 3.42%
</TABLE>
- ----------------
* Includes the $1.2 billion, $2.1 billion and $2.6 billion for the years ended
December 31, 1994, 1995 and 1996, respectively, of loan servicing rights
sold to others but temporarily being sub-serviced by the Master Servicer
prior to transfer.
S-40
<PAGE>
PHH
On April 30, 1997, the parent of PHH, PHH Corporation, announced that
it had merged with HFS Incorporated pursuant to which PHH Corporation became a
subsidiary of HFS. On December 18, 1997. HFS Incorporated announced it had
merged with CUC International, Inc. The new company name is Cendant Corporation.
Cendant's primary business segments include Travel (hotels, rental cars, and
vacation time shares), Real Estate (real estate brokerage offices including
Century 21, Coldwell Banker, and ERA, and mortgage services), and Membership
(access to travel, shopping, auto, dining, financial, and other services to over
73 million members worldwide).
As of September 30, 1997, PHH provided servicing for approximately $28
billion aggregate principal amount of mortgage loans, substantially all of which
are being serviced for unaffiliated persons.
The following table set forth the number and dollar value of PHH's
mortgage loan production for the periods indicated:
<TABLE>
<CAPTION>
Mortgage Loan Production
December
-----------------------------------------------------------
Nine Months
Ended
September 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Loans
Number of Loans 70,045 40,279 50,333 70,929 62,448
Volume of Loans
(in millions) $7,765.9 $4,607.7 $5,755.4 $8,292.6 $7,813
Average Loan
Balance $110,862 $114,389 $114,356 $116,916 $125,115
</TABLE>
PHH believes that its increased loan production in recent years is
attributable to growth in volume from established customer relationships, and
increased market penetration as well as volume generated from residential
mortgage refinancings in 1993. The decrease in the number and dollar amount of
loans in 1994 and 1995 as compared to 1993 was attributable primarily to the
increasing mortgage interest rate environment, resulting in a decrease in
mortgage loan activity, particularly refinancings. The increase in number and
dollar amount of loans in 1996 and 1997 are attributable to increased market
penetration for existing clients as well as additional new clients and the
merger with HFS described above.
PHH Underwriting Standards
The underwriting standards of PHH generally allow Loan-to-Value Ratios
at origination of up to 95% for mortgage loans with original principal balances
of up to $300,000, up to 80% for mortgage loans with original principal balances
of up to $500,000, and up to 75% for mortgage loans with original principal
balances of up to $650,000. In determining whether a prospective borrower has
sufficient monthly income available (i) to meet the borrower's monthly
obligation on the proposed mortgage loan and (ii) to meet monthly housing
expenses and other financial obligations including the borrower's monthly
obligations on the proposed mortgage loan. PHH generally applies ratios of up to
33% and 38%, respectively, of the proposed borrower's acceptable stable monthly
gross income. From time to time, PHH makes loans where these ratios are
exceeded. In those instances, PHH's underwriters typically look at mitigating
factors such as the liquidity of the mortgagor, the stability of the real estate
market where the mortgaged property is located, and local economic conditions.
In addition, with respect to
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<PAGE>
mortgage loans secured by owner-occupied condominium units, PHH generally will
fund up to the lesser of 10 units or 50% of the total units in a project.
PHH also originates mortgage loans pursuant to alternative sets of
underwriting criteria under its reduced documentation program ("Reduced
Documentation Program"), no-income, no asset program ("No Asset, No Income
Program"), and rate term refinance limited documentation program ("Streamlined
Documentation Program"). Each of these programs are designed to facilitate the
loan approval process. Under the Reduced Documentation Program and the No
Assets, No Income Program, certain documentation concerning income/employment
and asset verification is reduced or excluded. Loans underwritten under the
Reduced Documentation Program and the No Asset, No Income Program are generally
limited to borrowers who have demonstrated an established ability and
willingness to repay the mortgage loans in a timely fashion. Permitted maximum
Loan-to-Value Ratios under the Reduced Documentation Program and the No Assets,
No Income Program are generally more restrictive than that under the standard
underwriting criteria of PHH.
Under the Streamlined Documentation program, which is generally
available only to PHH portfolio refinances having an original Loan-to Value
Ratio of 80% or less and no mortgage delinquencies in the past 12 months, rate
and term refinance loans are underwritten based solely on the original appraisal
and limited credit verification, if any. Although no current appraisal of the
property is obtained with respect to the origination of these mortgage loans, a
"drive-by" appraisal may be obtained in certain cases.
From time to time, exceptions to PHH's underwriting policies may be
made. Such exceptions may be made on a loan-by-loan basis at the discretion of
the PHH underwriter. Exceptions may be made only after careful consideration of
certain mitigating factors such as borrower capacity, liquidity, employment and
residential stability and local economic conditions.
Delinquency and Foreclosure Experience. The following table sets forth
the delinquency and foreclosure experience of mortgage loans serviced by PHH as
of the dates indicated. PHH's portfolio of mortgage loans may differ
significantly from the PHH Mortgage Loans in terms of interest rates, principal
balances, geographic distribution, types of properties and other possibly
relevant characteristics. There can be no assurance, and no representation is
made, that the delinquency and foreclosure experience with respect to the PHH
Mortgage Loans will be similar to that reflected in the table below, nor is any
representation made as to the rate at which losses may be experienced on
liquidation of defaulted PHH Mortgage Loans. The actual delinquency experience
on the PHH Mortgage Loans will depend, among other things, upon the value of the
real estate securing such PHH Mortgage Loans and the ability of borrowers to
make required payments.
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<PAGE>
Delinquency and Foreclosure Experience in PHH's Portfolio of
One-to-Four Family, Residential Mortgage Loans1
<TABLE>
<CAPTION>
As of April 30, As of December 31, Nine Months Ended
---------------------------------------------------------- -------------------- ------------------
1994(5) 1995(5) 1996(5) 1997 September 30, 1997
------------------ ------------------ ------------------ -------------------- ------------------
Percent of Percent of Percent Percent of Percent
No. of Servicing No. of Servicing No. of Servicing No. of Servicing No. of Servicing
Loans Portfolio Loans Portfolio Loans Portfolio Loans Portfolio Loans Portfolio
------ ---------- ------ ---------- ------ --------- ------ ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 149,869 $16,646 135,693 $14,319 195,224 $21,681 224,622 $24,825 255,312 $28,195
Period of Delinquency(2)
30-59 Days 1,408 $169 1,640 $184 2,115 $231 3,334 $344 $4,893 $501
60-89 Days 239 $29 293 $34 472 $57 576 $71 901 $92
90 Days or more3 168 $34 99 $28 14 $19 0 $0 432 $53
Total Delinquencies 1,815 $232 2,032 $246 2,601 $307 4,110 $415 6,226 $646
Foreclosure/Bankruptcies(4) 940 $122 991 $117 1,045 $121 1,340 $149 976 $102
Real Estate Owned
Total Portfolio
</TABLE>
- --------------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
All dollar amounts are in millions.
(2) No mortgage loan is included in this table as delinquent until it is 30
days past due.
(3) The 90 days or more period of delinquency is net of the Foreclosures/
Bankruptcies/Real Estate Owned category. On some occasions, these loans
may fall into the current through 89 days late categories as well,
however, such occurrences are rare.
(4) Entries may not add up to total due to rounding.
(5) Delinquency and foreclosure information as of April 30, 1994 and April 30,
1995 includes 508 and 533 loans, respectively, which are associated with a
portfolio of non-performing loans which were acquired by PHH in a bulk
servicing purchase.
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<PAGE>
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
Agreement relating to the Certificates offered hereby.
General
The Mortgage Pass-Through Certificates, Series 1997-7 (the "Certificates") will
consist of the classes of Certificates offered hereby (the "Offered
Certificates") in addition to the other classes of Certificates (the "Other
Certificates"), which are not being offered hereby as described under "Summary
of Terms -- Descriptions."
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 each of
the Master Servicers for the collection of payments on the Mortgage Loans
serviced by such Master Servicer and in the Certificate Account (as defined
below) 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 (as defined below) and standard hazard insurance
policies; and (v) all proceeds of the foregoing.
Each Class of Book-Entry Certificates will be represented initially by
a single certificate registered in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company ("DTC"). Beneficial interests in
Book-Entry Certificates may be issued or held by investors in minimum
denominations of $25,000 and increments of $1.00 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. No person acquiring an interest in the Book-Entry Certificates (a
"Certificate Owner") will be entitled to receive a certificate representing such
person's interest in the Trust, except in the event Definitive Certificates are
issued under the limited circumstances set forth below under "-- Definitive
Certificates." Unless and until Definitive Certificates are issued, all
references to actions by holders of Book-Entry Certificates shall refer to
actions taken by DTC upon instructions from its Participants (as defined below),
and all references herein to distributions, notices, reports and statements to
holders of Book-Entry Certificates shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Book-Entry Certificates, as the case may be, for distribution to Certificate
Owners in accordance with DTC procedures.
The Class R-1 and Class R-2 Certificates will each be issued in
certificated fully-registered form in a single certificate of $100.
Distributions of principal and interest as set forth below initially
will be made by the Trustee to Cede, as the registered holder of the Book-Entry
Certificates, and to the holder of the Physical Certificates. Upon the issuance
of Definitive Certificates to persons other than Cede, 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 Agreement or (ii) upon timely receipt by the Trustee of written instructions
from a Certificateholder holding Certificates representing an initial aggregate
Current Principal Amount of not less than $1,000,000, 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.
S-44
<PAGE>
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 Chicago, Illinois are authorized or obligated
by law or executive order to be closed.
Book-Entry Registration
DTC is a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participating
organizations ("Participants") and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (including Bear, Stearns & Co. Inc.),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and interest on the Book-Entry Certificates through Participants.
Under a book-entry format, Certificate Owners may experience some delay in their
receipt of payments, since such payments will be forwarded to Cede, as nominee
for DTC. DTC will forward such payments to its Participants, which thereafter
will forward them to Indirect Participants or Certificate Owners. It is
anticipated that, except as provided below under" --Definitive Certificates,"
the only "Certificateholder" with respect to the Book-Entry Certificates will be
Cede, as nominee for DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC will be required to make
book-entry transfers of Book-Entry Certificates among Participants and to
receive and transmit distributions of principal of, and interest on, Book-Entry
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Book-Entry Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners. Accordingly, although,
Certificate Owners will not possess physical certificates, the Rules provide a
mechanism by which Participants and Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
such Book-Entry Certificates, may be limited due to the absence of physical
certificates for such Book-Entry Certificates.
DTC has advised BSMSI that it will take any action permitted to be taken by a
holder of Book-Entry Certificates under the Agreement only at the direction of
one or more Participants to whose accounts with DTC the Book-Entry Certificates
are credited. Additionally, DTC has advised BSMSI that it will take such action
where the consent of specified percentages of the Book-Entry Certificates is
required under the Agreement only at the direction of and on behalf of
Participants whose interests represent such specified percentages. DTC may take
conflicting actions on behalf of other Participants.
Neither BSMSI, the Master Servicer nor the Trustee will have any liability for
any aspect of the records relating to or payment made on account of beneficial
ownership interests of the Book-Entry Certificates held by
S-45
<PAGE>
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates
Except for the Physical Certificates, the Offered Certificates will be
issued in fully registered, certificated form ("Definitive Certificates") to
Certificate Owners or their nominees, rather than to DTC or its nominee, only if
(i) BSMSI advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository with respect to the
Certificates and BSMSI is unable to locate a qualified successor within 30 days
or (ii) BSMSI, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either event described in clause (i) or (ii) of the
immediately preceding paragraph, the Trustee is required to notify DTC, which in
turn will notify all Certificate Owners through Participants, of the
availability of Definitive Certificates. Upon surrender by Cede, as nominee of
DTC, of the Definitive Certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as Definitive Certificates to Certificate Owners. Under
no circumstances will Definitive Certificates of any Class be issued in an
amount representing an interest in, as of the Cut-off Date, less than $25,000
principal amount of the respective Class of Book-Entry Certificate, except with
respect to any initially issued Certificate in a lower principal amount as
described above.
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 Boston,
Massachusetts. Physical Certificates and Definitive Certificates surrendered to
the Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will 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 1 National Plaza, Chicago,
Illinois 60670.
Available Funds
Available funds for any Distribution Date will be determined separately
with respect to each Mortgage Loan Group ("Group 1 Available Funds," "Group 2
Available Funds," "Group 3 Available Funds," "Group 4 Available Funds" and
"Group 5 Available Funds," respectively, and each a "Group Available Funds") 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 a Master Servicer and (c) any
amount reimbursed by a 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;
(iii) all payments, other than Principal Prepayments, that represent
early receipt of scheduled payments due on a date or dates subsequent to the
related Due Date;
S-46
<PAGE>
(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
(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 1
Available Funds, the Group 2 Available Funds, the Group 3 Available Funds, the
Group 4 Available Funds and the Group 5 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 January 1998, in an aggregate amount equal to the Available Funds for such
Distribution Date.
Group 1 Senior Certificates. On each Distribution Date, the Group 1
Available Funds will be distributed in the following order of priority among the
Group 1 Senior Certificates except as otherwise noted:
first, to the interest-bearing Classes of Group 1 Senior Certificates,
the Accrued Certificate Interest on each such Class for such
Distribution Date. As described below, Accrued Certificate Interest on
each such Class of Group 1 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto. Any Net
Interest Shortfalls shall be allocated among the Group 1 Senior
Certificates as described below;
second, to the interest-bearing Classes of Group 1 Senior Certificates,
any Accrued Certificate Interest thereon remaining undistributed from
previous Distribution Dates, to the extent of remaining Group 1
Available Funds, any shortfall in available amounts being allocated
among such Classes in proportion to the amount of such Accrued
Certificate Interest remaining undistributed for each such Class for
such Distribution Date;
third, to the Group 1 Senior Certificates (other than the Class 1-A-X1
and Class 1-A-X2 Certificates and the Component X-1) in reduction of
the Current Principal Amounts thereof:
(a) the Group 1 Senior P&I Optimal Principal Amount (as
defined herein), in the following order of priority:
first, to the Class 1-A-9 Certificates up to the
Class 1-A-9 Optimal Principal Amount (as defined
herein) for such Distribution Date, until the Current
Principal Amount thereof has been reduced to zero;
second, sequentially, to the Class 1-A-1, Class
1-A-2, Class 1-A-3 and Class 1-A-4 Certificates, in
that order, until their respective Current Principal
Amounts have been reduced to their respective Planned
Balances (as set forth in Annex B hereto) for such
Distribution Date;
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<PAGE>
third, concurrently to the Class 1-A-5, Class 1-A-6,
Class 1-A-7 and Class 1-A-8 Certificates, pro rata,
based on their respective Current Principal Amounts,
until the respective Current Principal Amounts
thereof have been reduced to zero; and
fourth, sequentially, to the Class 1-A-3, Class
1-A-4, Class 1-A-1 and Class 1-A-2 Certificates, in
that order, without regard to their respective
Planned Balances for such Distribution Date, until
the respective Current Principal Amounts thereof have
been reduced to zero; and
(b) the Component P Principal Distribution Amount (as
defined herein) for the Component P-1 for such
Distribution Date, to the Class P Certificates, until
the Current Principal Amount of the Component P-1 has
been reduced to zero;
fourth, the Component P-1 Deferred Amount for such Distribution Date,
to the Class P Certificates; provided, that (i) on any Distribution
Date, distributions pursuant to this priority fourth shall not exceed
the excess, if any, of (x) the sum of (A) the Group 1 Available Funds
remaining after giving effect to distributions pursuant to clauses
first through third above and (B) the Group 2 Available Funds remaining
after giving effect to distributions pursuant to clauses first through
third below under "--Group 2 Senior Certificates" over (y) the sum of
the amount of Accrued Certificate Interest for such Distribution Date
and Accrued Certificate Interest remaining undistributed from previous
Distribution Dates on all Classes of Group B Subordinate Certificates
then outstanding; (provided that if the amount calculated is in excess
of the foregoing, the amount distributable pursuant to this clause
fourth and the amount distributable under clause fourth under "--Group
2 Senior Certificates" below shall be reduced pro rata based upon the
respective amounts of the Component P-1 and Component P-2 Deferred
Amounts), (ii) such distributions shall not reduce the Current
Principal Amount of the Component P-1 and (iii) no distribution will be
made in respect of the applicable Component P Deferred Amount after the
Group 1 and 2 Cross-Over Date (as defined herein);
On each Distribution Date after the Distribution Date on which the
Current Principal Amounts of (i) the Group B Subordinate Certificates are
reduced to zero (the "Group 1 and 2 Cross-Over Date"), distributions of
principal on the outstanding Group 1 Senior Certificates (other than the Class
1-A-X1 and Class 1-A-X2 Certificates and Component P-1 and Component X-1) will
be made pro rata among all such Group 1 Senior Certificates, regardless of the
allocation, or sequential nature, of principal payments described in priority
third above, based upon the then Current Principal Amounts of such Group 1
Senior Certificates.
If, after distributions have been made pursuant to priorities first and
second under "--Group 1 Senior Certificates" above on any Distribution Date, the
remaining Group 1 Available Funds, are less than the sum of the Group 1 Senior
P&I Optimal Principal Amount and the Component P-1 Principal Distribution Amount
for such Distribution Date, such amounts shall be proportionately reduced, and
such remaining Group 1 Available Funds will be distributed on the Group 1 Senior
Certificates (other than the Class 1-A-X1 Certificates, the Class 1-A-X2
Certificates and Component X-1) on the basis of such reduced amounts.
Notwithstanding any reduction in principal distributable to the Class P
Certificates pursuant to this paragraph, the principal balance of the Component
P-1 shall be reduced not only by principal so distributed but also by the
difference between (i) principal distributable to the Class P Certificates with
respect to the Component P-1 in accordance with clause (b) of priority third
above and (ii) principal actually distributed to the Class P Certificates with
respect to Component P-1 after giving effect to this paragraph (such difference,
the "Component P-1 Cash Shortfall"). The Component P-1 Cash Shortfall with
respect to any Distribution Date will be added to the Component P-1 Deferred
Amount.
The "Class 1-A-9 Optimal Principal Amount" for any Distribution Date
occurring prior to the Distribution Date in January 2003 will equal zero. The
Class 1-A-9 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
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<PAGE>
the sixth, seventh, eighth and ninth years after the Closing Date, 30%, 40%, 60%
and 80%, respectively, of the Class 1-A-9 Pro Rata Optimal Principal Amount (as
defined below) for such Distribution Date; and, for any Distribution Date
thereafter, 100% of the Class 1-A-9 Pro Rata Optimal Principal Amount for such
Distribution Date. Notwithstanding the foregoing, if on any Distribution Date
the Current Principal Amount of each Class of Group 1 Senior Certificates (other
than the Class 1-A-9 Certificates and the Component P-1) has been reduced to
zero, the Class 1-A-9 Optimal Principal Amount shall equal the Group 1 Senior
P&I Optimal Principal Amount to the extent not distributed on such Distribution
Date to other Classes of Group 1 Senior Certificates.
For any Distribution Date, the "Class 1-A-9 Pro Rata Optimal Principal
Amount" shall be an amount equal to the product of (x) the Group 1 Senior P&I
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 1-A-9 Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Current Principal Amounts of all Classes
of Group 1 Senior Certificates (other than the Component P-1) immediately prior
to such Distribution Date.
Group 2 Senior Certificates. On each Distribution Date, the Group 2
Available Funds will be distributed in the following order of priority among the
Group 2 Senior Certificates except as otherwise noted:
first, to the interest-bearing Classes of Group 2 Senior Certificates,
the Accrued Certificate Interest on each such Class for such
Distribution Date. As described below, Accrued Certificate Interest on
each such Class of Group 2 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto. Any Net
Interest Shortfalls shall be allocated among the Group 2 Senior
Certificates as described below;
second, to the interest-bearing Classes of Group 2 Senior Certificates,
any Accrued Certificate Interest thereon remaining undistributed from
previous Distribution Dates, to the extent of remaining Group 2
Available Funds, any shortfall in available amounts being allocated
among such Classes in proportion to the amount of such Accrued
Certificate Interest remaining undistributed for each such Class for
such Distribution Date;
third, to the Group 2 Senior Certificates (other than the Component
X-2) in reduction of the Current Principal Amounts thereof:
(a) the Accrual Amount (as defined herein), in the
following order of priority:
first, to the Class 2-A-2 Certificates until the
Current Principal Amount thereof has been reduced to
zero; and
second, to the Class 2-A-3 Certificates until the
Current Principal Amount thereof has been reduced to
zero;
(b) the Group 2 Senior P&I Optimal Principal Amount, in
the following order of priority:
first, 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;
second, to the Class 2-A-4 Certificates up to the
Class 2-A-4 Optimal Principal Amount (as defined
herein) for such Distribution Date, until the Current
Principal Amount thereof has been reduced to zero;
and
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<PAGE>
third, sequentially to the Class 2-A-1, Class 2-A-2
and 2-A-3 Certificates, in that order, until their
respective Current Principal Amounts have been
reduced to zero; and
(c) the Component P Principal Distribution Amount for the
Component P-2 for such Distribution Date, to the
Class P Certificates, until the Current Principal
Amount of the Component P-2 has been reduced to zero;
and
fourth, the Component P-2 Deferred Amount for such Distribution Date,
to the Class P Certificates, provided, that (i) on any Distribution
Date, distributions pursuant to this priority fourth shall not exceed
the excess, if any, of (x) the sum of (A) the Group 2 Available Funds
remaining after giving effect to distributions pursuant to clauses
first through third above and (B) the Group 1 Available Funds remaining
after giving effect to distributions pursuant to clauses first through
third above under "--Group 1 Senior Certificates" over (y) the sum of
the amount of Accrued Certificate Interest for such Distribution Date
and Accrued Certificate Interest remaining undistributed from previous
Distribution Dates on all Classes of Group B Subordinate Certificates
then outstanding; (provided that if the amount so calculated is in
excess of the foregoing, the amount distributable pursuant to this
clause fourth and the amount distributable under clause fourth under
"--Group 1 Senior Certificates above shall be reduced pro rata based
upon the respective amounts of the Component P-1 and Component P-2
Deferred Amounts), (ii) such distributions shall not reduce the Current
Principal Amount of the Component P-2 and (iii) no distribution will be
made in respect of the Component P-2 Deferred Amount after the Group 1
and 2 Cross-Over Date.
With respect to any Distribution Date through the Group 1 and 2
Cross-Over Date, the "Accrual Amount" will equal the interest accrued but unpaid
on the Class 2-A-3 Certificates and added to the principal amount thereof on
such Distribution Date.
On each Distribution Date after the Group 1 and 2 Cross-Over Date,
distributions of principal on the outstanding Group 2 Senior Certificates (other
than the Component P-2 and Component X-2) will be made pro rata among all such
Group 2 Senior Certificates, regardless of the allocation, or sequential nature,
of principal payments described in priority third above, based upon the then
Current Principal Amounts of such Group 2 Senior Certificates.
If, after distributions have been made pursuant to priorities first,
second and third (a) under "-- Group 2 Senior Certificates" above on any
Distribution Date, remaining Group 2 Available Funds are less than the sum of
the Group 2 Senior P&I Optimal Principal Amount and the Component P-2 Principal
Distribution Amount for such Distribution Date, such amounts shall be
proportionately reduced, and such remaining Group 2 Available Funds will be
distributed on the Group 2 Senior Certificates (other than the Component X-2) on
the basis of such reduced amounts. Notwithstanding any reduction in principal
distributable to the Class P Certificates pursuant to this paragraph, the
principal balance of the Component P-2 shall be reduced not only by principal so
distributed but also by the difference between (i) principal distributable to
the Class P Certificates with respect to Component P-2 in accordance with clause
(b) of priority third above and (ii) principal actually distributed to the Class
P Certificates with respect to Component P-2 after giving effect to this
paragraph (such difference, the "Component P-2 Cash Shortfall"). The Component
P-2 Cash Shortfall with respect to any Distribution Date will be added to the
Component P-2 Deferred Amount.
The "Class 2-A-4 Optimal Principal Amount" for any Distribution Date
occurring prior to the Distribution Date in January 2003 will equal zero. The
Class 2-A-4 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, seventh, eighth and ninth years after the
Closing Date, 30%, 40%, 60% and 80%, respectively, of the Class 2-A-4 Pro Rata
Optimal Principal Amount (as defined below) for such Distribution Date; and, for
any Distribution Date thereafter, 100% of the Class 2-A-4 Pro Rata Optimal
Principal Amount for such Distribution Date. Notwithstanding the foregoing, if
on any Distribution Date the Current Principal Amount of each Class of Group 2
Senior Certificates (other than the Class 2-A-4 Certificates and the Component
P-2) has been reduced to
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zero, the Class 2-A-4 Optimal Principal Amount shall equal the Group 2 Senior
P&I Optimal Principal Amount to the extent not distributed on such Distribution
Date to other Classes of Group 2 Senior Certificates or Residual Certificates.
For any Distribution Date, the "Class 2-A-4 Pro Rata Optimal Principal
Amount" shall be an amount equal to the product of (x) the Group 2 Senior P&I
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 2-A-4 Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Current Principal Amounts of all Classes
of Group 2 Senior Certificates (other than the Component P-2) immediately prior
to such Distribution Date.
Group B Subordinate Certificates. On each Distribution Date, the sum of
the Group 1 Available Funds and the Group 2 Available Funds remaining after the
distributions described above under "--Group 1 Senior Certificates" and "--Group
2 Senior Certificates" will be distributed among the Group B Subordinate
Certificates 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.
Group 3 Certificates. On each Distribution Date, the Group 3 Available
Funds will be distributed in the following order of priority among the Group 3
Certificates except as otherwise noted:
first, to the interest-bearing Classes of Group 3 Senior Certificates,
the Accrued Certificate Interest on each such Class for such
Distribution Date. As described below, Accrued Certificate Interest on
each such Class of Group 3 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto. Any Net
Interest Shortfalls shall be allocated among the Group 3 Senior
Certificates as described below;
second, to the interest-bearing Classes of Group 3 Senior Certificates,
any Accrued Certificate Interest thereon remaining undistributed from
previous Distribution Dates, to the extent of remaining Group 3
Available Funds, any shortfall in available amounts being allocated
among such Classes in proportion to the amount of such Accrued
Certificate Interest remaining undistributed for each such Class for
such Distribution Date;
third, to the Group 3 Senior Certificates (other than the Class 3-X
Certificates) in reduction of the Current Principal Amounts thereof:
(a) the Group 3 Senior P&I Optimal Principal Amount (as
defined herein), to the Class 3-A Certificates, until
the Current Principal Amount thereof has been reduced
to zero; and
(b) the Component P Principal Distribution Amount for the
Component P-3 for such Distribution Date, to the
Class P Certificates, until the Current Principal
Amount of the Component P-3 has been reduced to zero;
fourth, the Component P-3 Deferred Amount for such Distribution Date,
to the Class P Certificates; provided, that (i) on any Distribution
Date, distributions pursuant to this priority fourth shall not exceed
the excess, if any, of (x) the Group 3 Available Funds remaining after
giving effect to distributions pursuant to clauses first through third
above over (y) the sum of the amount of Accrued Certificate Interest
for such Distribution Date and Accrued Certificate Interest remaining
undistributed from previous Distribution Dates on all Classes of Group
3 Subordinate Certificates then outstanding, (ii) such distributions
shall not reduce the Current Principal Amount
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of the Component P-3 and (iii) no distribution will be made in respect
of the Component P-3 Deferred Amount after the Group 3 Cross-Over Date
(as defined herein); and
fifth, sequentially, in the following order, to the Class 3-B-1, Class
3-B-2, Class 3-B-3, Class 3-B-4, Class 3-B-5 and Class 3-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.
On each Distribution Date after the Distribution Date on which the
Current Principal Amounts of (i) the Group 3 Subordinate Certificates are
reduced to zero (the "Group 3 Cross-Over Date"), distributions of principal on
the outstanding Group 3 Senior Certificates (other than the Class 3-X
Certificates and the Component P-3) will be made pro rata among all such Group 3
Certificates, regardless of the allocation, or sequential nature, of principal
payments described in priority third above, based upon the then Current
Principal Amounts of such Group 3 Senior Certificates.
If, after distributions have been made pursuant to priorities first and
second under "--Group 3 Certificates" above on any Distribution Date, remaining
Group 3 Available Funds, are less than the sum of the Group 3 Senior P&I Optimal
Principal Amount and the Component P-3 Principal Distribution Amount for such
Distribution Date, such amounts shall be proportionately reduced, and such
remaining Group 3 Available Funds will be distributed on the Group 3 Senior
Certificates (other than the Class 3-X Certificates), on the basis of such
reduced amounts. Notwithstanding any reduction in principal distributable to the
Class P Certificates pursuant to this paragraph, the principal balance of the
Component P-3 shall be reduced not only by principal so distributed but also by
the difference between (i) principal distributable to the Class P Certificates
with respect to the Component P-3 in accordance with clause (b) of priority
third above and (ii) principal actually distributed to the Class P Certificates
with respect to the Component P-3 after giving effect to this paragraph (such
difference, the "Component P-3 Cash Shortfall"). The Component P-3 Cash
Shortfall with respect to any Distribution Date will be added to the Component
P-3 Deferred Amount.
Group 4 Certificates. On each Distribution Date, the Group 4 Available
Funds will be distributed in the following order of priority among the Group 4
Certificates except as otherwise noted:
first, to the interest-bearing Classes of Group 4 Senior Certificates,
the Accrued Certificate Interest on each such Class for such
Distribution Date. As described below, Accrued Certificate Interest on
each such Class of Group 4 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto. Any Net
Interest Shortfalls shall be allocated among the Group 4 Senior
Certificates as described below;
second, to the interest-bearing Classes of Group 4 Senior Certificates,
any Accrued Certificate Interest thereon remaining undistributed from
previous Distribution Dates, to the extent of remaining Group 4
Available Funds, any shortfall in available amounts being allocated
among such Classes in proportion to the amount of such Accrued
Certificate Interest remaining undistributed for each such Class for
such Distribution Date;
third, to the Group 4 Senior Certificates (other than the Class 4-X
Certificates) in reduction of the Current Principal Amounts thereof:
(a) the Group 4 Senior P&I Optimal Principal Amount (as
defined herein), to the Class 4-A Certificates, until
the Current Principal Amount thereof has been reduced
to zero; and
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(b) the Component P Principal Distribution Amount for the
Component P-4 for such Distribution Date, to the
Class P Certificates, until the Current Principal
Amount of the Component P-4 has been reduced to zero;
fourth, the Component P-4 Deferred Amount for such Distribution Date,
to the Class P Certificates; provided, that (i) on any Distribution
Date, distributions pursuant to this priority fourth shall not exceed
the excess, if any, of (x) the Group 4 Available Funds remaining after
giving effect to distributions pursuant to clauses first through third
above over (y) the sum of the amount of Accrued Certificate Interest
for such Distribution Date and Accrued Certificate Interest remaining
undistributed from previous Distribution Dates on all Classes of Group
4 Subordinate Certificates then outstanding, (ii) such distributions
shall not reduce the Current Principal Amount of the Component P-4 and
(iii) no distribution will be made in respect of the Component P-4
Deferred Amount after the Group 4 Cross-Over Date (as defined herein);
and
fifth, sequentially, in the following order, to the Class 4-B-1, Class
4-B-2, Class 4-B-3, Class 4-B-4, Class 4-B-5 and Class 4-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.
On each Distribution Date after the Distribution Date on which the
Current Principal Amounts of (i) the Group 4 Subordinate Certificates are
reduced to zero (the "Group 4 Cross-Over Date"), distributions of principal on
the outstanding Group 4 Senior Certificates (other than the Class 4-X
Certificates and the Component P-4) will be made pro rata among all such Group 4
Certificates, regardless of the allocation, or sequential nature, of principal
payments described in priority third above, based upon the then Current
Principal Amounts of such Group 4 Senior Certificates.
If, after distributions have been made pursuant to priorities first and
second under "--Group 4 Certificates" above on any Distribution Date, remaining
Group 4 Available Funds, are less than the sum of the Group 4 Senior P&I Optimal
Principal Amount and the Component P-4 Principal Distribution Amount for such
Distribution Date, such amounts shall be proportionately reduced, and such
remaining Group 4 Available Funds will be distributed on the Group 4 Senior
Certificates (other than the Class 4-X Certificates), on the basis of such
reduced amounts. Notwithstanding any reduction in principal distributable to the
Class P Certificates pursuant to this paragraph, the principal balance of the
Component P-4 shall be reduced not only by principal so distributed but also by
the difference between (i) principal distributable to the Class P Certificates
with respect to the Component P-4 in accordance with clause (b) of priority
third above and (ii) principal actually distributed to the Class P Certificates
with respect to the Component P-4 after giving effect to this paragraph (such
difference, the "Component P-4 Cash Shortfall"). The Component P-4 Cash
Shortfall with respect to any Distribution Date will be added to the Component
P-4 Deferred Amount.
Group 5 Certificates. On each Distribution Date, the Group 5 Available
Funds will be distributed in the following order of priority among the Group 5
Certificates except as otherwise noted:
first, to the interest-bearing Classes of Group 5 Senior Certificates,
the Accrued Certificate Interest on each such Class for such
Distribution Date. As described below, Accrued Certificate Interest on
each such Class of Group 5 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto. Any Net
Interest Shortfalls shall be allocated among the Group 5 Senior
Certificates as described below;
second, to the interest-bearing Classes of Group 5 Senior Certificates,
any Accrued Certificate Interest thereon remaining undistributed from
previous Distribution Dates, to the extent of remaining Group 5
Available Funds, any shortfall in available amounts being allocated
among
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such Classes in proportion to the amount of such Accrued Certificate
Interest remaining undistributed for each such Class for such
Distribution Date;
third, to the Group 5 Senior Certificates in reduction of the Current
Principal Amounts thereof, the Group 5 Senior P&I Optimal Principal
Amount, concurrently, to the Class 5-A Certificates and the Component
P-5, pro rata, based on their Current Principal Amounts, until the
respective Current Principal Amounts thereof have been reduced to zero;
and
fourth, sequentially, in the following order, to the Class 5-B-1, Class
5-B-2, Class 5-B-3, Class 5-B-4, Class 5-B-5 and Class 5-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.
On each Distribution Date after the Distribution Date on which the
Current Principal Amounts of the Group 5 Subordinate Certificates are reduced to
zero (the "Group 5 Cross-Over Date"), distributions of principal on the
outstanding Group 5 Senior Certificates will be made pro rata among all such
Group 5 Certificates.
If, after distributions have been made pursuant to priorities first and
second under "--Group 5 Certificates" above on any Distribution Date, remaining
Group 5 Available Funds are less than the Group 5 Senior P&I Optimal Principal
Amount for such Distribution Date, such amounts shall be proportionately
reduced, and such remaining Group 5 Available Funds will be distributed on the
Group 5 Senior Certificates on the basis of such reduced amounts.
"Pro rata" distributions among Classes of Certificates will be made in
proportion to the then Current Principal Amount of such Classes.
On each Distribution Date prior to the occurrence of the Group 1 and 2
Cross-Over Date, but after the reduction of the Current Principal Amount of
either the Group 1 Senior Certificates or Group 2 Senior Certificates to zero,
the remaining Class or Classes of Group 1 Senior Certificates or Group 2 Senior
Certificates, as the case may be, will be entitled to receive in reduction of
their Current Principal Amounts, pro rata based upon their Current Principal
Amounts immediately prior to such Distribution Date, in addition to any
principal prepayments allocated to such remaining Class or Classes with respect
to the related Mortgage Loan Group of such remaining Class or Classes, 100% of
the remaining principal prepayments on any Mortgage Loan in the Mortgage Loan
Group relating to the Senior Certificate Group which has been reduced to zero.
In addition, if on any Distribution Date on which the aggregate Current
Principal Amount of any remaining Class or Classes of either the Group 1 Senior
Certificates or the Group 2 Senior Certificates would be greater than the
aggregate Scheduled Principal Balance of the Mortgage Loans in its related
Mortgage Loan Group and any Group B Subordinate 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 Group B Subordinate Certificates on the Mortgage Loans of the other Mortgage
Loan Group will be distributed to such Class or Classes of Group 1 Senior
Certificates or Group 2 Senior Certificates, as the case may be, in reduction of
the Current Principal Amounts thereof, until the aggregate Current Principal
Amount of such Class or Classes of Group 1 Senior Certificates or Group 2 Senior
Certificates is an amount equal to the aggregate Scheduled Principal Balance of
the Mortgage Loans in its related Mortgage Loan Group. Furthermore, if on any
Distribution Date on which the aggregate Current Principal Amount of any
remaining Class or Classes of either the Group 1 Senior Certificates or the
Group 2 Senior Certificates would be greater than the aggregate Scheduled
Principal Balance of the Mortgage Loans in the related Mortgage Loan Group and
any Group B Subordinate Certificates are still outstanding, in each case after
giving effect to distributions to be made on such Distribution Date to the
Senior Certificates, an amount up to 7.00% of any excess of the Scheduled
Principal Balance of the Mortgage Loans in the other Mortgage Loan Group over
the Current Principal Amount of the Certificates in the other Certificate Group
will be distributed to such Class or Classes of Group 1 Senior Certificates or
Group 2 Senior Certificates, as the case may be, in an amount up to 7.00% of any
excess of the
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Current Principal Amount of such Certificates over the aggregate Scheduled
Principal Balance of the Mortgage Loans of the related Mortgage Loan Group.
On each Distribution Date, any Available Funds for Mortgage Loan Groups
1 and 2 remaining after payment of interest and principal as described above
with respect to the Group 1, 2 and B Certificates will be distributed pro rata,
to the Class R-1 and Class R-2 Certificates; provided that if on any
Distribution Date there are any Group Available Funds remaining after payment of
interest and principal to a Class or Classes of Certificates entitled thereto,
such Group Available Funds will be added to the Group Available Funds for the
other such Group 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 Class of Certificates (other than the Class P Certificates) at
its then applicable Pass-Through Rate on the Current Principal Amount or
Notional Amount of such Class immediately preceding such Distribution Date. The
Pass-Through Rate for each Class of Certificates is described on the cover page
hereof. The effective yield to the holders of Certificates (other than the Class
1-A-5 and Class 1-A-6 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 25th 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.
During each Interest Accrual Period, interest will accrue on the Class
1-A-5 Certificates at a per annum rate of 1.00% above LIBOR, determined monthly
as described herein, subject to a maximum rate of 8.50% and a minimum rate of
1.00%, and interest will accrue on the Class 1-A-7 Certificates at a per annum
rate equal to 0.90% above LIBOR, determined monthly as provided herein, subject
to a maximum rate of 9.00% and a minimum rate of 0.90%. During the initial
Interest Accrual Period, interest will accrue on the Class 1-A-5 and Class 1-A-7
Certificates at the rate of 7.00% and 6.5875% per annum, respectively.
The Class 1-A-6 Certificates will bear interest during each Interest
Accrual Period at a per annum rate equal to 35.00% - (4.6667 x LIBOR) determined
monthly as provided herein, subject to a maximum rate of 35.00% and a minimum
rate of 0.00%, and the Class 1-A-8 Certificates will bear interest during each
Interest Accrual Period at a per annum rate equal to 28.35% - (3.5 x LIBOR)
determined monthly as described herein, subject to a maximum rate of 28.35% and
a minimum rate of 0.00%. Interest will accrue on the Class 1-A-6 and Class 1-A-8
Certificates during the initial Interest Accrual Period at a per annum rate of
7.00% and 8.44375%, respectively.
During each Interest Accrual Period, interest will accrue on the Class
X Certificates at a variable Pass-Through Rate equal to the weighted average of
the excess, if any, of (a) the Net Rates of each Group 1 and 2 Mortgage Loan
over (b) 7.00%. During each Interest Accrual Period, interest will accrue on the
Class 3-X Certificates and the Class 4-X Certificates at variable Pass-Through
Rates equal to the weighted average of the excess, if any, of (a) the Net Rates
of all of the Group 3 Mortgage Loans and the Group 4 Mortgage Loans,
respectively, over (b) 7.25% and 7.00%, respectively. The Pass-Through Rates for
the Class X Certificates, the Class 3-X Certificates and the Class 4-X
Certificates for the initial Interest Accrual Period are expected to be
approximately 0.5586%, 0.9052% and 0.2253%, respectively.
The Class P Certificates are principal only certificates and will not
bear interest.
Interest accrued on the Class 2-A-3 Certificates during each Interest
Accrual Period will not be distributed as interest to such Class through the
Group 1 and 2 Cross-Over Date, but will be added to the principal amount thereof
on the related Distribution Date.
All other Offered Certificates will bear interest at the fixed
Pass-Through Rates set forth on the cover page hereof.
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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 a Class 1-A-X1, Class 1-A-X2, Class X, Class
3-X or Class 4-X Certificate, the 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, after the applicable Cross-Over Date, the interest
portion of any Realized Losses applicable to its related Mortgage Loan Group or
Groups and (ii) in the case of a Subordinate Certificate, such Certificate's
share of any Net Interest Shortfall (as defined below) and the interest portion
of any Realized Losses applicable to its related Mortgage Loan Group or Groups
in the case of the Group B Subordinate Certificates. Such Net Interest
Shortfalls will be allocated among the Certificates in a Certificate Group in
proportion to the amount of Accrued Certificate Interest that would have been
allocated thereto in the absence of such shortfalls. The interest portion of
Realized Losses in a Mortgage Loan Group will be allocated first to the
Subordinate Certificates in the related Certificate Group in reverse order of
their numerical designations commencing with the Class B-6, Class 3-B-6, Class
4-B-6 and Class 5-B-6 Certificates and following the applicable Cross-Over Date,
such Realized Losses will be allocated pro rata to the Classes of
interest-bearing Senior Certificates in the related Certificate Group, except
that after the Group 1 and 2 Cross-Over Date, the Senior Support Certificates
will be allocated the interest portion of any Realized Losses otherwise
allocable to the Super Senior Certificates. 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 of such Certificate has been reduced to zero.
The "Current Principal Amount" of any Certificate (other than a Class
1-A-X1, Class 1-A-X2, Class X, Class 3-X or Class 4-X Certificate) or a P
Component as of any Distribution Date will equal such Certificate's or
Component's initial principal amount on the Closing Date, plus in the case of
the Class 2-A-3 Certificates, all amounts added to the principal balance thereof
with respect to the Accrual Amount, as reduced by (i) all amounts distributed on
previous Distribution Dates on such Certificate or Component on account of
principal, (ii) the principal portion of all Realized Losses previously
allocated to such Certificate or Component (taking account of its applicable
Group Loss Allocation Limitation) and (iii) in the case of a Subordinate
Certificate, such Certificate's pro rata share, if any, of the applicable
Subordinate Certificate Writedown Amount and/or any applicable Component P
Deferred Payment Writedown Amount, in each case for previous Distribution Dates.
With respect to any Class of Certificates or Components, the Current Principal
Amount thereof will equal the sum of the Current Principal Amounts of all
Certificates in such Class or Components.
As of any Distribution Date, the "Subordinate Certificate Writedown
Amount" for each Subordinate Certificate Group will equal the amount by which
(a) the sum of the Current Principal Amounts of all of the Certificates in the
related Certificate Group (or in the case of the Group B Subordinate
Certificates, all of the Certificates in Certificate Groups 1 and 2)(after
giving effect to the distribution of principal and the allocation of applicable
Realized Losses and any applicable Component P Deferred Payment Writedown Amount
in reduction of the Current Principal Amounts of such Certificates on such
Distribution Date) exceeds (b) the Scheduled Principal Balances of Mortgage
Loans in the related Mortgage Loan Group (or in the case of the Group B
Subordinate Certificates, Mortgage Loan Groups 1 and 2) on the Due Date related
to such Distribution Date. The applicable Subordinate Certificate Writedown
Amount and any applicable Component P Deferred Payment Writedown Amount will be
allocated to the Classes of Subordinate Certificates in a Certificate Group (or
in the case of the Group B Subordinate Certificates, Mortgage Loan Groups 1 and
2) in inverse order of their numerical Class designations, until the Current
Principal Amount of each such Class has been reduced to zero.
The notional principal amounts (each, a "Notional Amount") of the Class
1-A-X1 Certificates and the Class 1-A-X2 Certificates on any Distribution Date
will be equal to the Current Principal Amount of the Class 1-A-1 Certificates
and the Class 1-A-2 Certificates, respectively.
The Notional Amounts of the Component X-1, the Component X-2, the Class
3-X Certificates and the Class 4-X Certificates will be equal to the aggregate
Scheduled Principal Balances of the Group 1 Mortgage Loans, the Group 2 Mortgage
Loans, the Group 3 Mortgage Loans and the Group 4 Mortgage Loans, respectively.
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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) on Mortgage Loans in the related Mortgage Loan Group or
Groups 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
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 which services the Mortgage Loan on the
Distribution Date in the following calendar month to the extent that such
Interest Shortfalls do not exceed the applicable Master Servicing Fee in
connection with such Distribution Date. The amount of the applicable Master
Servicing Fee used to offset such Interest Shortfalls is referred to herein as
"Compensating Interest Payments." Interest Shortfalls net of Compensating
Interest Payments are referred to herein as "Net Interest Shortfalls."
If on any Distribution Date the applicable Available Funds for the
Senior Certificates or Components of a Certificate Group is less than the
Accrued Certificate Interest on such Senior Certificates or Components for such
Distribution Date prior to reduction for Net Interest Shortfall and the interest
portion of Realized Losses, the shortfall will be allocated among the holders of
each Class of interest-bearing Senior Certificates or Components in such
Certificate Group in proportion to the respective amounts of Accrued Certificate
Interest that would have been allocated thereto in the absence of such Net
Interest Shortfall and/or Realized Losses for such Distribution Date. 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 and will be distributable to holders of the
Certificates of the related Classes or Components entitled to such amounts on
subsequent Distribution Dates, to the extent of the applicable Available Funds
after current 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 Servicers
or otherwise, except to the limited extent described above.
Calculation of LIBOR. Commencing on December 29, 1997, with respect to
the Class 1-A-7 and Class 1-A-8 Certificates, and on January 22, 1998, with
respect to the Class 1-A-5 and Class 1-A-6 Certificates and monthly thereafter
on the second business day prior to the first day of the related Interest
Accrual Period for the Class 1-A-5, Class 1-A-6, Class 1-A-7 and Class 1-A-8
Certificates (each, a "LIBOR Determination Date"), until the Current Principal
Amounts of such Classes of Certificates 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, Chicago, Illinois 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 Reuters
Screen LIBO Page (as defined in the International Swap Dealers Association Inc.
Code of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
to the extent available.
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%).
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(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 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 the first 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 6.0%. If on any
subsequent 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 LIBOR for the immediately preceding
LIBOR Determination Date.
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.
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 1-A-5, Class 1-A-6, Class 1-A-7 and Class1-A-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 (800) 524-9472.
Principal. All payments and other amounts received in respect of the
Scheduled Principal Balance of the Group 1 Mortgage Loans will be allocated
between (i) the Group 1 Senior P&I Certificates and the Group B Subordinate
Certificates, on the one hand, and (ii) the Component P-1, on the other, in each
case based on the applicable Non-PO Percentage and the applicable PO Percentage,
respectively, of such amounts. All payments and other amounts received in
respect of the Scheduled Principal Balance of the Group 2 Mortgage Loans will be
allocated between (i) the Group 2 Senior P&I Certificates and the Group B
Subordinate Certificates, on the one hand, and (ii) the Component P-2, on the
other, in each case based on the applicable Non-PO Percentage and the applicable
PO Percentage, respectively, of such amounts. All payments and other amounts
received in respect of the Scheduled Principal Balance of the Group 3 Mortgage
Loans will be allocated between (i) the Group 3 Senior P&I Certificates and the
Group 3 Subordinate Certificates, on the one hand, and (ii) the Component P-3,
on the other, in each case based on the applicable Non-PO Percentage and the
applicable PO Percentage, respectively, of such amounts. All payments and other
amounts received in respect of the Scheduled Principal Balance of the Group 4
Mortgage Loans will be allocated between (i) the Group 4 Senior P&I Certificates
and the Group 4 Subordinate Certificates, on the one hand, and (ii) the
Component P-4, on the other, in each case based on the applicable Non-PO
Percentage and the applicable PO Percentage, respectively, of such amounts. All
payments and other amounts received in respect of the Scheduled Principal
Balance of the Group 5 Mortgage Loans will be allocated to the Group 5 Senior
P&I Certificates.
The "Non-PO Percentage" with respect to any Mortgage Loan in Mortgage
Loan Group 1, Mortgage Loan Group 2, Mortgage Loan Group 3 or Mortgage Loan
Group 4 with a Net Rate less than 7.00%, 7.00%, 7.25% or 7.00%, respectively,
per annum (each such Mortgage Loan, a "Discount Mortgage Loan") will be equal to
the Net Rate thereof divided by 7.00%, 7.00%, 7.25% or 7.00%, respectively. The
"Non-PO Percentage" with respect to any Mortgage Loan in Mortgage Loan Group 1,
Mortgage Loan Group 2, Mortgage Loan Group 3 or Mortgage
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Loan Group 4 with a Net Rate equal to or greater than 7.00%, 7.00%, 7.25% or
7.00%, respectively, (each such Mortgage Loan, a "Non-Discount Mortgage Loan")
will be 100%. The Non-PO Percentage of each Mortgage Loan in Mortgage Loan Group
5 is 100%. The "PO Percentage" with respect to any Discount Mortgage Loan will
be the fraction, expressed as a percentage, equal to 7.00%, 7.00%, 7.25% or
7.00%, respectively, minus the Net Rate thereof divided by 7.00%, 7.00%, 7.25%
or 7.00%, respectively. The "PO Percentage" with respect to each Mortgage Loan
in Mortgage Loan Group 5 will be 0%.
Distributions in reduction of the Current Principal Amount of each
Class of Group 1 Senior Certificates (other than the Class 1-A-X1 and Class
1-A-X2 Certificates and the Component X-1) will be made on each Distribution
Date pursuant to priority third above under "--Group 1 Senior Certificates." In
accordance with such priority third, the Group 1 Available Funds remaining after
distribution of interest on the interest-bearing Group 1 Senior Certificates
will be allocated to such Group 1 Senior Certificates in an aggregate amount not
to exceed the sum of the Group 1 Senior P&I Optimal Principal Amount and the
Component P-1 Principal Distribution Amount for such Distribution Date.
Distributions in reduction of the Current Principal Amount of each
Class of Group 2 Senior Certificates (other than the Component X-2) will be made
on each Distribution Date pursuant to priority third above under "--Group 2
Senior Certificates." In accordance with such priority third, the Group 2
Available Funds remaining after distribution of interest on the interest-bearing
Group 2 Senior Certificates will be allocated to such Group 2 Senior
Certificates in an aggregate amount not to exceed the sum of the Group 2 Senior
P&I Optimal Principal Amount and the Component P-2 Principal Distribution Amount
for such Distribution Date.
Distributions in reduction of the Current Principal Amounts of the
Group B Subordinate Certificates will be made pursuant to "--Group B Subordinate
Certificates" above. In accordance therewith, the sum of the Group 1 Available
Funds and the Group 2 Available Funds, if any, remaining after distributions of
principal and interest on the Group 1 and Group 2 Senior Certificates and
payments in respect of the Component P-1 and Component P-2 Deferred Amounts on
such Distribution Date will be allocated to the Group B 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.
Distributions in reduction of the Current Principal Amount of each
Class of Group 3 Senior Certificates (other than the Class 3-X Certificates)
will be made on each Distribution Date pursuant to priority third above under
"--Group 3 Certificates." In accordance with such priority third, the Group 3
Available Funds remaining after distribution of interest on the interest-bearing
Group 3 Senior Certificates will be allocated to such Group 3 Certificates in an
aggregate amount not to exceed the sum of the Group 3 Senior P&I Optimal
Principal Amount and the Component P-3 Principal Distribution Amount for such
Distribution Date. Distributions in reduction of the Current Principal Amounts
of the Group 3 Subordinate Certificates will be made pursuant to priority fifth
above. In accordance with each such priority, the Group 3 Available Funds, if
any, remaining after distributions of principal and interest on the Group 3
Senior Certificates and payments in respect of the Component P-3 Deferred Amount
on such Distribution Date will be allocated to the Group 3 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.
Distributions in reduction of the Current Principal Amount of each
Class of Group 4 Senior Certificates (other than the Class 4-X Certificates)
will be made on each Distribution Date pursuant to priority third above under
"--Group 4 Certificates." In accordance with such priority third, the Group 4
Available Funds remaining after distribution of interest on the interest-bearing
Group 4 Senior Certificates will be allocated to such Group 4 Certificates in an
aggregate amount not to exceed the sum of the Group 4 Senior P&I Optimal
Principal Amount and the Component P-4 Principal Distribution Amount for such
Distribution Date. Distributions in reduction of the Current Principal Amounts
of the Group 4 Subordinate Certificates will be made pursuant to priority fifth
above. In
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accordance with each such priority, the Group 4 Available Funds, if any,
remaining after distributions of principal and interest on the Group 4 Senior
Certificates and payments in respect of the Component P-4 Deferred Amount on
such Distribution Date will be allocated to the Group 4 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.
Distributions in reduction of the Current Principal Amount of each
Class of Group 5 Senior Certificates will be made on each Distribution Date
pursuant to priority third above under "--Group 5 Certificates." In accordance
with such priority third, the Group 5 Available Funds remaining after
distribution of interest on the interest-bearing Group 5 Senior Certificates
will be allocated to such Group 5 Certificates in an aggregate amount not to
exceed the Group 5 Senior P&I Optimal Principal Amount for such Distribution
Date. Distributions in reduction of the Current Principal Amounts of the Group 5
Subordinate Certificates will be made pursuant to priority fourth above. In
accordance with each such priority, the Group 5 Available Funds, if any,
remaining after distributions of principal and interest on the Group 5 Senior
Certificates on such Distribution Date will be allocated to the Group 5
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.
The "Senior P&I Optimal Principal Amount" for the Senior Certificates
of each Certificate Group with respect to each Distribution Date will be an
amount equal to the sum of:
(i) the applicable Senior Percentage of the applicable Non-PO
Percentage of all scheduled payments of principal allocated to the
Scheduled Principal Balance due on each Mortgage Loan in the related
Mortgage Loan Group on the related Due Date, as specified in the
amortization schedule at the time applicable thereto (after adjustment
for previous principal prepayments but before any adjustment to such
amortization schedule by reason of any bankruptcy or similar proceeding
or any moratorium or similar waiver or grace period);
(ii) the applicable Senior 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 related 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 allocated to principal
received during the applicable Prepayment Period;
(iv) the lesser of (a) the applicable Senior Prepayment Percentage of
the sum of (A) all Net Liquidation Proceeds (as defined herein)
allocable to principal received in respect 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 (B)) and (B) the Scheduled Principal Balance of
each such Mortgage Loan in the related Mortgage Loan Group purchased by
an insurer from the Trustee during the related Prepayment Period
pursuant to the related Primary Mortgage Insurance Policy, if any, or
otherwise; and (b) the applicable Senior 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 became a
Liquidated Mortgage Loan during the related Prepayment Period (other
than the Mortgage Loans described in clause (B)) and (B) the Scheduled
Principal Balance of each such 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 Mortgage
Insurance Policy, if any or otherwise; and
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(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 BSMCC in connection with such Distribution Date and (b)
the excess, if any, of the Scheduled Principal Balance of a Mortgage
Loan in the related Mortgage Loan Group that has been replaced by BSMCC
with a substitute Mortgage Loan pursuant to the Agreement in connection
with such Distribution Date over the Scheduled Principal Balance of
such substitute Mortgage Loan.
The "Senior Percentage" for the Senior Certificates of each Certificate
Group on any Distribution Date will equal the lesser of (i) 100% and (ii) the
percentage (carried to six places rounded up) obtained by dividing the aggregate
Current Principal Amount of all the Senior P&I Certificates of such Certificate
Group immediately preceding such Distribution Date by the aggregate Scheduled
Principal Balance of the Mortgage Loans (other than the PO Percentage) in the
related Mortgage Loan Group as of the beginning of the related Due Period. The
initial Senior Percentages for the Group 1, Group 2, Group 3, Group 4 and Group
5 Certificates are expected to be approximately 95.25%, 95.25%, 91.50%, 96.72%
and 96.25%, respectively.
The "Senior Prepayment Percentage" for the Senior Certificates of each
Certificate Group on any Distribution Date occurring during the periods set
forth below will be as follows (provided that in the case of the Group 1 and
Group 2 Senior Certificates, Subordinate Percentage as used below means the
applicable Group B Subordinate Percentage for the relevant Mortgage Loan Group):
<TABLE>
<CAPTION>
Period (dates inclusive) Senior Prepayment Percentage
- ------------------------ ----------------------------
<S> <C>
January 25, 1998 - December 25, 2002..................... 100%
January 25, 2003 - December 25, 2003..................... Senior Percentage for the related Certificate Group
plus 70% of the Subordinate Percentage for such
Certificate Group
January 25, 2004 - December 25, 2004..................... Senior Percentage for the related Certificate Group
plus 60% of the Subordinate Percentage for such
Certificate Group
January 25, 2005 - December 25, 2005..................... Senior Percentage for the related Certificate Group
plus 40% of the Subordinate Percentage for such
Certificate Group
January 25, 2006 - December 25, 2006..................... Senior Percentage for the related Certificate Group
plus 20% of the Subordinate Percentage for such
Certificate Group
January 25, 2007 and thereafter.......................... Senior Percentage for the related Certificate Group
</TABLE>
Notwithstanding the foregoing, if on any Distribution Date the Senior
Percentage for a Certificate Group exceeds the Senior Percentage for such
Certificate Group as of the Cut-off Date, the Senior Prepayment Percentage for
such Certificate Group for such Distribution Date will equal 100%.
In addition, no reduction of the Senior Prepayment Percentage for a
Certificate Group 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, (i) the aggregate Scheduled
Principal Balance of Mortgage Loans of the related Mortgage Loan Group
delinquent 60 days or more (including for this purpose any such Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been
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acquired by the Trust), averaged over the last six months, as a percentage of
the sum of the aggregate Current Principal Amount of the Subordinate
Certificates of such Certificate Group (using in the case of the Group 1
Certificates and the Group 2 Certificates the aggregate Scheduled Principal
Balance of the Mortgage Loans of the respective Mortgage Loan Group after
subtracting the Current Principal Amount of the Group 1 or Group 2 Senior
Certificates, as applicable) does not exceed 50% and (ii) cumulative Realized
Losses on such Mortgage Loans do not exceed (a) 30% of the aggregate Current
Principal Amounts of the Subordinate Certificates of such Group as of the
Cut-off Date (calculated in the case of Group 1 and Group 2 Certificates as
aforesaid) (the "Original Subordinate Principal Balance") if such Distribution
Date occurs between and including January 2003 and December 2003, (b) 35% of the
applicable Original Subordinate Principal Balance if such Distribution Date
occurs between and including January 2004 and December 2004, (c) 40% of the
applicable Original Subordinate Principal Balance if such Distribution Date
occurs between and including January 2005 and December 2005, (d) 45% of the
applicable Original Subordinate Principal Balance if such Distribution Date
occurs between and including January 2006 and December 2006, and (e) 50% of the
applicable Original Subordinate Principal Balance if such Distribution Date
occurs during or after January 2007. No reduction of the Senior Prepayment
Percentage for Certificate Groups 1 or 2 will occur unless the foregoing tests
have been met with respect to both Groups.
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 "Component P Principal Distribution Amount" for each of Component
P-1, Component P-2, Component P-3 and Component P-4 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 Discount Mortgage Loan in the related Mortgage Loan Group
on the related Due Date as specified in the amortization schedule at
the time applicable thereto (after adjustment for previous principal
prepayments but before any adjustment to such amortization schedule by
reason of any 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 Discount Mortgage Loan in the related Mortgage Loan Group which
was the subject of a prepayment in full received by the related Master
Servicer during the applicable Prepayment Period;
(iii) the applicable PO Percentage of all partial prepayments of
principal of each Discount Mortgage Loan in the related Mortgage Loan
Group received during the applicable Prepayment Period;
(iv) the lesser of (a) the applicable PO Percentage of the sum of (A)
all Net Liquidation Proceeds allocable to principal on each Discount
Mortgage Loan in the related Mortgage Loan Group which became a
Liquidated Mortgage Loan during the related Prepayment Period (other
than a Discount Mortgage Loan described in clause (B)) and (B) the
Scheduled Principal Balance of each such Discount Mortgage Loan in the
related Mortgage Loan Group purchased by an insurer from the Trustee
during the related Prepayment Period pursuant to the related Primary
Mortgage Insurance Policy, if any, or otherwise; and (b) the applicable
PO Percentage of the Scheduled Principal Balance of each Discount
Mortgage Loan in the related Mortgage Loan Group which became a
Liquidated Mortgage Loan during the related Prepayment Period (other
than a Discount Mortgage Loan described in clause (B)) and (B) the
Scheduled Principal Balance of each such 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
Mortgage Insurance Policy, if any, or otherwise; and
(v) the applicable PO Percentage of the sum of (a) the Scheduled
Principal Balance of each Discount Mortgage Loan in the related
Mortgage Loan Group which was repurchased by BSMCC in connection with
such Distribution Date and (b) the difference, if any, between the
Scheduled Principal Balance of a Discount Mortgage Loan in the related
Mortgage Loan Group that has been replaced by BSMCC with a
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substitute Discount Mortgage Loan pursuant to the Agreement in
connection with such Distribution Date and the Scheduled Principal
Balance of such substitute Discount Mortgage Loan.
The Component P-1 Cash Shortfall, Component P-2 Cash Shortfall,
Component P-3 Cash Shortfall and the Component P-4 Cash Shortfall are referred
to herein collectively as the "Component P Cash Shortfalls."
The "Subordinate Percentage" for the Subordinate Certificates of each
Certificate Group on any Distribution Date will equal 100% minus the Senior
Percentage for the Senior Certificates of such Certificate Group. The Group B
Subordinate Certificates will have two Subordinate Percentages, one applicable
to the Group 1 Mortgage Loans and one applicable to the Group 2 Mortgage Loans.
The "Subordinate Prepayment Percentage" for the Subordinate Certificates of any
Certificate Group on any Distribution Date will equal 100% minus the applicable
Senior Prepayment Percentage (and similarly the Group B Subordinate Certificates
will have two Subordinate Prepayment Percentages, one applicable to the Group 1
Mortgage Loans and one applicable to the Group 2 Mortgage Loans), except that on
any Distribution Date after the Current Principal Amounts of the Senior
Certificates have each been reduced to zero, the Subordinate Prepayment
Percentage for such Certificate Group will equal 100%. The initial Subordinate
Percentages for the Group B Subordinate Certificates applicable to the Group 1
and Group 2 Mortgage Loans are expected to be approximately 4.75% and 4.75%,
respectively, and for the Group 3, Group 4 and Group 5 Subordinate Certificates
approximately 8.50%, 3.28% and 3.75%, respectively.
The "Subordinate Optimal Principal Amount" for the Subordinate
Certificates of each Certificate Group 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 of
such Certificate Group immediately prior to such Distribution Date):
(i) the applicable Subordinate Percentage of the applicable Non-PO
Percentage of the principal portion of all Monthly Payments due on each
Mortgage Loan in the related Mortgage Loan Group (or Groups in the case
of the Group B Subordinate Certificates) on the related Due Date, as
specified in the amortization schedule at the time applicable thereto
(after adjustment for previous principal prepayments but before any
adjustment to such amortization schedule by reason of any 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 (or Groups in the case of the
Group B Subordinate Certificates) which was the subject of a prepayment
in full received by the related 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 during the applicable Prepayment Period;
(iv) the excess, if any, of the applicable Non-PO Percentage of (a) the
Net Liquidation Proceeds allocable to principal received during the
related Prepayment Period in respect of each Liquidated Mortgage Loan
over (b) the sum of the amounts distributable to Senior
Certificateholders of the applicable Certificate Group pursuant to
clause (iv) of each of the definitions of "Senior P&I Optimal Principal
Amount," and "Component P Principal Distribution Amount" on such
Distribution Date;
(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 (or Groups in the
case of the Group B Subordinate Certificates) which was repurchased by
BSMCC 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 BSMCC with a
substitute Mortgage Loan pursuant to the Agreement in connection with
such Distribution Date and the Scheduled Principal Balance of such
substitute Mortgage Loan; and
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(vi) on the Distribution Date on which the Current Principal Amounts of
the Senior P&I Certificates of such Certificate Group have all been
reduced to zero, 100% of any applicable Senior P&I Optimal Principal
Amount.
The "Allocable Share" with respect to any Class of Subordinate
Certificates of any Certificate Group 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 the sum of each of the components of the
definition of the Subordinate Optimal Principal Amount for each of the
Mortgage Loan Groups; provided, that, except as described in the second
succeeding sentence, no Class of Subordinate Certificates (other than the
Class of Subordinate Certificates outstanding with the lowest numerical
designation) 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 subordinated thereto, if any, and the
denominator of which is the Scheduled Principal Balances of all of the
applicable Mortgage Loans as of the related Due 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,
sequentially, 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.
"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
Mortgage 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
BSMCC 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.
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Distributions in Reduction of the Current Principal Amount of the PAC
Certificates. The Class 1-A-1 and Class 1-A-2 Certificates are planned
amortization class securities and are sometimes collectively referred to as the
"PAC I Certificates". The Class 1-A-3 and Class 1-A-4 Certificates also are
planned amortization class securities and are sometimes collectively referred to
as the "PAC II Certificates," and together with the PAC I Certificates, as the
"PAC Certificates." On each Distribution Date, the Group 1 Available Funds will
be allocated among the Group 1 Senior Certificates, including, but not limited
to, the PAC Certificates, as described under "Description of the Certificates --
Distributions on the Certificates -- Allocations of Available Funds" herein. To
the extent that funds are available to make distributions in reduction of the
Current Principal Amounts of each of the Classes of the PAC Certificates on each
Distribution Date, each such Class will be entitled to receive the amount, if
any, required to reduce the outstanding Current Principal Amount thereof (prior
to giving effect to distributions in reduction thereof to be made on such
Distribution Date) for such Distribution Date to the planned balance (each a
"Planned Balance") for such Class set forth in Annex B hereof.
The Planned Balances of each Class of PAC Certificates on each
Distribution Date were calculated assuming that (i) the Mortgage Loans in
Mortgage Loan Group 1 and the Group 1 Certificates have the characteristics
described below in the second paragraph under "Yield and Prepayment
Considerations -- Decrement Tables" herein as used for the computation of
weighted average lives, and (ii) (A) with respect to the PAC I Certificates,
such Mortgage Loans are prepaid at any constant rate within the range of
approximately 125% to approximately 400% SPA (as defined herein) and (B) with
respect to the PAC II Certificates, such Mortgage Loans are prepaid at a
constant rate within the range of approximately 175% to approximately 275% SPA
and (iii) the initial Current Principal Amounts of the PAC I and PAC II
Certificates are as set forth on the cover page hereof.
It is extremely unlikely that the Mortgage Loans in Mortgage Loan Group
1 will prepay at a constant percentage of SPA. In addition, some or all of the
other assumptions stated above that are used in preparing the table in Annex B
are unlikely to reflect actual experience. Accordingly, there is no assurance
that the Current Principal Amount of any Class of PAC Certificates will conform
on any Distribution Date to the applicable level set forth in such table. In
addition, if the Group 1 Senior P&I Optimal Principal Amount exceeds the amount
necessary to pay the amounts necessary to reduce the PAC Certificates to their
respective Planned Balances, on any Distribution Date, the excess will be
allocated on such Distribution Date to distributions in reduction of the Current
Principal Amounts of the Group 1 Certificates in accordance with the priorities
described herein, and will not be retained for distribution on subsequent
Distribution Dates. Accordingly, if principal prepayments on the Mortgage Loans
in Mortgage Loan Group 1 do not occur at a constant rate within the applicable
ranges in the case of the PAC I and PAC II Certificates, the amount available on
subsequent Distribution Dates for payment of each Class of the PAC Certificates
may be less than the amounts necessary to reduce their Current Principal Amounts
to their Planned Balances for such Distribution Dates, even if on average
prepayments on the Mortgage Loans in Mortgage Loan Group 1 do occur at such a
constant rate. Distributions in reduction of the Current Principal Amount of any
Class of PAC Certificates may reduce the Current Principal Amount of such
Certificates to zero significantly earlier or later than the Distribution Date
specified herein. See "Yield and Prepayment Considerations -- Weighted Average
Lives and Decrement Tables" below for a further discussion of the effect of
prepayments on the Mortgage Loans on the rate of distributions in reduction of
Current Principal Amount and on the weighted average lives of the Certificates.
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 applicable Master Servicer has determined that all amounts which
it expects to recover from or on account of such Mortgage Loan have been
recovered.
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"Liquidation Proceeds" are amounts received by a 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.
"Net Liquidation Proceeds" with respect to a Mortgage Loan are
Liquidation Proceeds net of expenses incurred by a 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 Agreement or any loss due to normal wear and tear
or certain other causes.
Realized Losses with respect to a Mortgage Loan in any Mortgage Loan
Group will be allocated on a pro rata basis between the PO Percentage of the
Scheduled Principal Balance of such Mortgage Loan and the Non-PO Percentage of
such Scheduled Principal Balance.
On each Distribution Date, the applicable PO Percentage of the
principal portion of any Realized Loss on a Discount Mortgage Loan in Mortgage
Loan Groups 1, 2, 3 and 4 and any Component P Cash Shortfall relating to
Component P-1, Component P-2, Component P-3 and Component P-4 will be allocated
to Component P-1, Component P-2, Component P-3 and Component P-4, respectively,
until the Current Principal Amount of each such Component is reduced to zero.
With respect to any Distribution Date through the applicable Cross-Over Date for
the relevant Certificate Group, the aggregate of all amounts so allocable to
Component P-1, Component P-2, Component P-3 and Component P-4 on such date in
respect of any Realized Losses and any Component P Cash Shortfalls and all
amounts previously allocated in respect of such Realized Losses or Component P
Cash Shortfalls to such Components and not distributed on prior Distribution
Dates will be the applicable Component P Deferred Amount for Component P-1,
Component P-2, Component P-3 and Component P-4, respectively. To the extent
funds are available therefor on any Distribution Date through the applicable
Cross-Over Date for the relevant Certificate Group, distributions in respect of
the applicable Component P Deferred Amount will be made on Component P-1,
Component P-2, Component P-3 and Component P-4 in accordance with priority
fourth for "--Certificate Group 1,"--Certificate Group 2," "--Certificate Group
3" and "--Certificate Group 4," respectively, above. Any distribution of the
applicable Available Funds for a Certificate Group with respect the Stripped P
Component of such Group will not reduce the Current Principal Amount of such
Component. No interest will accrue on any Component P Deferred Amount. On each
Distribution Date through the applicable Cross-Over Date for the relevant
Certificate Group, the Current Principal Amount of the lowest ranking Class of
Subordinate Certificates in such Certificate Group then outstanding having the
highest numerical Class designation will be reduced by the amount of any
distributions in respect of the applicable Component P Deferred Amount for such
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Certificate Group (or in the case of the Group B Subordinate Certificates,
reduced by any distributions in respect of the Component P-1 Deferred Amount and
the Component P-2 Deferred Amount) on such Distribution Date in accordance with
priority fourth for "--Certificate Group 1,"--Certificate Group 2,"
"--Certificate Group 3" and "--Certificate Group 4," respectively, above,
through the operation of the Component P Deferred Payment Writedown Amount for
such Certificate Group. After the applicable Cross-Over Date for Certificate
Groups 1,2,3 and 4, no more distributions will be made in respect of, and
applicable Realized Losses and Component P Cash Shortfalls allocable to the
Stripped P Component of such Certificate Group will not be added to, the
Component P Deferred Amount for the relevant Stripped P Component.
On any Distribution Date, the Non-PO Percentage of the principal
portion of Realized Losses ("Non-PO Realized Losses") in any Mortgage Loan Group
which suffered Realized Losses during the related Prepayment Period will not be
allocated to any Senior Certificates in the related Certificate Group until the
applicable Cross-Over Date for such Certificate Group. Prior to the applicable
Cross-Over Date for a Certificate Group (or on such dates under certain
circumstances) the Non-PO Percentage of the principal portion of Realized Losses
in any Mortgage Loan Group will be allocated among the outstanding classes of
Subordinate Certificates in the related Certificate Group (or in the case of
Mortgage Loan Groups 1 and 2, the Group B 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, Class 3-B-6, Class 4-B-6 and Class 5-B-6 Certificates, respectively,
while such Certificates are outstanding, second, to the Class B-5, Class 3-B-5,
Class 4-B-5 and Class 5-B-5 Certificates, respectively, and so on). Commencing
on the applicable Cross-Over Date for the relevant Certificate Group, the Non-PO
Percentage of the principal portion of Realized Losses for such Certificate
Group will be allocated among the outstanding Classes of Senior P&I Certificates
of such Certificate Group, pro rata based upon their respective Current
Principal Amounts, except that the pro rata portion of any such Realized Loss
otherwise borne by the Super Senior Certificates will be borne by the Senior
Support Certificates until the Current Principal Amount of the Senior Support
Certificates has been reduced to zero.
No reduction of the Current Principal Amount of any Class of any
Certificate Group 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 Classes of such Certificate
Group (or in the case of Certificate Groups 1 and 2, in the aggregate) as of
such Distribution Date to an amount less than the Scheduled Principal Balances
of the Mortgage Loans in the related Mortgage Loan Group (or in the case of
Certificate Groups 1 and 2, the Scheduled Principal Balances of all of the
Mortgage Loans in Mortgage Loan Groups 1 and 2) as of the related Due Date (such
limitation being the applicable "Loss Allocation Limitation" with respect to
each such Certificate Group or Groups).
The principal portion of Debt Service Reductions will not be allocated
in reduction of the Current Principal Amount of any Certificate. However, after
the applicable Cross-Over Date for a Certificate Group, the amounts
distributable under clause (i) of the definitions of Senior P&I Optimal
Principal Amount and Subordinate Optimal Principal Amount for all Certificate
Groups and the Component P Principal Distribution Amount for Certificate Groups
1, 2, 3 and 4 will be reduced by the amount of any Debt Service Reductions
applicable to the Mortgage Loans of the related Mortgage Loan Group (or Groups
in the case of the Group B Subordinate Certificates). Regardless of when they
occur, Debt Service Reductions may reduce the amount of Available Funds for a
Mortgage Loan Group that would otherwise be available for distribution on a
Distribution Date. As a result of the subordination of the Subordinate
Certificates of a Certificate Group in right of distribution, any Debt Service
Reductions relating to Mortgage Loans in the related Mortgage Loan Group (or
Groups in the case of the Group B Subordinate Certificates) prior to the
applicable Cross-Over Date for such Certificate Group, will be borne by such
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
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that the aggregate amount of the principal portion of any Realized Losses on the
Mortgage Loans in Mortgage Loan Groups 1, 2, 3 and 4 to be allocated to
Component P-1, Component P-2, Component P-3 and Component P-4, respectively, on
any Distribution Date through the applicable Cross-Over Date for the related
Certificate Group will also be taken into account in determining distributions
in respect of the Component P Deferred Amount for such Component for such
Distribution Date.
The interest portion of Realized Losses will be allocated among the
outstanding classes of Certificates offered hereby to the extent described under
"Distributions on the Certificates--Interest" above.
Subordination
Priority of Senior Certificates. As of the Closing Date, (i) the
aggregate Current Principal Amounts of the Group B Subordinate Certificates and
of the Other Certificates which are part of the Group B Subordinate Certificates
will equal approximately 4.75% and 0.80% of the aggregate Current Principal
Amounts of all the Classes of the Group 1 and Group 2, and Group B Certificates,
(ii) the aggregate Current Principal Amounts of the Group 3 Subordinate
Certificates and of the Other Certificates which are part of the Group 3
Subordinate Certificates will equal approximately 8.50% and 1.50% of the
aggregate Current Principal Amounts of all of the Classes of Group 3
Certificates, (iii) the aggregate Current Principal Amounts of the Group 4
Subordinate Certificates and of the Other Certificates which are part of the
Group 4 Subordinate Certificates will equal approximately 3.25% and 0.70% of the
aggregate Current Principal Amounts of all the Classes of Group 4 Certificates,
and (iv) the aggregate Current Principal Amounts of the Group 5 Subordinate
Certificates and of the Other Certificates which are part of the Group 5
Subordinate Certificates will equal approximately 3.75% and 0.60% of the
aggregate Current Principal Amounts of all of the Classes of Group 5
Certificates.
The rights of the holders of the Group B Subordinate Certificates to
receive distributions with respect to the Group 1 Mortgage Loans and the Group 2
Mortgage Loans will be subordinated to such rights of the holders of the Group 1
Senior Certificates and the Group 2 Senior Certificates and of each Class of the
Group B Subordinate Certificates having a lower numerical Class designation than
such Class. The rights of the holders of the Group 3 Subordinate Certificates,
the Group 4 Subordinate Certificates and the Group 5 Subordinate Certificates to
receive distributions with respect to the Group 3 Mortgage Loans, the Group 4
Mortgage Loans and the Group 5 Mortgage Loans, respectively, will be
subordinated to such rights of the holders of the Group 3 Senior Certificates,
the Group 4 Senior Certificates and the Group 5 Senior Certificates,
respectively, and to each Class of Subordinate Certificates of the related
Certificate Group having a lower numerical designation than such Class. The
subordination of the Group B Subordinate Certificates to the Group 1 Senior
Certificates and the Group 2 Senior Certificates and of each of the other Groups
of Subordinate Certificates to its related Group of Senior Certificates and the
further subordination among the Subordinate Certificates of a Certificate Group,
are each intended to increase the likelihood of timely receipt by the holders of
the 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 above.
However, in certain circumstances, the amount of available
subordination 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, except that after the Group 1 and 2 Cross-Over Date, the Senior Support
Certificateholders and the Super Senior Certificateholders will bear Realized
Losses disproportionately due to the credit support provided to the Super Senior
Certificates by the Senior Support Certificates. The allocation of Non-PO
Realized Losses and, in the case of Certificate Groups 1, 2, 3 and 4, the
applicable Component P Deferred Payment Writedown Amount to the Subordinate
Certificates of a Certificate Group (or in the case of Certificate Groups 1 and
2, the Group B Subordinate Certificates) on any Distribution Date will decrease
the protection provided to the Senior Certificates of such Group or Groups then
outstanding on future Distribution Dates by reducing the aggregate Current
Principal Amount of the related Subordinate Certificates then outstanding.
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In addition, in order to extend the period during which the Subordinate
Certificates of a Certificate Group remain available as credit enhancement for
the Senior Certificates of such Group (or in the case of the Group B Subordinate
Certificates, the Group 1 and 2 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 five 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 under "-- Distributions on
the Certificates -- Allocation of Available Funds" above, principal prepayments
otherwise distributable to the Subordinate Certificates of a Certificate Group
will in lieu thereof be distributed to the related Senior Certificates.
After the payment of amounts distributable in respect of the Senior
Certificates of a Certificate Group on each Distribution Date, the Subordinate
Certificates of such Group (or in the case of the Certificate Groups 1 and 2,
the Group B Subordinate Certificates) will be entitled on such date to the
remaining portion, if any, of the 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 of a Certificate
Group will have a preferential right to receive the amounts due them on such
Distribution Date out of Available Funds for the related Mortgage Loan Group (or
in the case of the Group B Subordinate Certificates, Mortgage Loan Groups 1 and
2), prior to any distribution being made on such date on each Class of
Certificates subordinated to such Class. In addition, except as described
herein, Non-PO Realized Losses for all Certificate Groups and, in the case of
Certificate Groups 1, 2, 3 and 4, the applicable Component P 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 Non-PO Realized Losses and any applicable
Component P 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 in each Certificate Group, the
applicable Non-PO Percentage of prepayments and certain other unscheduled
recoveries of principal in respect of the Mortgage Loans in the related Mortgage
Loan Group (or in the case of the Group B Certificates, Mortgage Loan Groups 1
and 2)(which generally will not be distributable to such Certificates for at
least the first five years after the Cut-Off Date) will not be distributable to
the holders of any Class of Subordinate Certificates of such Certificate Group
(or in the case of Certificate Groups 1 and 2, the Group B 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 of a Certificate Group, the
amortization of more senior Classes of Subordinate Certificates of such
Certificate Group may occur more rapidly than would otherwise have been the case
and, in the absence of losses in respect of the related 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 of a Certificate Group, such Class of Certificates will be more
sensitive than more senior Classes of Certificates of such Group to the rate of
delinquencies and defaults on the Mortgage Loans in the related Mortgage Loan
Group (or in the case of the Group
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B Subordinate Certificates, Mortgage Loan Groups 1 and 2), and under certain
circumstances investors in such Certificates may not recover their initial
investment.
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
applicable Mortgage Loan Group 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 Dates" for distributions on the Group 1
Certificates, the Group 2 Certificates, the Group B Certificates, the Group 3
Certificates, the Group 4 Certificates and the Group 5 Certificates are February
25, 2028, January 25, 2028, February 25, 2028, January 25, 2028, January 25,
2013 and January 25, 2028, respectively (except that the Assumed Final
Distribution Date for the Class 2-A-2 Certificates is November 25, 2010). The
Assumed Final Distribution Date in each case (other than with respect to the
Class 2-A-2 Certificates) is the Distribution Date in the month following the
latest scheduled maturity date of all of the Mortgage Loans in the related
Mortgage Loan Group (or Groups in the case of the Group B Subordinate
Certificates). 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 in any Mortgage Loan Group may be earlier, and
could be substantially earlier, than the Assumed Final Distribution Date. In
addition, BSMSI 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 balances of the Mortgage Loans is less than 10% of the Cut-off
Date Scheduled Principal Balance of the Mortgage Loans. 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 (or Notional Amount) 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 or Notional Amount 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 or Groups. Principal
payments of 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 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 or Groups increase.
Interest Only Certificates
Because the Notional Amounts of the Class X, Class 3-X and Class 4-X
Certificates will be based upon the Scheduled Principal Balances of the Group 1
and Group 2 Mortgage Loans, the Group 3 Mortgage Loans and the
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Group 4 Mortgage Loans, respectively, the yield on the Class X, Class 3-X and
Class 4-X Certificates will be sensitive to the rate and timing of principal
payments of the Group 1 and Group 2 Mortgage Loans, the Group 3 Mortgage Loans
and the Group 4 Mortgage Loans, respectively. The yield on the Class 1-A-X1 and
Class 1-A-X2 Certificates also will be sensitive to the rate and timing of
principal payments on the Group 1 Mortgage Loans, because the Notional Amounts
of the Class 1-A-X1 and Class 1-A-X2 Certificates are based on the Current
Principal Amount of the Class 1-A-1 and Class 1-A-2 Certificates, respectively.
A rapid rate of principal payments on the applicable Group or Groups of Mortgage
Loans will have a materially negative effect on the yield to investors in the
related Class of Interest Only Certificates. Moreover, as a result of the method
of calculation of the Pass-Through Rate of such Classes of Interest Only
Certificates, to the extent the Mortgage Loans with relatively higher Net Rates
prepay faster than those with relatively lower Net Rates in the applicable
Mortgage Loan Group or Groups, the yield on such Classes of Certificates will be
reduced. 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 such Class of Certificates to recover fully their initial
investments.
Class P Certificates
The amounts payable with respect to the P Components of the Class P
Certificates generally derive only from principal payments on the Discount
Mortgage Loans in the related Mortgage Loan Group. As a result, the yield on the
Class P Certificates will be adversely affected by slower than expected payments
of principal (including prepayments, defaults and liquidations) on the Discount
Mortgage Loans. Because Discount Mortgage Loans of each Mortgage Loan Group have
lower Net Rates than the Non-Discount Mortgage Loans of such Mortgage Loan
Group, and because the Mortgage Loans with lower Net Rates are likely to have
lower Mortgage Rates, the Discount Mortgage Loans of each Mortgage Loan Group
are generally likely to prepay at a slower rate than the Non-Discount Mortgage
Loans of such Mortgage Loan Group.
Prepayment Models
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. Two prepayment models are used in this Prospectus
Supplement. The first model ("SPA") represents an assumed rate of prepayment
each month of the then outstanding principal balance of a pool of new mortgage
loans. SPA does not purport to be either a historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans in the Mortgage Loan Groups. 100% SPA assumes prepayment rates of
0.2% per annum of the then outstanding principal balance of such mortgage loans
in the first month of the life of the mortgage and an additional 0.2% per annum
in each month thereafter (for example, 0.4% per annum in the second month) until
the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the mortgage loans, 100% SPA assumes a constant
prepayment rate of 6% per annum. Multiples will be calculated from this
prepayment rate series; for example, 250% SPA assumes prepayment rates will be
approximately 0.50% per annum in month one, approximately 1.00% per annum in
month two, reaching approximately 15.00% per annum in month 30 and remaining
constant at approximately 15.00% per annum thereafter. 0% SPA assumes no
prepayments.
The second 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
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of prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the Mortgage Loans.
Pricing Assumptions
The Certificates were structured assuming, among other things, a 250%
SPA with respect to the Group 1 Certificates, a 250% SPA with respect to the
Group 2 Certificates, a 250% SPA with respect to the Group B Certificates, a
100% Prepayment Assumption with respect to the Group 3 Certificates, a 250% SPA
with respect to the Group 4 Certificates and a 350% SPA with respect to the
Group 5 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) each Mortgage Loan Group consists of Mortgage Loans having the
characteristics set forth below:
<TABLE>
<CAPTION>
Cut-off Date Original Remaining
Scheduled Term to Term to
Mortgage Principal Maturity Maturity Mortgage Net
Loan Group Balance (in months) (in months) Rate Rate
---------- ------- ----------- ----------- ---- ----
<S> <C> <C> <C> <C> <C>
1 $406,163,808.46 359 357 7.8132816% 7.57926207%
1 17,699,580.32 360 358 7.1116603 6.88078668
2 132,337,899.56 360 359 7.8444993 7.5976377
2 6,522,975.30 360 359 7.0944176 6.84784716
3 101,009,727.72 359 357 8.4503765 8.19168441
3 4,069,468.20 355 354 7.3954507 7.14286725
4 31,815,491.87 180 178 7.5233080 7.30726577
4 11,581,650.17 180 178 6.9359735 6.72597347
5 71,757,609.00 354 353 7.3137651 7.09054559
</TABLE>
(ii) the Mortgage Loans prepay at the specified percentages of SPA and the
Prepayment Assumption, as applicable, and, to the extent these assumptions are
used with respect to the Class P Certificates, the Mortgage Loans in each
Mortgage Loan Group prepay at the specified percentages of SPA, (iii) no
defaults in the payment by Mortgagors of principal of and interest on the
Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage Loans
are received on the first day of each month commencing in January 1998 and are
computed prior to giving effect to prepayments received on the last day of the
prior month, (v) prepayments are allocated as described herein without giving
effect to loss and delinquency tests, (vi) 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 December 1997, (vii)
scheduled Monthly Payments of principal and interest on the Mortgage Loans are
calculated on their respective principal balances (prior to giving effect to
prepayments received thereon during the preceding calendar month), Mortgage Rate
and remaining terms to stated maturity such that the Mortgage Loans will fully
amortize by their stated maturities, (viii) the initial principal amounts or
Notional Amounts of the Certificates are as set forth on the cover page hereof
and under "Summary of Terms--Other Certificates," (ix) distributions in respect
of the Certificates are received in cash on the 25th day of each month,
commencing in January 1998, (x) the Offered Certificates are purchased on
December 30, 1997 and (xi) BSMSI does not exercise the option to repurchase the
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Mortgage Loans described under the caption "The Pooling and Servicing Agreement
- -- Termination." While it is assumed that each of the Mortgage Loans prepays at
the specified constant percentages of the SPA or Prepayment Assumption, this is
not likely to be the case.
Discrepancies will exist between the characteristics of the actual
Mortgage Loans which will be delivered to the Trustee and 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 and set forth the
percentages of the initial Current Principal Amount or Notional 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 in the related
Mortgage Loan Group prepay at the percentage of the Prepayment Assumption
indicated therein. Neither the Prepayment Assumption nor any other prepayment
model or assumption purports to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans included in the Mortgage Loan
Groups. 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 or Notional 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.
S-73
<PAGE>
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS P CERTIFICATES
------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500%
- --------------------------------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage......................................................... 100 100 100 100 100
December 1998.............................................................. 98 96 94 91 89
December 1999.............................................................. 95 88 82 74 69
December 2000.............................................................. 92 79 68 55 48
December 2001.............................................................. 89 71 56 41 32
December 2002.............................................................. 86 63 46 30 22
December 2003.............................................................. 83 56 37 22 15
December 2004.............................................................. 79 50 30 16 10
December 2005.............................................................. 75 44 24 11 6
December 2006.............................................................. 71 38 20 8 4
December 2007.............................................................. 66 33 16 6 3
December 2008.............................................................. 62 28 12 4 2
December 2009.............................................................. 56 24 10 3 1
December 2010.............................................................. 51 20 7 2 1
December 2011.............................................................. 45 16 6 1 0
December 2012.............................................................. 39 13 4 1 0
December 2013.............................................................. 38 12 3 1 0
December 2014.............................................................. 36 10 3 0 0
December 2015.............................................................. 34 9 2 0 0
December 2016.............................................................. 32 8 2 0 0
December 2017.............................................................. 30 7 1 0 0
December 2018.............................................................. 28 6 1 0 0
December 2019.............................................................. 26 5 1 0 0
December 2020.............................................................. 23 4 1 0 0
December 2021.............................................................. 20 3 0 0 0
December 2022.............................................................. 17 3 0 0 0
December 2023.............................................................. 14 2 0 0 0
December 2024.............................................................. 11 1 0 0 0
December 2025.............................................................. 7 1 0 0 0
December 2026.............................................................. 3 0 0 0 0
December 2027.............................................................. 0 0 0 0 0
December 2028.............................................................. 0 0 0 0 0
Weighted Average Life
(in years)*.............................................................. 14.6 8.5 5.8 4.2 3.6
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-74
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 1-A-1, 1-A-X1 CERTIFICATES CLASS 1-A-2, 1-A-X2 CERTIFICATES
----------------------------------- ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- ----------------------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100 100 100 100 100 100 100 100 100 100
December 1998...................... 100 100 100 100 100 100 100 100 100 100
December 1999...................... 100 100 100 100 100 100 100 100 100 100
December 2000...................... 93 50 50 50 50 100 100 100 100 100
December 2001...................... 86 3 3 3 0 100 100 100 100 72
December 2002...................... 79 0 0 0 0 100 55 55 55 0
December 2003...................... 71 0 0 0 0 100 16 16 16 0
December 2004...................... 63 0 0 0 0 100 0 0 0 0
December 2005...................... 55 0 0 0 0 100 0 0 0 0
December 2006...................... 46 0 0 0 0 100 0 0 0 0
December 2007...................... 37 0 0 0 0 100 0 0 0 0
December 2008...................... 28 0 0 0 0 100 0 0 0 0
December 2009...................... 18 0 0 0 0 100 0 0 0 0
December 2010...................... 7 0 0 0 0 100 0 0 0 0
December 2011...................... 0 0 0 0 0 95 0 0 0 0
December 2012...................... 0 0 0 0 0 80 0 0 0 0
December 2013...................... 0 0 0 0 0 65 0 0 0 0
December 2014...................... 0 0 0 0 0 48 0 0 0 0
December 2015...................... 0 0 0 0 0 30 0 0 0 0
December 2016...................... 0 0 0 0 0 11 0 0 0 0
December 2017...................... 0 0 0 0 0 0 0 0 0 0
December 2018...................... 0 0 0 0 0 0 0 0 0 0
December 2019...................... 0 0 0 0 0 0 0 0 0 0
December 2020...................... 0 0 0 0 0 0 0 0 0 0
December 2021...................... 0 0 0 0 0 0 0 0 0 0
December 2022...................... 0 0 0 0 0 0 0 0 0 0
December 2023...................... 0 0 0 0 0 0 0 0 0 0
December 2024...................... 0 0 0 0 0 0 0 0 0 0
December 2025...................... 0 0 0 0 0 0 0 0 0 0
December 2026...................... 0 0 0 0 0 0 0 0 0 0
December 2027...................... 0 0 0 0 0 0 0 0 0 0
December 2028...................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*...................... 8.4 3.0 3.0 3.0 3.0 16.8 5.2 5.2 5.2 4.3
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-75
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 1-A-3 CERTIFICATES CLASS 1-A-4 CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- ---------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100 100 100 100 100 100 100 100 100 100
December 1998..................... 97 90 87 87 87 100 100 100 100 100
December 1999..................... 94 69 59 59 52 100 100 100 100 100
December 2000..................... 94 69 51 31 2 100 100 100 100 100
December 2001..................... 94 69 44 5 0 100 100 100 100 0
December 2002..................... 94 69 39 0 0 100 100 100 17 0
December 2003..................... 94 69 36 0 0 100 100 100 0 0
December 2004..................... 94 60 26 0 0 100 100 100 0 0
December 2005..................... 94 46 14 0 0 100 100 100 0 0
December 2006..................... 94 34 8 0 0 100 100 100 0 0
December 2007..................... 94 25 4 0 0 100 100 100 0 0
December 2008..................... 94 16 1 0 0 100 100 100 0 0
December 2009..................... 94 8 0 0 0 100 100 91 0 0
December 2010..................... 94 1 0 0 0 100 100 74 0 0
December 2011..................... 94 0 0 0 0 100 60 60 0 0
December 2012..................... 94 0 0 0 0 100 48 48 0 0
December 2013..................... 94 0 0 0 0 100 39 39 0 0
December 2014..................... 94 0 0 0 0 100 31 31 0 0
December 2015..................... 94 0 0 0 0 100 25 25 0 0
December 2016..................... 94 0 0 0 0 100 20 20 0 0
December 2017..................... 89 0 0 0 0 100 15 15 0 0
December 2018..................... 78 0 0 0 0 100 12 12 0 0
December 2019..................... 66 0 0 0 0 100 9 9 0 0
December 2020..................... 53 0 0 0 0 100 7 7 0 0
December 2021..................... 39 0 0 0 0 100 5 5 0 0
December 2022..................... 24 0 0 0 0 100 4 4 0 0
December 2023..................... 8 0 0 0 0 100 2 2 0 0
December 2024..................... 0 0 0 0 0 20 2 2 0 0
December 2025..................... 0 0 0 0 0 1 1 1 0 0
December 2026..................... 0 0 0 0 0 0 0 0 0 0
December 2027..................... 0 0 0 0 0 0 0 0 0 0
December 2028..................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*..................... 21.9 6.8 4.2 2.4 2.0 26.9 16.3 16.0 4.8 3.3
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-76
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 1-A-5, 1-A-6, 1-A-7, 1-A-8
CERTIFICATES CLASS 1-A-9 CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- --------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............... 100 100 100 100 100 100 100 100 100 100
December 1998.................... 100 100 92 75 63 100 100 100 100 100
December 1999.................... 100 100 73 20 0 100 100 100 100 100
December 2000.................... 100 100 51 0 0 100 100 100 100 100
December 2001.................... 100 100 36 0 0 100 100 100 100 100
December 2002.................... 100 100 26 0 0 100 100 100 100 96
December 2003.................... 100 100 22 0 0 100 97 95 91 62
December 2004.................... 100 100 21 0 0 99 93 88 73 39
December 2005.................... 100 100 19 0 0 98 88 78 53 25
December 2006.................... 100 100 17 0 0 97 82 68 39 17
December 2007.................... 100 100 15 0 0 95 74 56 29 11
December 2008.................... 100 100 13 0 0 92 67 47 22 8
December 2009.................... 100 100 11 0 0 90 60 39 16 5
December 2010.................... 100 100 9 0 0 88 54 32 12 4
December 2011.................... 100 98 8 0 0 85 49 26 9 2
December 2012.................... 100 89 7 0 0 82 44 22 6 2
December 2013.................... 100 80 6 0 0 79 39 18 5 1
December 2014.................... 100 71 5 0 0 76 34 14 3 1
December 2015.................... 100 64 4 0 0 72 30 12 2 1
December 2016.................... 100 56 3 0 0 68 26 9 2 0
December 2017.................... 100 49 3 0 0 64 23 8 1 0
December 2018.................... 100 42 2 0 0 59 20 6 1 0
December 2019.................... 100 36 2 0 0 55 17 5 1 0
December 2020.................... 100 30 1 0 0 49 14 4 0 0
December 2021.................... 100 25 1 0 0 43 11 3 0 0
December 2022.................... 100 20 1 0 0 37 9 2 0 0
December 2023.................... 100 15 1 0 0 30 7 1 0 0
December 2024.................... 100 11 0 0 0 23 5 1 0 0
December 2025.................... 69 7 0 0 0 15 3 0 0 0
December 2026.................... 31 3 0 0 0 7 1 0 0 0
December 2027.................... 0 0 0 0 0 0 0 0 0 0
December 2028.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*.................... 28.5 20.5 5.0 1.5 1.2 21.6 15.0 11.8 9.2 7.3
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-77
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 2-A-1 CERTIFICATES CLASS 2-A-2 CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- --------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............... 100 100 100 100 100 100 100 100 100 100
December 1998.................... 99 97 94 91 89 95 95 95 95 95
December 1999.................... 98 89 81 72 65 90 90 90 90 90
December 2000.................... 97 80 64 48 38 84 84 84 84 84
December 2001.................... 95 71 50 29 17 78 78 78 78 78
December 2002.................... 94 62 37 15 3 71 71 71 71 71
December 2003.................... 92 55 28 6 0 64 64 64 64 0
December 2004.................... 91 48 20 0 0 57 57 57 52 0
December 2005.................... 89 42 14 0 0 49 49 49 0 0
December 2006.................... 87 37 10 0 0 40 40 40 0 0
December 2007.................... 85 33 7 0 0 31 31 31 0 0
December 2008.................... 83 29 4 0 0 21 21 21 0 0
December 2009.................... 81 25 2 0 0 10 10 10 0 0
December 2010.................... 78 22 0 0 0 0 0 0 0 0
December 2011.................... 76 19 0 0 0 0 0 0 0 0
December 2012.................... 73 16 0 0 0 0 0 0 0 0
December 2013.................... 70 13 0 0 0 0 0 0 0 0
December 2014.................... 67 10 0 0 0 0 0 0 0 0
December 2015.................... 63 8 0 0 0 0 0 0 0 0
December 2016.................... 59 6 0 0 0 0 0 0 0 0
December 2017.................... 55 4 0 0 0 0 0 0 0 0
December 2018.................... 51 2 0 0 0 0 0 0 0 0
December 2019.................... 46 0 0 0 0 0 0 0 0 0
December 2020.................... 41 0 0 0 0 0 0 0 0 0
December 2021.................... 35 0 0 0 0 0 0 0 0 0
December 2022.................... 29 0 0 0 0 0 0 0 0 0
December 2023.................... 22 0 0 0 0 0 0 0 0 0
December 2024.................... 15 0 0 0 0 0 0 0 0 0
December 2025.................... 7 0 0 0 0 0 0 0 0 0
December 2026.................... 0 0 0 0 0 0 0 0 0 0
December 2027.................... 0 0 0 0 0 0 0 0 0 0
December 2028.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*.................... 19.3 8.2 4.6 3.1 2.7 7.4 7.4 7.4 5.8 4.8
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-78
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 2-A-3 CERTIFICATES CLASS 2-A-4 CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- ---------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100 100 100 100 100 100 100 100 100 100
December 1998..................... 107 107 107 107 107 100 100 100 100 100
December 1999..................... 115 115 115 115 115 100 100 100 100 100
December 2000..................... 123 123 123 123 123 100 100 100 100 100
December 2001..................... 132 132 132 132 132 100 100 100 100 100
December 2002..................... 142 142 142 142 142 100 100 100 100 100
December 2003..................... 152 152 152 152 138 100 97 95 91 88
December 2004..................... 163 163 163 163 29 99 94 88 80 74
December 2005..................... 175 175 175 146 0 98 88 78 66 53
December 2006..................... 187 187 187 97 0 97 82 68 52 35
December 2007..................... 201 201 201 72 0 95 74 56 38 24
December 2008..................... 215 215 215 54 0 93 67 47 29 16
December 2009..................... 231 231 231 40 0 90 60 39 21 11
December 2010..................... 246 246 243 29 0 88 54 32 16 8
December 2011..................... 246 246 200 22 0 85 49 27 12 5
December 2012..................... 246 246 165 16 0 83 44 22 8 4
December 2013..................... 246 246 135 12 0 80 39 18 6 2
December 2014..................... 246 246 110 9 0 76 35 15 5 2
December 2015..................... 246 246 89 6 0 73 30 12 3 1
December 2016..................... 246 246 72 4 0 69 27 9 2 1
December 2017..................... 246 246 57 3 0 65 23 8 2 0
December 2018..................... 246 246 45 2 0 60 20 6 1 0
December 2019..................... 246 246 35 2 0 55 17 5 1 0
December 2020..................... 246 214 27 1 0 50 14 4 1 0
December 2021..................... 246 176 20 1 0 44 12 3 0 0
December 2022..................... 246 140 15 0 0 38 9 2 0 0
December 2023..................... 246 107 11 0 0 32 7 1 0 0
December 2024..................... 246 77 7 0 0 24 5 1 0 0
December 2025..................... 246 48 4 0 0 17 3 1 0 0
December 2026..................... 217 22 2 0 0 8 1 0 0 0
December 2027..................... 0 0 0 0 0 0 0 0 0 0
December 2028..................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*..................... 29.4 25.7 17.5 10.6 6.6 21.7 15.0 11.9 9.8 8.8
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-79
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS X CERTIFICATES CLASS B-1, B-2, B-3 CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- ---------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100 100 100 100 100 100 100 100 100 100
December 1998..................... 99 97 95 92 91 99 99 99 99 99
December 1999..................... 98 91 84 77 72 98 98 98 98 98
December 2000..................... 97 84 71 58 50 97 97 97 97 97
December 2001..................... 96 76 60 44 35 96 96 96 96 96
December 2002..................... 95 70 50 33 24 95 95 95 95 95
December 2003..................... 93 64 42 25 17 93 91 89 86 84
December 2004..................... 92 58 35 18 11 92 87 82 76 72
December 2005..................... 90 53 29 14 8 91 82 73 64 57
December 2006..................... 89 48 25 10 5 89 75 63 50 42
December 2007..................... 87 43 20 8 4 87 68 53 37 29
December 2008..................... 85 39 17 6 3 85 62 44 28 20
December 2009..................... 83 35 14 4 2 83 56 36 21 14
December 2010..................... 81 32 12 3 1 81 50 30 15 9
December 2011..................... 78 29 10 2 1 78 45 25 11 6
December 2012..................... 76 26 8 2 1 76 40 20 8 4
December 2013..................... 73 23 6 1 0 73 36 17 6 3
December 2014..................... 70 20 5 1 0 70 32 14 4 2
December 2015..................... 67 18 4 1 0 67 28 11 3 1
December 2016..................... 63 16 3 0 0 63 25 9 2 1
December 2017..................... 59 14 3 0 0 59 21 7 2 1
December 2018..................... 55 12 2 0 0 55 18 6 1 0
December 2019..................... 50 10 2 0 0 50 16 4 1 0
December 2020..................... 45 8 1 0 0 45 13 3 1 0
December 2021..................... 40 7 1 0 0 40 11 2 0 0
December 2022..................... 34 5 1 0 0 34 8 2 0 0
December 2023..................... 28 4 0 0 0 28 6 1 0 0
December 2024..................... 22 3 0 0 0 22 5 1 0 0
December 2025..................... 14 2 0 0 0 14 3 0 0 0
December 2026..................... 7 1 0 0 0 7 1 0 0 0
December 2027..................... 0 0 0 0 0 0 0 0 0 0
December 2028..................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*..................... 20.2 10.4 6.6 4.5 3.8 20.2 14.2 11.3 9.5 8.8
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-80
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 3-A CERTIFICATES CLASS 3-X CERTIFICATES
---------------------------------- ------------------------------------
DISTRIBUTION DATE 50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
- ------------------------------------ --- --- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.................. 100 100 100 100 100 100 100 100 100 100
December 1998....................... 93 90 86 83 80 93 90 87 84 81
December 1999....................... 84 77 70 64 58 85 79 73 67 61
December 2000....................... 76 66 57 49 41 78 69 61 53 46
December 2001....................... 68 56 46 37 29 71 60 50 42 35
December 2002....................... 61 48 37 27 20 64 52 42 33 26
December 2003....................... 55 41 30 20 13 58 45 35 26 20
December 2004....................... 50 35 24 15 9 53 39 29 21 15
December 2005....................... 45 30 19 11 6 48 34 24 16 11
December 2006....................... 40 26 16 9 4 43 29 20 13 8
December 2007....................... 36 22 13 7 3 39 25 16 10 6
December 2008....................... 33 19 11 5 2 35 22 13 8 5
December 2009....................... 30 16 9 4 2 32 19 11 6 3
December 2010....................... 26 14 7 3 1 28 16 9 5 3
December 2011....................... 24 12 6 3 1 25 14 7 4 2
December 2012....................... 21 10 5 2 1 23 12 6 3 1
December 2013....................... 19 9 4 2 1 20 10 5 2 1
December 2014....................... 17 7 3 1 0 18 8 4 2 1
December 2015....................... 14 6 2 1 0 16 7 3 1 1
December 2016....................... 13 5 2 1 0 14 6 2 1 0
December 2017....................... 11 4 2 1 0 12 5 2 1 0
December 2018....................... 9 4 1 0 0 10 4 2 1 0
December 2019....................... 8 3 1 0 0 8 3 1 0 0
December 2020....................... 7 2 1 0 0 7 3 1 0 0
December 2021....................... 5 2 1 0 0 6 2 1 0 0
December 2022....................... 4 1 0 0 0 5 2 0 0 0
December 2023....................... 3 1 0 0 0 3 1 0 0 0
December 2024....................... 2 1 0 0 0 2 1 0 0 0
December 2025....................... 1 0 0 0 0 1 0 0 0 0
December 2026....................... 1 0 0 0 0 1 0 0 0 0
December 2027....................... 0 0 0 0 0 0 0 0 0 0
December 2028....................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*....................... 9.1 6.6 5.0 4.0 3.2 9.5 7.1 5.6 4.5 3.8
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-81
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 3-B-1, 3-B-2, 3-B-3
CERTIFICATES CLASS 4-A CERTIFICATES
------------------------------------ -----------------------------------
DISTRIBUTION DATE 50% 75% 100% 125% 150% 0% 125% 250% 400% 500%
- ----------------------------------- ---- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100 100 100 100 100 100 100 100 100 100
December 1998...................... 99 99 99 99 99 96 94 92 89 88
December 1999...................... 98 98 98 98 98 92 85 79 71 66
December 2000...................... 97 97 97 97 97 88 75 63 51 43
December 2001...................... 96 96 96 96 96 83 65 50 36 28
December 2002...................... 95 95 95 95 95 78 56 40 25 17
December 2003...................... 92 91 89 88 87 72 48 31 17 11
December 2004...................... 88 85 82 79 77 66 41 24 12 7
December 2005...................... 82 77 73 68 64 59 34 18 8 4
December 2006...................... 75 69 62 56 51 53 28 14 5 2
December 2007...................... 68 59 51 44 38 45 22 10 3 1
December 2008...................... 61 51 42 35 28 37 17 7 2 1
December 2009...................... 55 44 35 27 21 28 12 5 1 0
December 2010...................... 49 38 28 21 15 19 7 3 1 0
December 2011...................... 44 32 23 16 11 9 3 1 0 0
December 2012...................... 39 27 19 13 8 0 0 0 0 0
December 2013...................... 35 23 15 10 6 0 0 0 0 0
December 2014...................... 31 20 12 8 4 0 0 0 0 0
December 2015...................... 27 17 10 6 3 0 0 0 0 0
December 2016...................... 24 14 8 4 2 0 0 0 0 0
December 2017...................... 20 11 6 3 2 0 0 0 0 0
December 2018...................... 17 9 5 2 1 0 0 0 0 0
December 2019...................... 15 8 4 2 1 0 0 0 0 0
December 2020...................... 12 6 3 1 1 0 0 0 0 0
December 2021...................... 10 5 2 1 0 0 0 0 0 0
December 2022...................... 8 4 2 1 0 0 0 0 0 0
December 2023...................... 6 3 1 0 0 0 0 0 0 0
December 2024...................... 4 2 1 0 0 0 0 0 0 0
December 2025...................... 3 1 0 0 0 0 0 0 0 0
December 2026...................... 1 0 0 0 0 0 0 0 0 0
December 2027...................... 0 0 0 0 0 0 0 0 0 0
December 2028...................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*...................... 14.1 12.3 11.1 10.3 9.6 8.8 6.4 4.9 3.7 3.2
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-82
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 4-B-1, 4-B-2, 4-B-3
CLASS 4-X CERTIFICATES CERTIFICATES
----------------------------------- ------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500% 0% 125% 250% 400% 500%
- ----------------------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100 100 100 100 100 100 100 100 100 100
December 1998...................... 96 94 92 90 88 96 96 96 96 96
December 1999...................... 92 85 79 72 67 92 92 92 92 92
December 2000...................... 88 75 64 52 45 88 88 88 88 88
December 2001...................... 83 66 51 37 30 83 83 83 83 83
December 2002...................... 78 57 41 27 19 78 78 78 78 78
December 2003...................... 72 49 32 19 13 72 70 69 66 65
December 2004...................... 66 42 25 13 8 66 62 59 54 51
December 2005...................... 59 35 19 9 5 59 54 48 42 38
December 2006...................... 53 28 15 6 3 53 45 37 30 25
December 2007...................... 45 22 11 4 2 45 35 27 19 15
December 2008...................... 37 17 7 2 1 37 27 19 12 9
December 2009...................... 28 12 5 1 1 28 19 12 7 5
December 2010...................... 19 7 3 1 0 19 12 7 4 2
December 2011...................... 9 3 1 0 0 9 5 3 1 1
December 2012...................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*...................... 8.8 6.5 5.0 3.9 3.3 8.8 8.2 7.7 7.2 7.0
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-83
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS 5-B-1, 5-B-2, 5-B-3
CLASS 5-A CERTIFICATES CERTIFICATES
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 200% 350% 450% 550% 0% 200% 350% 450% 550%
- ---------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100 100 100 100 100 100 100 100 100 100
December 1998..................... 99 96 94 92 90 99 99 99 99 99
December 1999..................... 98 87 79 74 69 98 98 98 98 98
December 2000..................... 97 76 62 53 45 97 97 97 97 97
December 2001..................... 96 65 47 37 29 96 96 96 96 96
December 2002..................... 94 56 36 26 18 94 94 94 94 94
December 2003..................... 93 48 28 18 11 93 89 86 84 82
December 2004..................... 91 42 21 12 7 91 83 77 73 69
December 2005..................... 89 36 16 9 4 89 76 66 60 53
December 2006..................... 88 31 12 6 3 88 67 54 45 38
December 2007..................... 86 27 10 4 2 86 58 41 32 25
December 2008..................... 84 23 7 3 1 84 50 32 23 16
December 2009..................... 81 19 6 2 1 81 42 25 16 11
December 2010..................... 79 17 4 2 0 79 36 19 12 7
December 2011..................... 76 14 3 1 0 76 31 14 8 4
December 2012..................... 74 12 3 1 0 74 26 11 6 3
December 2013..................... 71 10 2 1 0 71 22 8 4 2
December 2014..................... 67 9 1 0 0 67 19 6 3 1
December 2015..................... 64 7 1 0 0 64 15 5 2 1
December 2016..................... 60 6 1 0 0 60 13 3 1 0
December 2017..................... 56 5 1 0 0 56 11 3 1 0
December 2018..................... 52 4 0 0 0 52 9 2 1 0
December 2019..................... 47 3 0 0 0 47 7 1 0 0
December 2020..................... 42 2 0 0 0 42 5 1 0 0
December 2021..................... 37 2 0 0 0 37 4 1 0 0
December 2022..................... 31 1 0 0 0 31 3 0 0 0
December 2023..................... 25 1 0 0 0 25 2 0 0 0
December 2024..................... 18 1 0 0 0 18 1 0 0 0
December 2025..................... 11 0 0 0 0 11 1 0 0 0
December 2026..................... 3 0 0 0 0 3 0 0 0 0
December 2027..................... 0 0 0 0 0 0 0 0 0 0
December 2028..................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)*..................... 19.6 7.5 4.9 3.9 3.3 19.6 12.1 9.9 9.1 8.5
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-84
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS R1, R2 CERTIFICATES
------------------------------------
DISTRIBUTION DATE 0% 125% 250% 400% 500%
- -------------------------------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage........................................................ 100 100 100 100 100
December 1998............................................................. 0 0 0 0 0
December 1999............................................................. 0 0 0 0 0
December 2000............................................................. 0 0 0 0 0
December 2001............................................................. 0 0 0 0 0
December 2002............................................................. 0 0 0 0 0
December 2003............................................................. 0 0 0 0 0
December 2004............................................................. 0 0 0 0 0
December 2005............................................................. 0 0 0 0 0
December 2006............................................................. 0 0 0 0 0
December 2007............................................................. 0 0 0 0 0
December 2008............................................................. 0 0 0 0 0
December 2009............................................................. 0 0 0 0 0
December 2010............................................................. 0 0 0 0 0
December 2011............................................................. 0 0 0 0 0
December 2012............................................................. 0 0 0 0 0
December 2013............................................................. 0 0 0 0 0
December 2014............................................................. 0 0 0 0 0
December 2015............................................................. 0 0 0 0 0
December 2016............................................................. 0 0 0 0 0
December 2017............................................................. 0 0 0 0 0
December 2018............................................................. 0 0 0 0 0
December 2019............................................................. 0 0 0 0 0
December 2020............................................................. 0 0 0 0 0
December 2021............................................................. 0 0 0 0 0
December 2022............................................................. 0 0 0 0 0
December 2023............................................................. 0 0 0 0 0
December 2024............................................................. 0 0 0 0 0
December 2025............................................................. 0 0 0 0 0
December 2026............................................................. 0 0 0 0 0
December 2027............................................................. 0 0 0 0 0
December 2028............................................................. 0 0 0 0 0
Weighted Average Life
(in years)*............................................................. 0.1 0.1 0.1 0.1 0.1
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or notional
amount) 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 (or
notional amount) of such Certificate referred to in clause (a).
S-85
<PAGE>
Yield on Class P Certificates
The Class P 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 P Certificates.
The significance of the effects of prepayments on the Class P
Certificates is illustrated in the following table entitled "Sensitivity of the
Class P 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 SPA. 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 P
Certificates is approximately 68.00% and such Certificates are purchased on
December 30, 1997.
It is not likely that the Discount Mortgage Loans in Mortgage Loan
Groups 1, 2, 3 and 4 and the Mortgage Loans in Mortgage Loan Group 5 will prepay
at a constant rate until maturity or that all such Mortgage Loans will prepay at
the same rate or that they will have the characteristics assumed. There can be
no assurance that the Discount Mortgage Loans in Mortgage Loan Groups 1, 2, 3
and 4 and the Mortgage Loans in Mortgage Loan Group 5 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 P Certificate and there can be no assurance that the pre-tax
yield to an investor in the Class P 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 P Certificate.
Sensitivity of the Class P Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
% of SPA
--------------------------------------------------
50% 125% 250% 400% 500%
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity......... 3.7% 5.2% 7.6% 10.5% 12.4%
</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 P Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class P 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 P
Certificates and consequently does not purport to reflect the return on any
investment in the Class P Certificates when such reinvestment rates are
considered.
Yield on Interest Only Certificates
The significance of the effects of prepayments on the Class 1-A-X1,
Class 1-A-X2, Class X, Class 3-X and Class 4-X Certificates is illustrated in
the following tables entitled "Sensitivity of the Class 1-A-X1, Class 1-A-X2,
Class X and Class 4-X Certificates to Prepayments," and "Sensitivity of the
Class 3-X Certificates to Prepayments," which show the pre-tax yield (on a
corporate bond equivalent basis) to holders of such Certificates under different
constant percentages of SPA and the Prepayment Assumption, respectively. The
yields of such Certificates set forth in the following tables were calculated
using the assumptions specified above under -"--Decrement Tables" and assuming
that the purchase price of the Class 1-A-X1, Class 1-A-X2, Class X, Class 3-X
and Class 4-X Certificates is approximately 1.625%, 1.875%, 1.800%, 2.000% and
0.625%, respectively, (plus accrued interest) and such Certificates are
purchased on December 30, 1997.
S-86
<PAGE>
As indicated in the following tables, the yield to investors in the
Class 1-A-X1 and Class 1-A-X2 Certificates will be highly sensitive to the rate
of principal payments (including prepayments) on the Group 1 Mortgage Loans,
Group 1 and 2 Mortgage Loans in the case of the Class X Certificates, Group 3
Mortgage Loans in the case of the Class 3-X Certificates and Group 4 Mortgage
Loans in the case of the Class 4-X Certificates (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 1-A-X1, Class
1-A-X2, Class X and Class 4-X Certificates would be 0% if prepayments were to
occur at a constant rate of approximately 697%, 577%, 589% and 632% SPA,
respectively and the yield to maturity on the Class 3-X Certificates would be 0%
if prepayments were to occur at a constant rate of approximately 245% of the
Prepayment Assumption.
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 1-A-X1, Class
1-A-X2, Class X, Class 3-X or Class 4-X Certificate and there can be no
assurance that the pre-tax yield to an investor in the Class 1-A-X1, Class
1-A-X2, Class X, Class 3-X or Class 4-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 1-A-X1, Class 1-A-X2, Class X , Class 3-X or Class 4-X
Certificate.
Sensitivity of the Class 1-A-X1, Class 1-A-X2, Class X and Class 4-X
Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
% of SPA
-----------------------------------------------------------
50% 125% 250% 400% 500%
<S> <C> <C> <C> <C> <C>
Class 1-A-X1 Certificates..... 24.2% 11.2% 11.2% 11.2% 10.2%
Class 1-A-X2 Certificates..... 23.2% 12.6% 12.6% 12.6% 5.6%
Class X Certificates.......... 28.5% 24.7% 18.3% 10.3% 4.9%
Class 4-X Certificates........ 29.0% 25.5% 19.4% 12.0% 6.9%
</TABLE>
Sensitivity of the Class 3-X Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
% of Prepayment Assumption
---------------------------------------------------
50% 75% 100% 125% 150%
<S> <C> <C> <C> <C> <C>
Class 3-X Certificates........ 38.2% 33.7% 29.0% 24.3% 19.5%
</TABLE>
The yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class 1-A-X1, Class 1-A-X2, Class X, Class 3-X
and Class 4-X Certificates, respectively would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of such 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 1-A-X1,
Class 1-A-X2, Class X, Class 3-X and Class 4-X Certificates and consequently
does not purport to reflect the return on any investment in the Class 1-A-X1,
Class 1-A-X2, Class X, Class 3-X and Class 4-X Certificates when such
reinvestment rates are considered.
S-87
<PAGE>
Yield on Class 1-A-6 and Class 1-A-8 Certificates
The significance of the effects of prepayments and changes in LIBOR on
the Class 1-A-6 and Class 1-A-8 Certificates is illustrated in the following
tables, which show the pre-tax yield (on a corporate bond equivalent basis) to
the holders of such Certificates under different constant percentages of SPA and
constant levels of LIBOR. The yields of such Certificates set forth in the
following tables were calculated using the assumptions specified above under
"--Decrement Tables" and assuming that (i) on each LIBOR Determination Date,
LIBOR will be at the level shown, (ii) the purchase price of the Class 1-A-6 and
Class 1-A-8 Certificates is approximately 90.00% and 92.25%, respectively (plus
accrued interest), for 100% of each such Class of Certificates and (iii) such
Certificates are purchased on December 30, 1997.
The yield to investors in the Class 1-A-6 and Class 1-A-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.
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.
Sensitivity of the Class 1-A-6 Certificates
to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
% of SPA
------------------------------------------------------------------------------------
LIBOR 50% 125% 250% 400% 500%
--- ---- ---- ---- ----
- ------------------------------
<S> <C> <C> <C> <C> <C>
4.0% 18.7% 18.8% 20.9% 25.5% 27.4%
5.0% 13.3% 13.4% 15.5% 20.3% 22.3%
6.0% 8.0% 8.1% 10.2% 15.3% 17.2%
7.0% 2.9% 3.0% 5.0% 10.3% 12.3%
7.5% 0.4% 0.5% 2.4% 7.8% 9.8%
</TABLE>
Sensitivity of the Class 1-A-8 Certificates
to Prepayments and LIBOR
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
% of SPA
------------------------------------------------------------------------------------
LIBOR 50% 125% 250% 400% 500%
--- ---- ---- ---- ----
- ------------------------------
<S> <C> <C> <C> <C> <C>
3.6875% 17.2% 17.2% 18.7% 21.9% 23.2%
4.6875% 13.2% 13.3% 14.8% 18.1% 19.5%
5.6875% 9.3% 9.4% 10.9% 14.4% 15.8%
6.6875% 5.5% 5.6% 7.1% 10.8% 12.2%
8.1000% 0.3% 0.4% 1.7% 5.7% 7.1%
</TABLE>
The yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class 1-A-6 and Class 1-A-8 Certificates would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price of the Class 1-A-6 and Class 1-A-8 Certificates,
respectively, 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
1-A-6 and Class 1-A-8 Certificates and consequently does not purport to reflect
the return on any investment in the Class 1-A-6 and Class 1-A-8 Certificates
when such reinvestment rates are considered.
S-88
<PAGE>
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Agreement. Reference is
made to the Prospectus for important information additional to that set forth
herein regarding the terms and conditions of the Agreement and the Certificates.
BSMSI will provide to a prospective or actual Certificateholder without charge,
upon written request, a copy (without exhibits) of the Agreement. Requests
should be addressed to Bear Stearns Mortgage Securities Inc., 245 Park Avenue,
New York, New York 10167.
Voting Rights
Voting rights of the Trust in general will be allocated among the
Classes of Certificates based upon their respective Current Principal Amounts;
provided that voting rights equal to 1% will be allocated to each of the
Interest Only Classes.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, BSMSI 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 in each of the Mortgage Loan Groups will be identified in a
separate schedule appearing as an exhibit to the Agreement with each Mortgage
Loan Group 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, the Master Servicing
Fee and the Loan-to-Value Ratio.
In addition, BSMSI 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 to the extent available to BSMSI 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 available to BSMSI, if any,
with evidence of recording thereon; the original or a copy of the policy or
certificate of primary mortgage guaranty insurance, if any; originals of all
available assumption and modification agreements; provided, however, that in
lieu of the foregoing, BSMSI may deliver certain other documents, under the
circumstances set forth in the Agreement. In particular, with respect to
approximately 6 PHH Mortgage Loans with an aggregate Scheduled Principal Balance
of approximately $1,757,769 as of the Cut-off Date, BSMSI will not provide
original Mortgage Notes. In lieu thereof BSMSI will provide lost note
affidavits. The documents delivered to the Trustee with respect to each Mortgage
Loan are referred to collectively as the "Mortgage File." BSMSI will cause the
Mortgage and intervening assignments, if any, and the assignment of the Mortgage
to be recorded not later than 180 days after the Closing Date.
The Trustee will review each item of the Mortgage File within 45 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
45-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
BSMCC of such Material Defect. BSMCC shall correct or cure any such Material
Defect within 60 days from the date of notice from the Trustee of the Material
Defect and if BSMCC 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, BSMCC will, within 90 days of
the date of notice, provide the Trustee with a substitute Mortgage
S-89
<PAGE>
Loan (if within two 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 180 days of the
Closing Date. If the Trustee discovers a Material Defect, the Trustee shall
notify BSMCC of such Material Defect. BSMCC shall correct or cure any such
Material Defect within 60 days from the date of notice from the Trustee of the
Material Defect and if BSMCC 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, BSMCC will,
within 90 days of the date of notice, provide the Trustee with a substitute
Mortgage Loan (if within two 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.
Representations and Warranties
In the purchase agreements pursuant to which BSMSI purchased the
Mortgage Loans from BSMCC, BSMCC made certain representations and warranties to
BSMSI concerning the Mortgage Loans. BSMSI will assign to the Trustee all of its
right, title and interest in such purchase agreements insofar as they relate to
such representations and warranties, as well as the remedies provided for breach
of such representations and warranties. The representations and warranties of
BSMCC include, among other things, that as of the Closing Date or such other
date as may be specified below:
(a) The information set forth in the Mortgage Loan Schedule is true,
complete and correct in all material respects as of the Cut-Off Date;
(b) The Mortgage creates a first lien or a first priority ownership
interest in an estate in fee simply in real property securing the related
Mortgage Note, free and clear of all adverse claims, liens and encumbrances
having priority over the first lien of the Mortgage subject only to certain
permitted exceptions;
(c) The Mortgage Loan has not been delinquent thirty (30) days or more
at any time prior to the Cut-Off Date for such Mortgage Loan. As of the Closing
Date, the Mortgage Loan is not delinquent in payment more than 30 days and has
not been dishonored; there are no defaults under the terms of the Mortgage Loan;
and BSMCC has not advanced funds, or induced, solicited or knowingly received
any advance of funds from a party other than the owner of the Mortgage Property
subject to the Mortgage, directly or indirectly, for the payment of any amount
required by the Mortgage Loan;
(d) There are no delinquent taxes, ground rents, assessments or other
outstanding charges affecting the related Mortgaged Property;
(e) The Mortgage Note and the Mortgage are not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the Mortgage Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage Note or
Mortgage unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, set-off, counterclaim or defense has
been asserted with respect thereto;
(f) The Mortgage has not been satisfied, canceled or subordinated, in
whole or in part, or rescinded, and the Mortgage Property has not been released
from the lien of the Mortgage, in whole or in part, except with respect to
certain
S-90
<PAGE>
releases in part that do not materially affect the value of the Mortgaged
Property, nor has any instrument been executed that would effect any such
satisfaction, release, cancellation, subordination or rescission;
(g) Immediately prior to the transfer and assignment to the Purchaser,
the Mortgage Note and the Mortgage were not subject to an assignment or pledge,
and BSMCC had good and marketable title to and was the sole owner thereof and
had full right to transfer and sell the Mortgage Loan to BSMSI free and clear of
any encumbrance, equity, lien, pledge, charge, claim or security interest;
(h) There is no default, breach, violation or event of acceleration
existing under the Mortgage or the related Mortgage Note and no event, which,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach, violation or event permitting
acceleration; and neither BSMCC nor any prior mortgagee has waived any default,
breach, violation or event permitting acceleration;
(i) There are no mechanics, or similar liens or claims which have been
filed for work, labor or material affecting the related Mortgaged Property which
are or may be liens prior to or equal to the lien of the related Mortgage;
(j) All improvements subject to the Mortgage lie wholly within the
boundaries and building restriction lines of the Mortgaged Property (and wholly
within the project with respect to a condominium unit) except for de minimus
encroachments permitted by the FNMA Guide (MBS Special Servicing Option) and
which has been noted on the appraisal, and no improvements on adjoining
properties encroach upon the Mortgaged Property except those which are insured
against by a title insurance policy and all improvements on the property comply
with all applicable zoning and subdivision laws and ordinances;
(k) The Mortgaged Property at origination of the Mortgage Loan was and
currently is free of damage and waste and at origination of the Mortgage Loan
there was, and there currently is, no proceeding pending for the total or
partial condemnation thereof; and
(l) No Mortgage Loan has a Loan-to-Value Ratio in excess of 95.00%. The
original Loan-to-Value Ratio of each Mortgage Loan either was not more than
95.00% or the excess over 80.00% is insured as to payments defaults by a Primary
Mortgage Insurance Policy issued by a primary mortgage insurer acceptable to
FNMA and Freddie Mac until the Loan-to-Value Ratio of such Mortgage Loan is
reduced to 80.00%.
Upon any substitution for a Mortgage Loan, the representations and
warranties set forth above shall be deemed to be made as to any substitute
Mortgage Loan as of the date of substitution.
Upon discovery or receipt of notice by BSMCC, BSMSI, the Master
Servicers or the Trustee of a breach of any representation or warranty set forth
above 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 90 days from the date of
discovery by BSMCC, or the date BSMCC is notified by the party discovering or
receiving notice of such breach (whichever occurs earlier), BSMCC 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
Mortgage 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 BSMCC to cure, purchase or substitute a qualifying substitute
Mortgage Loan shall constitute the Trustee's sole and exclusive remedy
respecting a breach of such representations or warranties.
Collection and Other Servicing Procedures
Each Master Servicer will use its reasonable efforts to ensure that all
payments required under the terms and provisions of the Mortgage Loans for which
it is acting as Master Servicer are collected, and shall 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 the Agreement. Consistent with the foregoing, each
Master Servicer may in its discretion (i) waive or permit to be waived any late
payment or prepayment charge, assumption fee or any penalty interest in
connection with the prepayment of a Mortgage Loan
S-91
<PAGE>
and (ii) suspend or temporarily reduce or permit to be suspended or temporarily
reduced regular monthly payments for a period of up to six months or arrange or
permit an arrangement with a Mortgagor for a schedule for the liquidation of
delinquencies. In the event a Master Servicer shall consent to the deferment of
due dates for payments due on a Mortgage Note, such Master Servicer shall
nonetheless continue to make advances through liquidation of the Mortgaged
Property as described herein to the same extent as if such installment were due,
owing and delinquent and had not been deferred, but the obligation of a Master
Servicer to advance shall apply only to the extent that such Master Servicer
believes, in good faith, that such advances are recoverable from future payments
on any Mortgage Loan.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor and the related Master Servicer has knowledge thereof, such Master
Servicer will accelerate the maturity of the Mortgage Loan, to the extent
permitted by the terms of the related Mortgage Note and applicable law. If it
reasonably believes that the due-on-sale clause cannot be enforced under
applicable law, a Master Servicer may enter into an assumption agreement with
the person to whom such property has been or is about to be conveyed, pursuant
to which such person becomes liable under the Mortgage Note and the Mortgagor,
to the extent permitted by applicable law, remains liable thereon. A Master
Servicer will retain any fee collected for entering into an assumption
agreement, as additional servicing compensation. In regard to circumstances in
which a Master Servicer may be unable to enforce due-on-sale clauses, see
"Certain Legal Aspects of Mortgage Loans -- Due-on-Sale Clauses" in the
Prospectus. In connection with any such assumption, the Mortgage Rate borne by
the related Mortgage Note may not be changed. No Mortgage Loan may be assumed
unless coverage under any existing Primary Mortgage Insurance Policy continues
as to that Mortgage Loan after such assumption.
Each Master Servicer will establish and maintain, in addition to the
Protected Account described below under "-- Protected Account," one or more
accounts (each, a "Servicing Account") in a depository institution the deposits
of which are insured by the FDIC to the maximum extent permitted by law. A
Master 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 and in trust as provided in the
Agreement. Amounts in any Servicing Account may relate to mortgage loans in more
than one mortgage pool or to mortgage loans not yet included in a mortgage pool.
Each Servicing Account shall be fully insured by the FDIC and to the extent that
the balance in such account exceeds the limits of such insurance, such excess
must be transferred to another fully-insured account in another institution the
accounts of which are insured by the FDIC or must be invested in certain
investments permitted by the Agreement ("Permitted Investments"). Such Permitted
Investments must be held in trust by a Master Servicer, as described above. In
addition, a Master Servicer may establish Servicing Accounts not conforming to
the foregoing requirements to the extent that such Servicing Accounts meet the
requirements of each of the Rating Agencies for the maintenance of the ratings
on the Certificates. 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 a Master 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, to pay earnings not required to be paid to Mortgagors to a
Master Servicer or to clear and terminate the Servicing Accounts at or at any
time after the termination of the Agreement.
For each Mortgage Loan which as of the Cut-off Date was covered by a
Primary Mortgage Insurance Policy for which a Master Servicer acts as master
servicer, the Master Servicer will maintain and keep, or cause to be maintained
and kept, with respect to each such Mortgage Loan, in full force and effect a
Primary Mortgage Insurance Policy with respect to the portion of each such
Mortgage Loan, if any, in excess at origination of the percentage of value set
forth in the Agreement, at least until such excess has been eliminated. Pursuant
to applicable state law, a Master Servicer may permit the Primary Mortgage
Insurance Policy to be terminated if a reappraisal of the Mortgaged Property
indicates a new appraised value of which the then outstanding principal balance
of the Mortgage Loan does not exceed 80%. Primary Insurance Policies may be
replaced by substantially equivalent insurance but such replacement 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.
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Each Master Servicer will maintain errors and omissions insurance and
fidelity bonds in certain specified amounts.
Hazard Insurance
Each Master Servicer will maintain and keep, or cause to be maintained
and kept, with respect to each Mortgage Loan for which it is acting as Master
Servicer, 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 $1,000 or 1% 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
multiple 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 a 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 a
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 a 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 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, 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 each such Mortgage Loan for which it is acting as Master
Servicer 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
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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
$1,000 or 1% of the applicable amount of coverage, whichever is less.
Each Master Servicer, on behalf of the Trustee and Certificateholders,
will present claims to the insurer under any applicable Primary Mortgage
Insurance Policy or hazard insurance policy. As set forth above, all collections
by a 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.
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 for which it is
acting as Master Servicer and foreclose upon or otherwise comparably convert the
ownership of properties securing such Defaulted Mortgage Loans as to which no
satisfactory collection arrangements can be made. A 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 for which it is acting as Master
Servicer; provided, however, that a 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 a 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.
Servicing Compensation and Payment of Expenses
NAMC shall be entitled to receive a fee of 0.25% per annum of the
Outstanding Principal Balance of each NAMC Mortgage Loan (the "NAMC Master
Servicing Fee") from full payments of accrued interest on each such Mortgage
Loan as compensation for its activities under the Agreement. PHH shall be
entitled to receive a fee of between 0.20% and 1.075% per annum of the
Outstanding Principal Balance of each PHH Mortgage Loan ("PHH Master Servicing
Fee") from full payments of accrued interest on each such Mortgage Loan as
compensation for its activities under the Agreement. Any PHH Master Servicing
Fee in excess of 0.20% per annum will be set aside to pay for lender funded
mortgage insurance and will not be treated as servicing compensation to PHH and
will not be available to make Compensating Interest Payments (as defined
herein). The NAMC Master Servicing Fee and the PHH Master Servicing Fee shall be
referred to individually as a "Master Servicing Fee" and collectively as the
"Master Servicing Fees"). However, Interest Shortfalls on Mortgage Loans served
by a Master Servicer resulting from prepayments in full or in part in any
calendar month will be offset by the applicable Master Servicer on the
Distribution Date in the following calendar month to the extent such Interest
Shortfalls do not exceed the related Master Servicing Fees in connection with
such Distribution Date (the amount of a Master Servicing Fee used to offset
Interest Shortfalls is referred to herein as "Compensating Interest Payments").
Compensating Interest Payments with respect to an Interest Shortfall relating to
an NAMC Mortgage Loan or a PHH Mortgage Loan in a Mortgage Loan Group will be
made first from the Master Servicing Fee of NAMC or PHH, as the case may be,
with respect to the NAMC Mortgage Loans or the PHH Mortgage Loans in such
Mortgage Loan Group and only if such funds are insufficient therefor, from any
available remaining Master Servicing Fee of the relevant Master Servicer
relating to the other Mortgage Loan Groups. Neither Master Servicer will be
required to make Compensating
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Interest Payments with respect to Interest Shortfalls relating to Mortgage Loans
of the other Master Servicer. 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, each Master
Servicer will retain, with respect to each Mortgage Loan for which it acts as
Master Servicer, 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. Each Master Servicer will also be entitled to
retain, as additional servicing compensation with respect to each Mortgage Loan
it services, 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 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 Agreement.
Each Master 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 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.
Protected Account
Each Master 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 for which it acts as Master
Servicer, including Principal Prepayments, Insurance Proceeds, Liquidation
Proceeds, the Repurchase Price for any such Mortgage Loans repurchased, and
advances made from such 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, each 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 related Master Servicer which were due on the
related Due Date, net of servicing fees due such Master Servicer;
(ii) Full principal prepayments and any Liquidation Proceeds
received by the related 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 such Master
Servicer; and
(iii) Partial prepayments of principal received by the related
Master Servicer for such Mortgage Loans in the related Prepayment Period.
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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 five 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 a 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 a Master Servicer or the
Trustee and required to be deposited in the Certificate Account pursuant to the
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 either 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) invested, in the name of the Trustee,
in such Permitted Investments as the Trustee may select or deposited in demand
deposits with such depository institutions as selected by the Trustee, provided
that time deposits of such depository institutions would be a Permitted
Investment.
The Trustee will, from time to time on demand of the related Master
Servicer, make or cause to be made such withdrawals or transfers from the
appropriate subaccount of the Certificate Account as the related Master Servicer
has designated for such transfer or withdrawal for the following purposes:
(i) to reimburse the related Master Servicer for any Monthly
Advance of its own funds, the right of the related Master 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 related Master Servicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan
for amounts expended by such Master 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 related Master Servicer to the extent
permitted by the Agreement from Insurance Proceeds relating to a
particular Mortgage Loan for expenses incurred with respect to such
Mortgage Loan and to reimburse such Master Servicer from Liquidation
Proceeds from a particular Mortgage Loan for liquidation expenses
incurred with respect to such Mortgage Loan;
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(iv) to pay the related Master Servicer to the extent
permitted by the Agreement from Liquidation Proceeds or Insurance
Proceeds received in connection with the liquidation of a Mortgage
Loan, the amount which such Master 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 related Master Servicer to the extent permitted
by the Agreement from the Repurchase Price for any Mortgage Loan,
amount which such Master Servicer would have been entitled to receive
under subclause (ix) below as servicing compensation;
(vi) to reimburse the related Master 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 related Master 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 related Master 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 related Master Servicer servicing compensation
as set forth above;
(x) to reimburse the related Master Servicer for expenses,
costs and liabilities incurred by and reimbursable to it pursuant to
the Agreement, which, if not specifically allocable to a particular
Mortgage Loan Group, shall be allocated to each subaccount, pro rata,
based on the Scheduled Principal Balances of the Mortgage Loans in each
of the Mortgage Loan Groups;
(xi) to pay to the related 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
(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 Servicers
The Agreement will provide that neither Master Servicer may resign from
its obligations and duties thereunder, except upon determination that the
performance of such duties is no longer permissible under applicable
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law. No such resignation will become effective until the Trustee or a successor
has assumed the obligations and duties of such Master Servicer to the extent
required under the Agreement. Each Master Servicer, however, has the right, with
the written consent of the Trustee (which consent will not be unreasonably
withheld), to assign, sell or transfer its rights and delegate its duties and
obligations under the Agreement; provided that the rating of the Certificates in
effect immediately prior to such assignment, sale, transfer or delegation is not
qualified, downgraded or withdrawn as a result of such assignment, sale,
transfer or delegation and the purchaser or transferee accepting such
assignment, sale, transfer or delegation (i) is qualified to service mortgage
loans for FNMA or Freddie Mac, (ii) is reasonably satisfactory to the Trustee,
(iii) has a net worth of not less than $10,000,000 and (iv) executes and
delivers to the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such purchaser or
transferee of the due and punctual performance and observance of each covenant
and condition to be performed or observed by the applicable Master Servicer
under the Agreement from and after the date of such agreement.
The Agreement will further provide that neither of the Master Servicers
nor any of their 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
Agreement, or for errors in judgment; provided, however, that neither of the
Master Servicers 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 or by reason of reckless disregard of
obligations and duties thereunder. The Agreement will further provide that each
Master Servicer and its directors, officers, employees and agents are entitled
to indemnification from the sub-account of the Certificate Account for the
relevant Mortgage Loan Group, or if not specifically allocable to a particular
Mortgage Loan Group, from each subaccount, pro rata, and will be held harmless
thereby against any loss, liability or expense incurred in connection with any
legal proceeding relating to the Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loans (except as
otherwise reimbursable under the 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 Agreement will provide that neither Master Servicer
is under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its duties under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicers may, however, in
their discretion undertake any such action which they may deem necessary or
desirable in respect of the 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
Servicers will be entitled to be reimbursed therefor from the Certificate
Account. Any such indemnification or reimbursement to the Master Servicers 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 Mortgage Loans in each of the Mortgage Loan
Groups.
Any corporation into which a Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which a Master Servicer is a party, or any corporation
succeeding to the business of such Master Servicer will be the successor of such
Master Servicer under the Agreement, provided that any such successor to the
Master Servicer shall be qualified to service Mortgage Loans on behalf of FNMA
or Freddie Mac.
Events of Default
"Events of Default" under the Agreement consist of (i) failure by a
Master Servicer to cause to be deposited in the Certificate Account amounts
required to be deposited by such Master Servicer pursuant to the Agreement, and
such failure continues unremedied for two Business Days, (ii) failure by a
Master Servicer to observe or perform in any material respect any other material
covenants and agreements set forth in the Certificates or the Agreement to be
performed by it, and such failure continues unremedied for 60 days after the
date on which written notice of such failure has been given to such Master
Servicer by the Trustee or to such Master Servicer and the Trustee by the
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holders of Certificates aggregating ownership of not less than 25% of the Trust,
(iii) the entry against a Master Servicer of 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, marshaling 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 unstayed and in effect for a period of
60 consecutive days, or the commencement of an involuntary case against a Master
Servicer under any applicable insolvency or reorganization statute which case is
not dismissed within 60 days, (iv) consent by a Master Servicer to the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to such Master Servicer or substantially all of its
property, admission by a Master Servicer in writing of its inability to pay its
debts generally as they become due, filing of a petition to take advantage of
any applicable insolvency or reorganization statute, any assignment for the
benefit of its creditors, or voluntary suspension of payment of its obligations
or (v) assignment or delegation by a Master Servicer of its duties or rights
under the Agreement in contravention of the provisions permitting such
assignment or delegation under the Agreement.
In each and every such case, so long as such Event of Default with
respect to a Master Servicer shall not have been remedied, the Trustee or the
holders of Certificates aggregating ownership of not less than 51% of the Trust
may in each case by notice in writing to such Master Servicer (and to the
Trustee if given by such Certificateholders), with a copy to the Rating
Agencies, terminate all of the rights and obligations (but not the liabilities)
of such Master Servicer under the Agreement and in and to the Mortgage Loans
serviced by the Master Servicer and the proceeds thereof. Upon the receipt by a
Master Servicer of such written notice, all authority and power of such Master
Servicer under the Agreement, whether with respect to the Certificates, the
Mortgage Loans or under any other related agreements (but only to the extent
that such other agreements relate to the Mortgage Loans) shall, subject to the
provisions of the Agreement, automatically and without further action pass to
and be vested in the Trustee.
Upon the receipt by a Master Servicer of a notice of termination or an
opinion of counsel to the effect that such 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 such Master
Servicer in its capacity under the 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 such 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 a 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 such Master Servicer would have been entitled to retain
if such Master Servicer had continued to act as such, except for those amounts
due such 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 FNMA or Freddie Mac approved servicer having a net worth
of not less than $10,000,000, as the successor to such Master Servicer under the
Agreement in the assumption of all or any part of the responsibilities, duties
or liabilities of such Master Servicer under the Agreement. Pending appointment
of a successor to either Master Servicer under the Agreement, the Trustee shall
act in such capacity as provided under the 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 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 Agreement.
Monthly Advances
If the scheduled payment on an NAMC Mortgage Loan or a PHH Mortgage
Loan which was due on a related Due Date and is delinquent other than as a
result of application of the Relief Act exceeds the amount
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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 related Master Servicer will deposit in the appropriate
subaccount of the Certificate Account not later than the 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 related 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 related 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 fifth Business Day preceding each Distribution Date, the
related Master Servicer shall present an Officer's Certificate to the Trustee
(i) stating that the related 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. Failure by a Master Servicer to deposit in the Certificate
Account any advance required to be deposited by such Master Servicer under the
Agreement, which failure goes unremedied for two business days, would constitute
an Event of Default with respect to such Master Servicer as discussed under
"--Events of Default" above.
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 Servicers and the Trustee created by the
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 10% of the aggregate Cut-off Date
Scheduled Principal Balance of the Mortgage Loans, BSMSI, or its 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, less the good faith estimate of the
related Master Servicer of liquidation expenses to be incurred in connection
with its disposal thereof (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). The Trust may also be
terminated and the Certificates retired on any Distribution Date upon BSMSI's
determination, based upon an opinion of counsel, that the real estate mortgage
investment conduit status of either of the REMICs has been lost or that a
substantial risk exists that such status will be lost for the then current
taxable year.
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The Trustee
The Trustee may resign at any time, in which event the Master Servicers
will be obligated to appoint a successor Trustee. The Master Servicers may also
remove the Trustee if the Trustee ceases to be eligible to continue as such
under the 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. Upon becoming aware of such circumstances, the Master Servicers will
be entitled to appoint a successor Trustee. The Trustee may also be removed at
any time by the holders of Certificates evidencing ownership of not less than
51% 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 Servicers 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.
FEDERAL INCOME TAX CONSIDERATIONS
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 and Class R-2 Certificates) will be
designated as regular interests in REMIC I and are herein referred to as
"Regular Certificates" or "REMIC Regular Certificates". The Class R-2
Certificate will be designated as the residual interest in REMIC II and the
Class R-1 Certificate 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 P, Class 1-A-X1, Class 1-A-X2, Class X, Class X-3, and Class 4-X
Certificates will be 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
Certificates -- Current Income on REMIC Regular Certificates -- 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 tax provisions of the Code and Treasury regulations relating to original
issue discount 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 (i) Group 1, Group 2, Group B and Group 4
Certificates, (ii) Group 3 Certificates, and (iii) Group 5 Certificates is 250%
SPA, 100% Prepayment Assumption and 350% SPA, respectively. 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. See
"Yield and Prepayment Considerations -- Prepayment Models" for a description of
the prepayment assumption models used herein. 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
Certificates -- 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
S-101
<PAGE>
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 (including the Residual 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 ("REITs"), subject to the limitations described in "Certain Federal
Income Tax Consequences -- REMIC Certificates -- Status of REMIC Certificates"
in the Prospectus. Similarly, interest on such 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 Certificates -- Status of REMIC Certificates" 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. Section 10.3-101 (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 recent
federal legislation enacted affecting insurance company general accounts (see
Section 1460 of the Small Job Protection Act of 1996) 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 2-A-4
Certificates), except for those conditions which are dependent on facts unknown
to BSMSI 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, 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 Subordinate Certificates or to the
Class 2-A-4 Certificates because the rights and interests evidenced by such
Certificates are subordinated to the rights and interests evidenced by other
Classes of Certificates issued by the Trust.
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<PAGE>
The Subordinate Certificates and the Class A-2-4 Certificates may be
acquired for or on behalf of 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 represented by an owner of a
Book-Entry Certificate and will be evidenced by a representation to such effect
by or on behalf of a holder of a Physical Certificate.
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 Senior Certificates. Assets of a Plan should not be invested in the Senior
Certificates unless it is clear that the Exemption or any other prohibited
transaction exemption will apply and exempt all potential prohibited
transactions.
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, Class 3-B-1, Class 4-B-1 and
Class 5-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 Certificates -- Tax on Disposition
of REMIC Residual Certificates" and "-- Restrictions on Transfer; Holding by
Pass-Through Entities" in the Prospectus.
S-103
<PAGE>
A Residual Certificate (or interests therein) may not be transferred
without the prior express written consent of the holder of such Residual
Certificate as "Tax Matters Person" as defined in the Code or by State Street
Bank and Trust Company, acting as agent for the Tax Matters Person. The Tax
Matters Person or its agent 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 or its agent 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 or its agent 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 either REMIC I or REMIC II
as a REMIC) on the transfer of an interest in the Residual Certificate to any
other person or persons, the Tax Matters Person may, without action on the part
of Holders, amend the 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 -- REMIC Residual Certificates -- Transfers of REMIC Residual
Certificates -- Tax on Disposition of REMIC Residual Certificates" and "--
Restrictions on Transfer; Holding by Pass-Through Entities" in the Prospectus.
Moreover, certain transfers of a Residual Certificate 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 -- REMIC Residual Certificates -- Transfers of REMIC Residual
Certificates" 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), a Residual Certificate (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, are being purchased from BSMSI by the
Underwriter upon issuance. The Underwriter is an affiliate of BSMSI.
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 BSMSI are expected to be approximately 100.9% 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 BSMSI in
connection with the Offered Certificates. In connection with the purchase and
sale of the Offered Certificates, the Underwriter may be deemed to have received
compensation from BSMSI in the form of an underwriting discount.
BSMSI 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 BSMSI and the Underwriter by Stroock & Stroock & Lavan LLP, New York, New
York.
RATING
It is a condition to the issuance of each Class of Offered Certificates
that it receives the ratings set forth below from Moody's and DCR.
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<PAGE>
Class Moody's DCR
-----
Class P Aaa AAA
Class 1-A-1 Aaa AAA
Class 1-A-X1 Aaa AAA
Class 1-A-2 Aaa AAA
Class 1-A-X2 Aaa AAA
Class 1-A-3 Aaa AAA
Class 1-A-4 Aaa AAA
Class 1-A-5 Aaa AAA
Class 1-A-6 Aaa AAA
Class 1-A-7 Aaa AAA
Class 1-A-8 Aaa AAA
Class 1-A-9 Aaa AAA
Class 2-A-1 Aaa AAA
Class 2-A-2 Aaa AAA
Class 2-A-3 Aaa AAA
Class 2-A-4 Aaa AAA
Class X Aaa AAA
Class B-1 - AA
Class B-2 - A
Class B-3 - BBB
Class 3-A Aaa AAA
Class 3-X Aaa AAA
Class 3-B-1 - AA
Class 3-B-2 - A
Class 3-B-3 - BBB
Class 4-A Aaa AAA
Class 4-X Aaa AAA
Class 4-B-1 - AA
Class 4-B-2 - A
Class 4-B-3 - BBB
Class 5-A Aaa AAA
Class 5-B-1 - AA
Class 5-B-2 - A
Class 5-B-3 - BBB
Class R-1 Aaa AAA
Class R-2 Aaa AAA
The ratings assigned by Moody's and DCR 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 were issued. Moody's and DCR's ratings take into
consideration the credit quality of the related mortgage pool, structural and
legal aspects associated with such certificates, and the extent to which the
payment stream in the mortgage pool is adequate to make payments required under
such certificates. Moody's and DCR's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
mortgages.
The ratings of the Rating Agencies do not address the possibility that,
as a result of principal prepayments or recoveries (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 in
the Mortgage Loan Groups that relate to the Class 1-A-X1, Class 1-A-X2, Class X,
Class 3-X and Class 4-X Certificates, respectively, investors in such
Certificates could fail to fully recover their initial investment. The ratings
on the Class P Certificates only
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<PAGE>
address the return of their principal balance. The ratings on the Class R-1 and
Class R-2 Certificates address only the return of their principal balance and
interest thereon at their respective Pass-Through Rates.
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.
BSMSI 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.
S-106
<PAGE>
PRINCIPAL DEFINITIONS
1933 Act.....................................................................2
1934 Act.....................................................................2
Accrual Amount..............................................................48
Accrued Certificate Interest................................................16
Aggregate Expense Rate......................................................13
Agreement....................................................................3
Allocable Share.............................................................62
Assumed Final Distribution Dates............................................68
Available Funds.............................................................15
Bankruptcy Loss.............................................................64
BSMCC........................................................................1
BSMSI........................................................................1
Business Day................................................................43
Cede........................................................................42
Certificate Account.........................................................94
Certificate Account Advance.................................................98
Certificate Owner...........................................................42
Certificate Register........................................................44
Certificateholder...........................................................43
Certificates.................................................................1
Class........................................................................2
Class 1-A-9 Optimal Principal Amount........................................46
Class 1-A-9 Pro Rata Optimal Principal Amount...............................47
Class 2-A-4 Optimal Principal Amount........................................48
Class 2-A-4 Pro Rata Optimal Principal Amount...............................49
Class Prepayment Distribution Trigger.......................................62
Closing Date.................................................................8
Code........................................................................29
Compensating Interest Payment...............................................17
Compensating Interest Payments..............................................55
Component P Deferred Amount.................................................20
Component P Principal Distribution Amount...................................60
Component P-3 Cash Shortfall................................................50
Current Principal Amount....................................................17
DCR..........................................................................1
Debt Service Reduction......................................................64
Deficient Valuation.........................................................64
Definitive Certificates.....................................................44
Depositor....................................................................8
Determination Date..........................................................62
Discount Mortgage Loan......................................................19
Distribution.................................................................1
Distribution Date...........................................................14
DTC.........................................................................42
Due Date....................................................................13
Due Period..................................................................14
ERISA.......................................................................29
Events of Default...........................................................96
Exemption...................................................................30
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<PAGE>
Flex Extra Program..........................................................35
Flex Series Program.........................................................35
FNMA.........................................................................9
Fraud Loss..................................................................64
Freddie Mac..................................................................9
Gold Flex Program...........................................................35
Group 1 and 2 Cross-Over Date...............................................16
Group 1 Available Funds.....................................................44
Group 2 Available Funds.....................................................44
Group 3 Available Funds.....................................................44
Group 3 Cross-Over Date.....................................................16
Group 4 Available Funds.....................................................44
Group 4 Cross-Over Date.....................................................16
Group 5 Available Funds.....................................................44
Group 5 Cross-Over Date.....................................................16
Group Available Funds.......................................................44
Indirect Participants.......................................................43
Insurance Proceeds..........................................................62
Interest Accrual Period.....................................................15
Interest Shortfall..........................................................55
Jumbo Loans..................................................................9
LIBOR.......................................................................55
LIBOR Determination Date....................................................55
Liquidated Mortgage Loan....................................................63
Liquidation Proceeds........................................................64
Master Servicer..............................................................8
Master Servicers.............................................................8
Master Servicing Fee........................................................92
Master Servicing Fees.......................................................92
Material Defect.............................................................87
Monthly Advance.............................................................22
Monthly Payment.............................................................62
Moody's......................................................................1
Mortgage.....................................................................1
Mortgage File...............................................................87
Mortgage Loan Group 5........................................................1
Mortgage Pool................................................................8
Mortgage Property...........................................................89
Mortgage Rate...............................................................13
NAMC.........................................................................1
NAMC Master Servicing Fee...................................................92
NAMIS.......................................................................34
Net Interest Shortfalls.....................................................55
Net Liquidation Proceeds....................................................64
Net Rate....................................................................13
No Asset, No Income Program.................................................40
Non-Discount Mortgage Loan..................................................57
Non-PO Percentage...........................................................56
Non-PO Realized Losses......................................................65
Non-SMMEA Certificates.....................................................101
Non-SMMEA Certificates......................................................32
Notional.....................................................................2
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<PAGE>
Notional Amount.............................................................54
Offered Certificates.........................................................3
Original Subordinate Principal Balance......................................60
Other Certificates...........................................................5
Outstanding Principal Balance...............................................88
PAC Certificates............................................................19
PAC I Certificates..........................................................19
PAC II Certificates.........................................................19
Participants................................................................43
Pass-Through Rate...........................................................15
Permitted Investments.......................................................90
PHH..........................................................................1
PHH Master Servicing Fee....................................................92
Plan Asset Regulations.....................................................100
Plan(s).....................................................................29
Planned Balance.............................................................19
PO Percentage...............................................................57
Prepayment Period...........................................................14
Principal...................................................................56
Principal Prepayment........................................................62
Protected Account...........................................................42
PTE........................................................................101
Rating Agencies.............................................................31
Realized Loss...............................................................63
Record Date.................................................................14
Reduced Documentation Program...............................................40
Reference Banks.............................................................55
Regular Certificates........................................................29
REITs......................................................................100
Relief Act..................................................................55
Relocation Loans.............................................................9
REMIC........................................................................2
REMIC I.....................................................................29
REMIC II....................................................................29
REMIC Regular Certificates..................................................99
REMIC Residual Certificates.................................................29
REO Property................................................................62
Repurchase Price............................................................88
Repurchase Proceeds.........................................................62
Residual Certificates.......................................................29
Rules.......................................................................43
Scheduled Principal Balance.................................................13
Senior P&I Optimal Principal Amount.........................................58
Senior Percentage...........................................................59
Senior Prepayment Percentage................................................59
Senior Prepayment Percentage Stepdown Limitation............................59
Servicing Account...........................................................90
Similar Law................................................................101
SMMEA.......................................................................32
Special Hazard Loss.........................................................64
Streamlined Documentation Program...........................................40
Subordinate Certificate Writedown Amount....................................54
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<PAGE>
Subordinate Optimal Principal Amount........................................61
Subordinate Percentage......................................................61
Subordinate Prepayment Percentage...........................................61
Tax Matters Person..........................................................30
Trust........................................................................1
Trust Assets................................................................29
Trustee......................................................................3
U.S. Person................................................................102
Underwriter..................................................................2
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ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The description herein of the Mortgage Loans and the Mortgage Loan Groups
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 the
dates on which BSMCC acquired the Mortgage Loans, (ii) requirements of Moody's
or DCR or (iii) delinquencies or otherwise. In any such event, other mortgage
loans may be included in the Trust. BSMSI believes that the estimated
information set forth herein with respect to the Mortgage Loans and the Mortgage
Loan Groups as presently constituted is representative of the characteristics of
the Mortgage Loans and the Mortgage Loan Groups as they will be constituted at
the time the Certificates are issued, although certain characteristics of the
Mortgage Loans and the Mortgage Loan Groups may vary.
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $322,065
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000--$249,999.................................................... 269 $ 63,425,870 14.96%
$250,000--$299,999.................................................... 441 119,040,452 28.08
$300,000--$349,999.................................................... 253 81,143,264 19.14
$350,000--$399,999.................................................... 121 44,818,135 10.57
$400,000--$449,999.................................................... 86 35,886,949 8.47
$450,000--$499,999.................................................... 67 31,288,301 7.38
$500,000--$599,999.................................................... 42 22,688,695 5.35
$600,000--$699,999.................................................... 33 20,775,864 4.90
$700,000 or greater................................................... 6 4,795,859 1.13
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $321,596
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000--$249,999.................................................... 297 $ 70,412,629 16.61%
$250,000--$299,999.................................................... 449 122,834,167 28.98
$300,000--$349,999.................................................... 227 73,855,039 17.42
$350,000--$399,999.................................................... 129 48,509,712 11.44
$400,000--$449,999.................................................... 75 31,847,765 7.51
$450,000--$499,999.................................................... 65 30,641,101 7.23
$500,000--$599,999.................................................... 44 24,385,258 5.75
$600,000--$699,999.................................................... 27 17,281,402 4.08
$700,000 or greater................................................... 5 4,096,316 0.97
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-1
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 1 WEIGHTED AVERAGE: 7.784%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 21 $ 6,393,226 1.51%
7.001%-7.250%......................................................... 97 30,715,075 7.25
7.251%-7.500%......................................................... 177 58,594,465 13.82
7.501%-7.750%......................................................... 433 137,771,356 32.50
7.751%-8.000%......................................................... 384 125,318,024 29.57
8.001%-8.250%......................................................... 116 36,950,291 8.72
8.251%-8.500%......................................................... 55 17,033,828 4.02
8.501%-8.750%......................................................... 17 5,557,811 1.31
8.751%-9.000%......................................................... 14 4,114,780 0.97
9.001%-9.250%......................................................... 3 1,129,597 0.27
Greater than 9.500%................................................... 1 284,937 0.07
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 76.45%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
50.00% or less........................................................ 43 $ 14,751,582 3.48%
50.01%-55.00%......................................................... 21 6,692,887 1.58
55.01%-60.00%......................................................... 54 19,410,094 4.58
60.01%-65.00%......................................................... 59 19,988,648 4.72
65.01%-70.00%......................................................... 90 30,481,104 7.19
70.01%-75.00%......................................................... 168 59,108,816 13.95
75.01%-80.00%......................................................... 604 193,035,870 45.54
80.01%-85.00%......................................................... 21 6,061,377 1.43
85.01%-90.00%......................................................... 152 45,901,596 10.83
90.01%-95.00%......................................................... 106 28,431,416 6.71
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Two-Family to Four-Family............................................. 9 $ 3,216,219 0.76%
Condo................................................................. 25 8,076,003 1.91
Planned Unit Development.............................................. 301 95,779,372 22.60
Single Family......................................................... 983 316,791,794 74.74
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-2
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOAN PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 754 $ 235,533,575 55.57%
Rate and Term Refinance............................................... 399 131,389,094 31.00
Cash Out Refinance.................................................... 165 56,940,720 13.43
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 1,275 $ 409,248,474 96.55%
Second/Vacation Home.................................................. 34 12,171,761 2.87
Investor Owned........................................................ 9 2,443,155 0.58
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 359 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERMS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
240-359 Months........................................................ 17 $ 4,978,749 1.17%
360 Months............................................................ 1,301 418,884,639 98.83
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 357 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
181-240 Months........................................................ 14 $ 4,200,539 0.99%
241-300 Months........................................................ 2 482,967 0.11
301-360 Months........................................................ 1,302 419,179,883 98.90
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-3
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 630 $ 209,298,071 49.38%
New Jersey............................................................ 74 24,067,498 5.68
Massachusetts......................................................... 63 19,072,808 4.50
Texas................................................................. 58 18,488,649 4.36
Virginia.............................................................. 47 13,839,289 3.27
Pennsylvania.......................................................... 40 12,880,607 3.04
Illinois.............................................................. 35 11,115,185 2.62
New York.............................................................. 35 10,978,388 2.59
Arizona............................................................... 26 8,362,658 1.97
Georgia............................................................... 24 7,884,030 1.86
Wisconsin............................................................. 25 7,637,262 1.80
Maryland.............................................................. 26 7,222,335 1.70
Colorado.............................................................. 23 7,142,539 1.69
Nevada................................................................ 20 7,062,994 1.67
Connecticut........................................................... 20 6,389,375 1.51
Florida............................................................... 22 6,379,515 1.51
Washington............................................................ 19 6,251,235 1.47
Oregon................................................................ 16 4,565,604 1.08
Utah.................................................................. 14 4,298,330 1.01
Other (no more than 1% in any one of 26 states)....................... 101 30,927,018 7.30
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
- ------------------
* No more than 0.95% of the Mortgage Loans in Mortgage Loan Group 1 by Unpaid
Principal Balance will be secured by Mortgaged Properties located in any one
zip code area in California and no more than 0.45% of the Mortgage Loans in
Mortgage Loan Group 1 will be secured by Mortgaged Properties located in any
one zip code area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 1,250 $ 401,143,092 94.64%
Limited Documentation/No Ratios....................................... 68 22,720,296 5.36
--------- ----------------- ----------
Total............................................................... 1,318 $ 423,863,389 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-4
<PAGE>
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
AVERAGE: $327,009
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000-$249,999..................................................... 77 $ 18,122,530 13.05%
$250,000-$299,999..................................................... 138 37,539,459 27.03
$300,000-$349,999..................................................... 86 27,634,499 19.90
$350,000-$399,999..................................................... 48 17,767,050 12.79
$400,000-$449,999..................................................... 30 12,522,234 9.02
$450,000-$499,999..................................................... 20 9,431,058 6.79
$500,000-$599,999..................................................... 17 9,191,206 6.62
$600,000-$699,999..................................................... 7 4,404,320 3.17
$700,000 or greater................................................... 2 2,248,518 1.62
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
AVERAGE: $326,731
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000-$249,999..................................................... 81 $ 19,116,339 13.77%
$250,000-$299,999..................................................... 138 37,744,363 27.18
$300,000-$349,999..................................................... 85 27,482,251 19.79
$350,000-$399,999..................................................... 47 17,519,810 12.62
$400,000-$449,999..................................................... 28 11,723,009 8.44
$450,000-$499,999..................................................... 23 10,929,705 7.87
$500,000-$599,999..................................................... 15 8,291,731 5.97
$600,000-$699,999..................................................... 6 3,805,149 2.74
$700,000 or greater................................................... 2 2,248,518 1.62
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-5
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 2
WEIGHTED AVERAGE: 7.809%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 6 $ 1,952,209 1.41%
7.001%-7.250%......................................................... 26 8,985,290 6.47
7.251%-7.500%......................................................... 81 25,077,108 18.06
7.501%-7.750%......................................................... 119 37,689,804 27.14
7.751%-8.000%......................................................... 108 37,456,823 26.97
8.001%-8.250%......................................................... 40 12,615,835 9.09
8.251%-8.500%......................................................... 26 9,204,630 6.63
8.501%-8.750%......................................................... 8 2,734,239 1.97
8.751%-9.000%......................................................... 10 2,803,302 2.02
Greater than 9.000%................................................... 1 341,635 0.25
--------- ----------------- ----------
Total................................................................. 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 74.83%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
50.00% or less........................................................ 23 $ 7,643,544 5.50%
50.01%-55.00%......................................................... 12 3,935,657 2.83
55.01%-60.00%......................................................... 16 6,555,222 4.72
60.01%-65.00%......................................................... 15 4,825,138 3.47
65.01%-70.00%......................................................... 33 11,922,220 8.59
70.01%-75.00%......................................................... 46 15,460,329 11.13
75.01%-80.00%......................................................... 216 69,974,390 50.39
80.01%-85.00%......................................................... 4 1,247,830 0.90
85.01%-90.00%......................................................... 40 11,796,672 8.50
90.01%-95.00%......................................................... 20 5,499,872 3.96
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Two-Family to Four-Family............................................. 5 $ 2,028,227 1.46%
Condo................................................................. 11 4,335,415 3.12
Planned Unit Development.............................................. 97 31,534,317 22.71
Single Family......................................................... 312 100,962,915 72.71
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-6
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOAN PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 227 $ 72,113,467 51.93%
Rate and Term Refinance............................................... 144 48,330,465 34.80
Cash Out Refinance.................................................... 54 18,416,943 13.26
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 405 $ 132,266,736 95.25%
Second/Vacation Home.................................................. 11 4,197,348 3.02
Investor Owned........................................................ 9 2,396,791 1.73
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 360 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERMS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
240 Months............................................................ 1 $ 267,523 0.19%
360 Months............................................................ 424 138,593,352 99.81
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 359 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
181-240 Months........................................................ 1 $ 267,523 0.19%
301-360 Months........................................................ 424 138,593,351 99.81
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-7
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 324 $ 107,431,099 77.37%
Nevada................................................................ 10 3,424,545 2.47
Massachusetts......................................................... 9 2,675,583 1.93
Virginia.............................................................. 7 2,563,689 1.85
Maryland.............................................................. 6 1,966,545 1.42
New Mexico............................................................ 7 1,824,613 1.31
New Jersey............................................................ 6 1,755,883 1.26
Arizona............................................................... 5 1,653,254 1.19
Other (no more than 1% in any one of 22 states)....................... 51 15,565,664 11.20
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
- ------------------
* No more than 1.67% of the Mortgage Loans in Mortgage Loan Group 2 by Unpaid
Principal Balance will be secured by Mortgaged Properties located in any one
zip code area.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 398 $ 129,860,447 93.52%
Limited Documentation/No Ratio........................................ 27 9,000,428 6.48
--------- ----------------- ----------
Total............................................................... 425 $ 138,860,875 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-8
<PAGE>
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
AVERAGE: $323,270
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000-$249,999..................................................... 346 $ 81,548,401 14.49%
$250,000-$299,999..................................................... 579 156,579,911 27.83
$300,000-$349,999..................................................... 339 108,777,763 19.33
$350,000-$399,999..................................................... 169 62,585,185 11.12
$400,000-$449,999..................................................... 116 48,409,184 8.60
$450,000-$499,999..................................................... 87 40,719,359 7.24
$500,000-$599,999..................................................... 59 31,879,901 5.67
$600,000-$699,999..................................................... 40 25,180,184 4.47
$700,000 or greater................................................... 8 7,044,377 1.25
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
AVERAGE: $322,848
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000-$249,999..................................................... 378 $ 89,528,968 15.91%
$250,000-$299,999..................................................... 587 160,578,530 28.54
$300,000-$349,999..................................................... 312 101,337,290 18.01
$350,000-$399,999..................................................... 176 66,029,522 11.73
$400,000-$449,999..................................................... 103 43,570,774 7.74
$450,000-$499,999..................................................... 88 41,570,805 7.39
$500,000-$599,999..................................................... 59 32,676,989 5.81
$600,000-$699,999..................................................... 33 21,086,551 3.75
$700,000 or greater................................................... 7 6,344,835 1.13
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-9
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUPS 1 & 2
WEIGHTED AVERAGE: 7.790%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 27 $ 8,345,434 1.48%
7.001%-7.250%......................................................... 123 39,700,365 7.06
7.251%-7.500%......................................................... 258 83,671,573 14.87
7.501%-7.750%......................................................... 552 175,461,160 31.18
7.751%-8.000%......................................................... 492 162,774,848 28.93
8.001%-8.250%......................................................... 156 49,566,126 8.81
8.251%-8.500%......................................................... 81 26,238,457 4.66
8.501%-8.750%......................................................... 25 8,292,050 1.47
8.751%-9.000%......................................................... 24 6,918,082 1.23
9.001%-9.250%......................................................... 4 1,471,231 0.26
Greater than 9.500%................................................... 1 284,937 0.05
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1
& 2
WEIGHTED AVERAGE: 76.05%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
50.00% or less........................................................ 66 $ 22,395,127 3.98%
50.01%-55.00%......................................................... 33 10,628,544 1.89
55.01%-60.00%......................................................... 70 25,965,316 4.61
60.01%-65.00%......................................................... 74 24,813,786 4.41
65.01%-70.00%......................................................... 123 42,403,324 7.54
70.01%-75.00%......................................................... 214 74,569,145 13.25
75.01%-80.00%......................................................... 820 263,010,260 46.74
80.01%-85.00%......................................................... 25 7,309,207 1.30
85.01%-90.00%......................................................... 192 57,698,269 10.25
90.01%-95.00%......................................................... 126 33,931,288 6.03
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUPS 1 & 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Two-Family to Four-Family............................................. 14 $ 5,244,447 0.93%
Condo................................................................. 36 12,411,418 2.21
Single Family......................................................... 1,295 417,754,709 74.24
Planned Unit Development.............................................. 398 127,313,689 22.62
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-10
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOAN PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 981 $ 307,647,042 54.67%
Rate and Term Refinance............................................... 543 179,719,558 31.94
Cash Out Refinance.................................................... 219 75,357,663 13.39
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUPS 1 & 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 1,680 $ 541,515,209 96.23%
Second/Vacation Home.................................................. 45 16,369,109 2.91
Investor Owned........................................................ 18 4,839,945 0.86
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
WEIGHTED AVERAGE: 359 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERMS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
240-359 Months........................................................ 18 $ 5,246,273 0.93%
360 Months............................................................ 1,725 557,477,991 99.07
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
WEIGHTED AVERAGE: 357 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
181-240 Months........................................................ 15 $ 4,468,062 0.79%
241-300 Months........................................................ 2 482,967 0.09
301-360 Months........................................................ 1,726 557,773,234 99.12
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-11
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUPS 1 & 2*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 954 $ 316,729,170 56.28%
New Jersey............................................................ 80 25,823,381 4.59
Massachusetts......................................................... 72 21,748,391 3.86
Texas................................................................. 63 19,813,306 3.52
Virginia.............................................................. 54 16,402,978 2.91
Pennsylvania.......................................................... 44 14,209,404 2.53
New York.............................................................. 39 12,206,955 2.17
Illinois.............................................................. 36 11,562,861 2.05
Nevada................................................................ 30 10,487,538 1.86
Arizona............................................................... 31 10,015,912 1.78
Maryland.............................................................. 32 9,188,880 1.63
Georgia............................................................... 28 9,098,731 1.62
Wisconsin............................................................. 26 7,979,527 1.42
Colorado.............................................................. 25 7,642,539 1.36
Connecticut........................................................... 23 7,319,712 1.30
Florida............................................................... 25 7,305,449 1.30
Washington............................................................ 23 7,304,985 1.30
Other (no more than 1% in any one of 28 states)....................... 158 47,884,545 8.51
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
- ------------------
* No more than 0.89% of the Mortgage Loans in Mortgage Loan Groups 1 & 2 by
Unpaid Principal Balance will be secured by Mortgaged Properties located in
any one zip code area in California and no more than 0.34% of the Mortgage
Loans in Mortgage Loan Groups 1 & 2 will be secured by Mortgaged Properties
located in any one zip code area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUPS 1 & 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 1,648 $ 531,003,539 94.36%
Limited Documentation/No Ratios....................................... 95 31,720,724 5.64
--------- ----------------- ----------
Total............................................................... 1,743 $ 562,724,264 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-12
<PAGE>
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
AVERAGE: $110,325
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Less than $100,000.................................................... 494 $ 34,472,025 32.81%
$100,000-$149,999..................................................... 246 29,620,238 28.19
$150,000-$199,999..................................................... 153 26,704,689 25.41
$200,000-$249,999..................................................... 41 8,638,364 8.22
$250,000-$299,999..................................................... 13 3,421,951 3.26
$300,000-$349,999..................................................... 5 1,545,201 1.47
$350,000 or greater................................................... 2 676,729 0.64
--------- ----------------- ----------
Total............................................................... 954 $ 105,079,196 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
AVERAGE: $110,146
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Less than $100,000.................................................... 503 $ 35,351,863 33.64%
$100,000-$149,999..................................................... 239 29,040,138 27.64
$150,000-$199,999..................................................... 155 27,203,790 25.89
$200,000-$249,999..................................................... 38 8,089,244 7.70
$250,000-$299,999..................................................... 13 3,471,818 3.30
$300,000-$349,999..................................................... 5 1,555,060 1.48
$350,000 or greater................................................... 1 367,283 0.35
--------- ----------------- ----------
Total............................................................... 954 $ 105,079,196 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-13
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 3
WEIGHTED AVERAGE: 8.410%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE INTEREST RATE MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 1 $ 127,146 0.12%
7.001%-7.250%......................................................... 6 839,312 0.80
7.251%-7.500%......................................................... 22 3,103,010 2.95
7.501%-7.750%......................................................... 70 10,167,509 9.68
7.751%-8.000%......................................................... 128 16,551,725 15.75
8.001%-8.250%......................................................... 102 13,441,818 12.79
8.251%-8.500%......................................................... 172 18,693,751 17.79
8.501%-8.750%......................................................... 191 18,847,223 17.94
8.751%-9.000%......................................................... 171 15,478,146 14.73
9.001%-9.250%......................................................... 47 3,839,296 3.65
9.251%-9.500%......................................................... 34 2,817,883 2.68
Greater than 9.500%................................................... 10 1,172,376 1.12
--------- ----------------- ----------
Total............................................................... 954 $ 105,079,196 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 77.40%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
50.00% or less........................................................ 33 $ 3,292,619 3.13%
50.01%-55.00%......................................................... 12 1,605,995 1.53
55.01%-60.00%......................................................... 22 2,398,458 2.28
60.01%-65.00%......................................................... 38 4,234,189 4.03
65.01%-70.00%......................................................... 61 7,060,274 6.72
70.01%-75.00%......................................................... 150 15,632,502 14.88
75.01%-80.00%......................................................... 447 51,836,782 49.33
80.01%-85.00%......................................................... 4 259,182 0.25
85.01%-90.00%......................................................... 165 15,343,468 14.60
90.01%-95.00%......................................................... 22 3,415,728 3.25
--------- ----------------- ----------
Total............................................................... 954 $ 105,079,196 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Two-Family to Four-Family............................................. 196 $ 22,625,563 21.53%
Condo................................................................. 70 7,041,553 6.70
Planned Unit Development.............................................. 140 17,103,011 16.28
Single Family......................................................... 548 58,309,069 55.49
--------- ----------------- ----------
Total............................................................... 954 $ 105,079,196 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-14
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
LOAN PURPOSE LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 609 $ 66,886,349 63.65%
Rate and Term Refinance............................................... 139 17,349,464 16.51
Cash Out Refinance.................................................... 206 20,843,383 19.84
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 429 $ 55,865,914 53.17%
Second/Vacation Home.................................................. 32 2,955,806 2.81
Investor Owned........................................................ 493 46,257,476 44.02
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 359 MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
ORIGINAL TERMS LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
240-359 Months........................................................ 8 $ 780,013 0.74%
360 Months............................................................ 946 104,299,183 99.26
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 357 MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
181-240 Months........................................................ 8 $ 1,054,742 1.00%
241-300 Months........................................................ 2 115,277 0.11
301-360 Months........................................................ 944 103,909,177 98.89
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-15
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 209 $ 28,328,844 26.96%
Texas................................................................. 117 13,157,506 12.52
Massachusetts......................................................... 59 7,258,298 6.91
Florida............................................................... 55 4,858,711 4.62
Arizona............................................................... 51 4,673,706 4.45
Hawaii................................................................ 24 4,632,615 4.41
Oregon................................................................ 31 3,508,643 3.34
Michigan.............................................................. 42 3,481,413 3.31
Nevada................................................................ 34 3,187,904 3.03
Minnesota............................................................. 31 2,973,379 2.83
New Mexico............................................................ 25 2,887,882 2.75
Illinois.............................................................. 24 2,469,181 2.35
Colorado.............................................................. 22 2,419,815 2.30
Washington............................................................ 25 2,407,978 2.29
Louisiana............................................................. 20 1,794,309 1.71
Maryland.............................................................. 13 1,608,300 1.53
Ohio.................................................................. 19 1,533,259 1.46
Georgia............................................................... 12 1,376,296 1.31
Pennsylvania.......................................................... 18 1,339,665 1.27
Virginia.............................................................. 9 1,148,023 1.09
Other (no more than 1% in any one of 24 states)....................... 114 10,033,470 9.56
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
- ------------------
* No more than 0.72% of the Mortgage Loans in Mortgage Loan Group 3 by Unpaid
Principal Balance will be secured by Mortgaged Properties located in any one
zip code area in California and no more than 0.95% of the Mortgage Loans in
Mortgage Loan Group 3 will be secured by Mortgaged Properties located in any
one zip code area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 574 $ 62,972,851 59.93%
Limited Documentation/No Ratio........................................ 380 42,106,345 40.07
--- ----------------- ----------
Total............................................................ 954 $ 105,079,196 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-16
<PAGE>
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
AVERAGE: $328,488
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Less than $150,000................................................... 4 $ 377,977 0.87%
$200,000--$249,999.................................................... 16 3,813,383 8.79
$250,000--$299,999.................................................... 43 11,550,315 26.62
$300,000--$349,999.................................................... 31 9,828,996 22.65
$350,000--$399,999.................................................... 12 4,513,202 10.40
$400,000--$449,999.................................................... 13 5,383,660 12.41
$450,000--$499,999.................................................... 5 2,319,641 5.35
$500,000--$599,999.................................................... 4 2,197,648 5.06
$600,000--$699,999.................................................... 4 2,567,582 5.92
$700,000 or greater................................................... 1 844,736 1.95
--- ----------------- ----------
Total............................................................ 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
AVERAGE: $326,294
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Less than $100,000................................................... 3 $ 270,403 0.62%
$100,000--$149,999.................................................... 1 107,574 0.25
$200,000--$249,999.................................................... 23 5,553,086 12.80
$250,000--$299,999.................................................... 44 12,195,783 28.10
$300,000--$349,999.................................................... 24 7,753,222 17.87
$350,000--$399,999.................................................... 14 5,399,404 12.44
$400,000--$449,999.................................................... 11 4,635,305 10.68
$450,000--$499,999.................................................... 4 1,872,398 4.31
$500,000--$599,999.................................................... 4 2,197,648 5.06
$600,000--$699,999.................................................... 4 2,567,582 5.92
$700,000 or greater................................................... 1 844,736 1.95
--------- ----------------- ----------
Total............................................................ 133 $ 43,397,142 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-17
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 4
WEIGHTED AVERAGE: 7.367%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 23 $ 7,788,446 17.95%
7.001%--7.250%........................................................ 30 10,545,446 24.30
7.251%--7.500%........................................................ 36 11,442,128 26.37
7.501%--7.750%........................................................ 34 10,544,494 24.30
Greater than 7.750%................................................... 10 3,076,629 7.09
--- ----------------- ----------
Total............................................................... 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
WEIGHTED AVERAGE: 70.53%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL 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........................................................ 11 $ 3,704,173 8.54%
50.01%--55.00%........................................................ 5 1,663,112 3.83
55.01%--60.00%........................................................ 10 2,536,942 5.85
60.01%--65.00%........................................................ 15 4,748,913 10.94
65.01%--70.00%........................................................ 14 4,232,495 9.75
70.01%--75.00%........................................................ 15 5,298,147 12.21
75.01%--80.00%........................................................ 51 17,498,801 40.32
85.01%--90.00%........................................................ 10 3,157,003 7.27
90.01%--95.00%........................................................ 2 557,556 1.28
--- ----------------- ----------
Total............................................................... 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 4
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Condo................................................................. 6 $ 2,413,871 5.56%
Planned Unit Development.............................................. 31 10,444,228 24.07
Single Family......................................................... 96 30,539,043 70.37
--- ----------------- ----------
Total............................................................... 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-18
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
LOAN PURPOSE LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 63 $20,466,859 47.16%
Rate and Term Refinance............................................... 57 19,300,347 44.47
Cash Out Refinance.................................................... 13 3,629,936 8.36
--- ----------------- ----------
Total............................................................ 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 4
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 122 $ 39,264,779 90.48%
Second/Vacation Home.................................................. 11 4,132,363 9.52
--- ----------------- ----------
Total............................................................ 133 $ 43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
WEIGHTED AVERAGE: 180 MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
ORIGINAL TERMS LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
180 Months............................................................ 133 $ 43,397,142 100.00%
--- ----------------- ----------
Total............................................................ 133 $ 43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
WEIGHTED AVERAGE: 178 MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF PRINCIPAL BALANCE MORTGAGE
MORTGAGE OUTSTANDING AS OF LOAN
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Up to 180 Months...................................................... 133 $ 43,397,142 100.00%
--- ----------------- ----------
Total............................................................ 133 $ 43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-19
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 4*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 63 $21,699,871 50.00%
Texas................................................................. 6 2,728,576 6.29
Colorado.............................................................. 6 1,891,119 4.36
New Jersey............................................................ 7 1,867,251 4.30
Wisconsin............................................................. 5 1,822,200 4.20
Delaware.............................................................. 4 1,362,774 3.14
Virginia.............................................................. 5 1,295,599 2.99
Maryland.............................................................. 3 1,255,410 2.89
Pennsylvania.......................................................... 3 960,496 2.21
New York.............................................................. 3 914,599 2.11
Washington............................................................ 3 901,368 2.08
Massachusetts......................................................... 3 809,487 1.87
Illinois.............................................................. 2 701,292 1.62
Nevada................................................................ 2 558,692 1.29
Oregon................................................................ 2 540,559 1.25
Georgia............................................................... 2 507,636 1.17
Other (no more than 1% in any one of 14 states)....................... 14 3,580,211 8.25
--- ----------------- ----------
Total............................................................... 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
- ------------------
* No more than 4.38% of the Mortgage Loans in Mortgage Loan Group 4 by Unpaid
Principal Balance will be secured by Mortgaged Properties located in any one zip
code area in California and no more than 1.95% of the Mortgage Loans in Mortgage
Loan Group 4 will be secured by Mortgaged Properties located in any one zip code
area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 4
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 126 $41,916,949 96.59%
Limited Documentation/No Ratio........................................ 7 1,480,193 3.41
--- ----------------- ----------
Total............................................................... 133 $43,397,142 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-20
<PAGE>
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
AVERAGE: $335,785
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000--$249,999.................................................... 29 $ 6,994,355 9.75%
$250,000--$299,999.................................................... 81 21,934,414 30.57
$300,000--$349,999.................................................... 36 11,426,434 15.92
$350,000--$399,999.................................................... 22 8,078,570 11.26
$400,000--$449,999.................................................... 15 6,243,051 8.70
$450,000--$499,999.................................................... 9 4,231,106 5.90
$500,000--$599,999.................................................... 14 7,411,119 10.33
$600,000--$699,999.................................................... 4 2,516,785 3.51
$700,000 or greater................................................... 4 2,921,777 4.07
--- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
AVERAGE: $335,316
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
$200,000--$249,999.................................................... 32 $ 7,742,512 10.79%
$250,000--$299,999.................................................... 85 23,283,416 32.45
$300,000--$349,999.................................................... 29 9,329,274 13.00
$350,000--$399,999.................................................... 27 10,074,844 14.04
$400,000--$449,999.................................................... 11 4,696,037 6.54
$450,000--$499,999.................................................... 9 4,281,426 5.97
$500,000--$599,999.................................................... 14 7,509,777 10.47
$600,000--$699,999.................................................... 5 3,316,310 4.62
$700,000 or greater................................................... 2 1,524,013 2.12
--- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-21
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 5
WEIGHTED AVERAGE: 7.314%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
7.000% or less........................................................ 38 $13,199,928 18.40%
7.001%-7.250%......................................................... 74 25,990,389 36.22
7.251%-7.500%......................................................... 62 20,240,492 28.21
7.501%-7.750%......................................................... 31 9,709,163 13.53
7.751%-8.000%......................................................... 7 1,947,414 2.71
Greater than 8.000%................................................... 2 670,224 0.93
--------- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
WEIGHTED AVERAGE: 77.91%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
50.00% or less........................................................ 7 $ 2,276,372 3.17%
50.01%-55.00%......................................................... 5 2,387,611 3.33
55.01%-60.00%......................................................... 5 1,586,375 2.21
60.01%-65.00%......................................................... 7 2,397,184 3.34
65.01%-70.00%......................................................... 9 3,622,479 5.05
70.01%-75.00%......................................................... 16 6,501,432 9.06
75.01%-80.00%......................................................... 108 35,430,519 49.38
80.01%-85.00%......................................................... 6 2,017,597 2.81
85.01%-90.00%......................................................... 28 8,866,863 12.36
90.01%-95.00%......................................................... 23 6,671,177 9.30
--------- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 5
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Two-Family to Four-Family............................................. 1 $ 493,805 0.69%
Condo................................................................. 6 2,110,422 2.94
Planned Unit Development.............................................. 79 25,759,217 35.90
Single Family......................................................... 128 43,394,164 60.47
--------- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--------- ----------------- ----------
--------- ----------------- ----------
</TABLE>
A-22
<PAGE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOAN PURPOSE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Purchase.............................................................. 212 $71,238,098 99.28%
Rate and Term Refinance............................................... 2 519,511 0.72
--- ----------------- ----------
Total............................................................... 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 5
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Primary Residence..................................................... 214 $71,757,609 100.00%
--- ----------------- ----------
Total............................................................... 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
WEIGHTED AVERAGE: 354 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERMS LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
180 Months............................................................ 7 $ 2,215,726 3.09%
360 Months............................................................ 207 69,541,883 96.91
--- ----------------- ----------
Total............................................................... 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
WEIGHTED AVERAGE: 353 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Up to 180 Months...................................................... 7 $ 2,215,726 3.09%
301-360 Months........................................................ 207 69,541,883 96.91
--- ----------------- ----------
Total............................................................... 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-23
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 5*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
California............................................................ 50 $17,680,561 24.64%
Massachusetts......................................................... 17 5,865,884 8.17
Texas................................................................. 16 5,661,555 7.89
Georgia............................................................... 14 5,189,755 7.23
Illinois.............................................................. 14 4,589,723 6.40
Connecticut........................................................... 12 3,939,624 5.49
New Jersey............................................................ 11 3,611,770 5.03
Washington............................................................ 11 3,518,628 4.90
Oregon................................................................ 8 3,375,046 4.70
Florida............................................................... 11 3,180,803 4.43
Virginia.............................................................. 8 2,536,694 3.54
Pennsylvania.......................................................... 8 2,527,850 3.52
North Carolina........................................................ 5 1,394,446 1.94
Arizona............................................................... 4 1,238,943 1.73
Colorado.............................................................. 3 1,159,707 1.62
Michigan.............................................................. 4 1,077,949 1.50
Maryland.............................................................. 3 839,590 1.17
New York.............................................................. 2 826,922 1.15
Tennessee............................................................. 3 826,265 1.15
Other (no more than 1% in any one of 8 states)........................ 10 2,715,895 3.80
--- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
- ------------------
* No more than 1.39% of the Mortgage Loans in Mortgage Loan Group 5 by Unpaid
Principal Balance will be secured by Mortgaged Properties located in any one
zip code area in California and no more than 1.97% of the Mortgage Loans in
Mortgage Loan Group 5 will be secured by Mortgaged Properties located in any
one zip code area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 5
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
- ---------------------------------------------------------------------- --------- ----------------- ----------
<S> <C> <C> <C>
Full/Alternative Documentation........................................ 214 $71,757,609 100.00%
--- ----------------- ----------
Total............................................................ 214 $71,757,609 100.00%
--- ----------------- ----------
--- ----------------- ----------
</TABLE>
A-24
<PAGE>
ANNEX B
PLANNED BALANCES
The Planned Balance of the Certificates set forth below for each
Distribution Date will be used to determine the allocation of principal and
interest to the Certificates as described in 'Description of the Certificates--
Distributions of Interest and Principal.' The actual Current Principal Amounts
of the Certificates could be substantially higher or lower than the Planned
Balance for any Distribution Date set forth below.
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Initial Balance........................ $ 64,234,000.00 $ 57,398,000.00 $119,518,000.00 $ 13,772,000.00
January 1998........................... 64,234,000.00 57,398,000.00 118,856,933.22 13,772,000.00
February 1998.......................... 64,234,000.00 57,398,000.00 118,070,203.46 13,772,000.00
March 1998............................. 64,234,000.00 57,398,000.00 117,158,071.04 13,772,000.00
April 1998............................. 64,234,000.00 57,398,000.00 116,120,908.66 13,772,000.00
May 1998............................... 64,234,000.00 57,398,000.00 114,959,201.50 13,772,000.00
June 1998.............................. 64,234,000.00 57,398,000.00 113,673,547.24 13,772,000.00
July 1998.............................. 64,234,000.00 57,398,000.00 112,264,655.77 13,772,000.00
August 1998............................ 64,234,000.00 57,398,000.00 110,733,348.88 13,772,000.00
September 1998......................... 64,234,000.00 57,398,000.00 109,080,559.68 13,772,000.00
October 1998........................... 64,234,000.00 57,398,000.00 107,307,331.88 13,772,000.00
November 1998.......................... 64,234,000.00 57,398,000.00 105,414,818.98 13,772,000.00
December 1998.......................... 64,234,000.00 57,398,000.00 103,404,283.11 13,772,000.00
January 1999........................... 64,234,000.00 57,398,000.00 101,277,093.91 13,772,000.00
February 1999.......................... 64,234,000.00 57,398,000.00 99,034,727.10 13,772,000.00
March 1999............................. 64,234,000.00 57,398,000.00 96,678,762.95 13,772,000.00
April 1999............................. 64,234,000.00 57,398,000.00 94,210,884.57 13,772,000.00
May 1999............................... 64,234,000.00 57,398,000.00 91,632,876.01 13,772,000.00
June 1999.............................. 64,234,000.00 57,398,000.00 88,946,620.29 13,772,000.00
July 1999.............................. 64,234,000.00 57,398,000.00 86,154,097.18 13,772,000.00
August 1999............................ 64,234,000.00 57,398,000.00 83,257,380.87 13,772,000.00
September 1999......................... 64,234,000.00 57,398,000.00 80,258,637.50 13,772,000.00
October 1999........................... 64,234,000.00 57,398,000.00 77,160,122.50 13,772,000.00
November 1999.......................... 64,234,000.00 57,398,000.00 73,964,177.88 13,772,000.00
December 1999.......................... 64,234,000.00 57,398,000.00 70,673,229.26 13,772,000.00
January 2000........................... 61,701,420.61 57,398,000.00 69,822,362.28 13,772,000.00
February 2000.......................... 59,079,431.38 57,398,000.00 68,970,991.08 13,772,000.00
March 2000............................. 56,388,508.19 57,398,000.00 68,101,297.64 13,772,000.00
April 2000............................. 53,630,140.54 57,398,000.00 67,214,521.11 13,772,000.00
May 2000............................... 50,889,868.81 57,398,000.00 66,344,331.60 13,772,000.00
June 2000.............................. 48,167,577.26 57,398,000.00 65,490,525.03 13,772,000.00
July 2000.............................. 45,463,150.89 57,398,000.00 64,652,899.53 13,772,000.00
August 2000............................ 42,776,475.47 57,398,000.00 63,831,255.42 13,772,000.00
September 2000......................... 40,107,437.52 57,398,000.00 63,025,395.15 13,772,000.00
October 2000........................... 37,455,924.30 57,398,000.00 62,235,123.31 13,772,000.00
November 2000.......................... 34,821,823.81 57,398,000.00 61,460,246.63 13,772,000.00
December 2000.......................... 32,205,024.78 57,398,000.00 60,700,573.91 13,772,000.00
January 2001........................... 29,605,416.68 57,398,000.00 59,955,916.02 13,772,000.00
February 2001.......................... 27,022,889.70 57,398,000.00 59,226,085.89 13,772,000.00
March 2001............................. 24,457,334.74 57,398,000.00 58,510,898.50 13,772,000.00
April 2001............................. 21,908,643.45 57,398,000.00 57,810,170.79 13,772,000.00
May 2001............................... 19,376,708.15 57,398,000.00 57,123,721.73 13,772,000.00
June 2001.............................. 16,861,421.89 57,398,000.00 56,451,372.24 13,772,000.00
July 2001.............................. 14,362,678.43 57,398,000.00 55,792,945.18 13,772,000.00
August 2001............................ 11,880,372.21 57,398,000.00 55,148,265.36 13,772,000.00
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
September 2001......................... $ 9,414,398.37 $ 57,398,000.00 $ 54,517,159.48 $ 13,772,000.00
October 2001........................... 6,964,652.74 57,398,000.00 53,899,456.15 13,772,000.00
November 2001.......................... 4,531,031.84 57,398,000.00 53,294,985.82 13,772,000.00
December 2001.......................... 2,113,432.87 57,398,000.00 52,703,580.81 13,772,000.00
January 2002........................... 0.00 57,109,753.70 52,125,075.26 13,772,000.00
February 2002.......................... 0.00 54,723,892.87 51,559,305.16 13,772,000.00
March 2002............................. 0.00 52,353,749.60 51,006,108.24 13,772,000.00
April 2002............................. 0.00 49,999,223.75 50,465,324.05 13,772,000.00
May 2002............................... 0.00 47,660,215.87 49,936,793.87 13,772,000.00
June 2002.............................. 0.00 45,336,627.15 49,420,360.73 13,772,000.00
July 2002.............................. 0.00 43,028,359.42 48,915,869.40 13,772,000.00
August 2002............................ 0.00 40,735,315.18 48,423,166.31 13,772,000.00
September 2002......................... 0.00 38,457,397.55 47,942,099.63 13,772,000.00
October 2002........................... 0.00 36,194,510.30 47,472,519.17 13,772,000.00
November 2002.......................... 0.00 33,946,557.84 47,014,276.37 13,772,000.00
December 2002.......................... 0.00 31,713,445.20 46,567,224.36 13,772,000.00
January 2003........................... 0.00 29,732,885.47 46,221,078.86 13,772,000.00
February 2003.......................... 0.00 27,766,599.20 45,885,361.36 13,772,000.00
March 2003............................. 0.00 25,814,494.25 45,559,931.05 13,772,000.00
April 2003............................. 0.00 23,876,479.11 45,244,648.63 13,772,000.00
May 2003............................... 0.00 21,952,462.87 44,939,376.37 13,772,000.00
June 2003.............................. 0.00 20,042,355.24 44,643,978.07 13,772,000.00
July 2003.............................. 0.00 18,146,066.52 44,358,319.05 13,772,000.00
August 2003............................ 0.00 16,263,507.62 44,082,266.11 13,772,000.00
September 2003......................... 0.00 14,394,590.03 43,815,687.56 13,772,000.00
October 2003........................... 0.00 12,539,225.85 43,558,453.15 13,772,000.00
November 2003.......................... 0.00 10,731,344.35 43,276,417.51 13,772,000.00
December 2003.......................... 0.00 8,979,401.61 42,960,910.47 13,772,000.00
January 2004........................... 0.00 7,515,028.33 42,483,616.11 13,772,000.00
February 2004.......................... 0.00 6,099,605.63 41,982,051.37 13,772,000.00
March 2004............................. 0.00 4,731,881.59 41,469,210.63 13,772,000.00
April 2004............................. 0.00 3,410,634.34 40,945,724.39 13,772,000.00
May 2004............................... 0.00 2,134,671.37 40,412,202.98 13,772,000.00
June 2004.............................. 0.00 902,828.87 39,869,237.03 13,772,000.00
July 2004.............................. 0.00 0.00 39,031,369.07 13,772,000.00
August 2004............................ 0.00 0.00 37,324,228.32 13,772,000.00
September 2004......................... 0.00 0.00 35,650,096.70 13,772,000.00
October 2004........................... 0.00 0.00 34,008,435.75 13,772,000.00
November 2004.......................... 0.00 0.00 32,398,715.37 13,772,000.00
December 2004.......................... 0.00 0.00 30,820,413.69 13,772,000.00
January 2005........................... 0.00 0.00 29,559,616.86 13,772,000.00
February 2005.......................... 0.00 0.00 28,324,288.00 13,772,000.00
March 2005............................. 0.00 0.00 27,113,984.27 13,772,000.00
April 2005............................. 0.00 0.00 25,928,270.02 13,772,000.00
May 2005............................... 0.00 0.00 24,766,716.64 13,772,000.00
June 2005.............................. 0.00 0.00 23,628,902.49 13,772,000.00
July 2005.............................. 0.00 0.00 22,514,412.76 13,772,000.00
August 2005............................ 0.00 0.00 21,422,839.38 13,772,000.00
September 2005......................... 0.00 0.00 20,353,780.89 13,772,000.00
October 2005........................... 0.00 0.00 19,306,842.40 13,772,000.00
November 2005.......................... 0.00 0.00 18,281,635.40 13,772,000.00
December 2005.......................... 0.00 0.00 17,277,777.72 13,772,000.00
January 2006........................... 0.00 0.00 16,538,083.41 13,772,000.00
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
February 2006.......................... $ 0.00 $ 0.00 $ 15,813,188.17 $ 13,772,000.00
March 2006............................. 0.00 0.00 15,102,824.70 13,772,000.00
April 2006............................. 0.00 0.00 14,406,730.24 13,772,000.00
May 2006............................... 0.00 0.00 13,724,646.53 13,772,000.00
June 2006.............................. 0.00 0.00 13,056,319.67 13,772,000.00
July 2006.............................. 0.00 0.00 12,401,500.12 13,772,000.00
August 2006............................ 0.00 0.00 11,759,942.56 13,772,000.00
September 2006......................... 0.00 0.00 11,131,405.88 13,772,000.00
October 2006........................... 0.00 0.00 10,515,653.06 13,772,000.00
November 2006.......................... 0.00 0.00 9,912,451.16 13,772,000.00
December 2006.......................... 0.00 0.00 9,321,571.20 13,772,000.00
January 2007........................... 0.00 0.00 8,940,274.02 13,772,000.00
February 2007.......................... 0.00 0.00 8,564,977.98 13,772,000.00
March 2007............................. 0.00 0.00 8,195,590.90 13,772,000.00
April 2007............................. 0.00 0.00 7,832,021.99 13,772,000.00
May 2007............................... 0.00 0.00 7,474,181.84 13,772,000.00
June 2007.............................. 0.00 0.00 7,121,982.40 13,772,000.00
July 2007.............................. 0.00 0.00 6,775,336.94 13,772,000.00
August 2007............................ 0.00 0.00 6,434,160.07 13,772,000.00
September 2007......................... 0.00 0.00 6,098,367.68 13,772,000.00
October 2007........................... 0.00 0.00 5,767,876.93 13,772,000.00
November 2007.......................... 0.00 0.00 5,442,606.26 13,772,000.00
December 2007.......................... 0.00 0.00 5,122,475.32 13,772,000.00
January 2008........................... 0.00 0.00 4,807,405.00 13,772,000.00
February 2008.......................... 0.00 0.00 4,497,317.39 13,772,000.00
March 2008............................. 0.00 0.00 4,192,135.74 13,772,000.00
April 2008............................. 0.00 0.00 3,891,784.50 13,772,000.00
May 2008............................... 0.00 0.00 3,596,189.24 13,772,000.00
June 2008.............................. 0.00 0.00 3,305,276.67 13,772,000.00
July 2008.............................. 0.00 0.00 3,018,974.61 13,772,000.00
August 2008............................ 0.00 0.00 2,737,211.99 13,772,000.00
September 2008......................... 0.00 0.00 2,459,918.80 13,772,000.00
October 2008........................... 0.00 0.00 2,187,026.11 13,772,000.00
November 2008.......................... 0.00 0.00 1,918,466.02 13,772,000.00
December 2008.......................... 0.00 0.00 1,654,171.68 13,772,000.00
January 2009........................... 0.00 0.00 1,394,077.25 13,772,000.00
February 2009.......................... 0.00 0.00 1,138,117.89 13,772,000.00
March 2009............................. 0.00 0.00 886,229.74 13,772,000.00
April 2009............................. 0.00 0.00 638,349.92 13,772,000.00
May 2009............................... 0.00 0.00 394,416.50 13,772,000.00
June 2009.............................. 0.00 0.00 154,368.49 13,772,000.00
July 2009.............................. 0.00 0.00 0.00 13,690,145.84
August 2009............................ 0.00 0.00 0.00 13,457,689.40
September 2009......................... 0.00 0.00 0.00 13,228,940.94
October 2009........................... 0.00 0.00 0.00 13,003,843.09
November 2009.......................... 0.00 0.00 0.00 12,782,339.36
December 2009.......................... 0.00 0.00 0.00 12,564,374.13
January 2010........................... 0.00 0.00 0.00 12,349,892.63
February 2010.......................... 0.00 0.00 0.00 12,138,840.91
March 2010............................. 0.00 0.00 0.00 11,931,165.84
April 2010............................. 0.00 0.00 0.00 11,726,815.12
May 2010............................... 0.00 0.00 0.00 11,525,737.23
June 2010.............................. 0.00 0.00 0.00 11,327,881.43
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
July 2010.............................. $ 0.00 $ 0.00 $ 0.00 $ 11,133,197.77
August 2010............................ 0.00 0.00 0.00 10,941,637.05
September 2010......................... 0.00 0.00 0.00 10,753,150.82
October 2010........................... 0.00 0.00 0.00 10,567,691.38
November 2010.......................... 0.00 0.00 0.00 10,385,211.74
December 2010.......................... 0.00 0.00 0.00 10,205,665.64
January 2011........................... 0.00 0.00 0.00 10,029,007.51
February 2011.......................... 0.00 0.00 0.00 9,855,192.49
March 2011............................. 0.00 0.00 0.00 9,684,176.41
April 2011............................. 0.00 0.00 0.00 9,515,915.75
May 2011............................... 0.00 0.00 0.00 9,350,367.67
June 2011.............................. 0.00 0.00 0.00 9,187,489.99
July 2011.............................. 0.00 0.00 0.00 9,027,241.16
August 2011............................ 0.00 0.00 0.00 8,869,580.27
September 2011......................... 0.00 0.00 0.00 8,714,467.04
October 2011........................... 0.00 0.00 0.00 8,561,861.79
November 2011.......................... 0.00 0.00 0.00 8,411,725.46
December 2011.......................... 0.00 0.00 0.00 8,264,019.58
January 2012........................... 0.00 0.00 0.00 8,118,706.28
February 2012.......................... 0.00 0.00 0.00 7,975,748.25
March 2012............................. 0.00 0.00 0.00 7,835,108.76
April 2012............................. 0.00 0.00 0.00 7,696,751.64
May 2012............................... 0.00 0.00 0.00 7,560,641.28
June 2012.............................. 0.00 0.00 0.00 7,426,742.60
July 2012.............................. 0.00 0.00 0.00 7,295,021.07
August 2012............................ 0.00 0.00 0.00 7,165,442.68
September 2012......................... 0.00 0.00 0.00 7,037,973.95
October 2012........................... 0.00 0.00 0.00 6,912,581.90
November 2012.......................... 0.00 0.00 0.00 6,789,234.06
December 2012.......................... 0.00 0.00 0.00 6,667,898.45
January 2013........................... 0.00 0.00 0.00 6,548,543.60
February 2013.......................... 0.00 0.00 0.00 6,431,138.51
March 2013............................. 0.00 0.00 0.00 6,315,652.64
April 2013............................. 0.00 0.00 0.00 6,202,055.94
May 2013............................... 0.00 0.00 0.00 6,090,318.81
June 2013.............................. 0.00 0.00 0.00 5,980,412.11
July 2013.............................. 0.00 0.00 0.00 5,872,307.14
August 2013............................ 0.00 0.00 0.00 5,765,975.64
September 2013......................... 0.00 0.00 0.00 5,661,389.79
October 2013........................... 0.00 0.00 0.00 5,558,522.19
November 2013.......................... 0.00 0.00 0.00 5,457,345.86
December 2013.......................... 0.00 0.00 0.00 5,357,834.24
January 2014........................... 0.00 0.00 0.00 5,259,961.17
February 2014.......................... 0.00 0.00 0.00 5,163,700.90
March 2014............................. 0.00 0.00 0.00 5,069,028.07
April 2014............................. 0.00 0.00 0.00 4,975,917.71
May 2014............................... 0.00 0.00 0.00 4,884,345.23
June 2014.............................. 0.00 0.00 0.00 4,794,286.42
July 2014.............................. 0.00 0.00 0.00 4,705,717.45
August 2014............................ 0.00 0.00 0.00 4,618,614.85
September 2014......................... 0.00 0.00 0.00 4,532,955.50
October 2014........................... 0.00 0.00 0.00 4,448,716.65
November 2014.......................... 0.00 0.00 0.00 4,365,875.90
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 2014.......................... $ 0.00 $ 0.00 $ 0.00 $ 4,284,411.18
January 2015........................... 0.00 0.00 0.00 4,204,300.78
February 2015.......................... 0.00 0.00 0.00 4,125,523.30
March 2015............................. 0.00 0.00 0.00 4,048,057.69
April 2015............................. 0.00 0.00 0.00 3,971,883.22
May 2015............................... 0.00 0.00 0.00 3,896,979.47
June 2015.............................. 0.00 0.00 0.00 3,823,326.35
July 2015.............................. 0.00 0.00 0.00 3,750,904.06
August 2015............................ 0.00 0.00 0.00 3,679,693.11
September 2015......................... 0.00 0.00 0.00 3,609,674.33
October 2015........................... 0.00 0.00 0.00 3,540,828.82
November 2015.......................... 0.00 0.00 0.00 3,473,137.98
December 2015.......................... 0.00 0.00 0.00 3,406,583.50
January 2016........................... 0.00 0.00 0.00 3,341,147.35
February 2016.......................... 0.00 0.00 0.00 3,276,811.78
March 2016............................. 0.00 0.00 0.00 3,213,559.31
April 2016............................. 0.00 0.00 0.00 3,151,372.74
May 2016............................... 0.00 0.00 0.00 3,090,235.13
June 2016.............................. 0.00 0.00 0.00 3,030,129.78
July 2016.............................. 0.00 0.00 0.00 2,971,040.29
August 2016............................ 0.00 0.00 0.00 2,912,950.48
September 2016......................... 0.00 0.00 0.00 2,855,844.43
October 2016........................... 0.00 0.00 0.00 2,799,706.47
November 2016.......................... 0.00 0.00 0.00 2,744,521.17
December 2016.......................... 0.00 0.00 0.00 2,690,273.34
January 2017........................... 0.00 0.00 0.00 2,636,948.01
February 2017.......................... 0.00 0.00 0.00 2,584,530.47
March 2017............................. 0.00 0.00 0.00 2,533,006.21
April 2017............................. 0.00 0.00 0.00 2,482,360.96
May 2017............................... 0.00 0.00 0.00 2,432,580.67
June 2017.............................. 0.00 0.00 0.00 2,383,651.50
July 2017.............................. 0.00 0.00 0.00 2,335,559.84
August 2017............................ 0.00 0.00 0.00 2,288,292.27
September 2017......................... 0.00 0.00 0.00 2,241,835.60
October 2017........................... 0.00 0.00 0.00 2,196,176.82
November 2017.......................... 0.00 0.00 0.00 2,151,303.14
December 2017.......................... 0.00 0.00 0.00 2,107,201.96
January 2018........................... 0.00 0.00 0.00 2,063,860.88
February 2018.......................... 0.00 0.00 0.00 2,021,267.69
March 2018............................. 0.00 0.00 0.00 1,979,410.37
April 2018............................. 0.00 0.00 0.00 1,938,277.09
May 2018............................... 0.00 0.00 0.00 1,897,856.19
June 2018.............................. 0.00 0.00 0.00 1,858,136.22
July 2018.............................. 0.00 0.00 0.00 1,819,105.88
August 2018............................ 0.00 0.00 0.00 1,780,754.06
September 2018......................... 0.00 0.00 0.00 1,743,069.81
October 2018........................... 0.00 0.00 0.00 1,706,042.36
November 2018.......................... 0.00 0.00 0.00 1,669,661.11
December 2018.......................... 0.00 0.00 0.00 1,633,915.62
January 2019........................... 0.00 0.00 0.00 1,598,795.62
February 2019.......................... 0.00 0.00 0.00 1,564,290.98
March 2019............................. 0.00 0.00 0.00 1,530,391.76
April 2019............................. 0.00 0.00 0.00 1,497,088.14
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
May 2019............................... $ 0.00 $ 0.00 $ 0.00 $ 1,464,370.48
June 2019.............................. 0.00 0.00 0.00 1,432,229.27
July 2019.............................. 0.00 0.00 0.00 1,400,655.16
August 2019............................ 0.00 0.00 0.00 1,369,638.95
September 2019......................... 0.00 0.00 0.00 1,339,171.57
October 2019........................... 0.00 0.00 0.00 1,309,244.11
November 2019.......................... 0.00 0.00 0.00 1,279,847.78
December 2019.......................... 0.00 0.00 0.00 1,250,973.94
January 2020........................... 0.00 0.00 0.00 1,222,614.08
February 2020.......................... 0.00 0.00 0.00 1,194,759.82
March 2020............................. 0.00 0.00 0.00 1,167,402.92
April 2020............................. 0.00 0.00 0.00 1,140,535.26
May 2020............................... 0.00 0.00 0.00 1,114,148.85
June 2020.............................. 0.00 0.00 0.00 1,088,235.83
July 2020.............................. 0.00 0.00 0.00 1,062,788.45
August 2020............................ 0.00 0.00 0.00 1,037,799.10
September 2020......................... 0.00 0.00 0.00 1,013,260.28
October 2020........................... 0.00 0.00 0.00 989,164.60
November 2020.......................... 0.00 0.00 0.00 965,504.80
December 2020.......................... 0.00 0.00 0.00 942,273.72
January 2021........................... 0.00 0.00 0.00 919,464.32
February 2021.......................... 0.00 0.00 0.00 897,069.68
March 2021............................. 0.00 0.00 0.00 875,082.96
April 2021............................. 0.00 0.00 0.00 853,497.46
May 2021............................... 0.00 0.00 0.00 832,306.57
June 2021.............................. 0.00 0.00 0.00 811,503.78
July 2021.............................. 0.00 0.00 0.00 791,082.69
August 2021............................ 0.00 0.00 0.00 771,037.00
September 2021......................... 0.00 0.00 0.00 751,360.50
October 2021........................... 0.00 0.00 0.00 732,047.09
November 2021.......................... 0.00 0.00 0.00 713,090.76
December 2021.......................... 0.00 0.00 0.00 694,485.60
January 2022........................... 0.00 0.00 0.00 676,225.79
February 2022.......................... 0.00 0.00 0.00 658,305.59
March 2022............................. 0.00 0.00 0.00 640,719.37
April 2022............................. 0.00 0.00 0.00 623,461.58
May 2022............................... 0.00 0.00 0.00 606,526.75
June 2022.............................. 0.00 0.00 0.00 589,909.52
July 2022.............................. 0.00 0.00 0.00 573,604.58
August 2022............................ 0.00 0.00 0.00 557,606.74
September 2022......................... 0.00 0.00 0.00 541,910.86
October 2022........................... 0.00 0.00 0.00 526,511.91
November 2022.......................... 0.00 0.00 0.00 511,404.91
December 2022.......................... 0.00 0.00 0.00 496,584.99
January 2023........................... 0.00 0.00 0.00 482,047.33
February 2023.......................... 0.00 0.00 0.00 467,787.21
March 2023............................. 0.00 0.00 0.00 453,799.96
April 2023............................. 0.00 0.00 0.00 440,081.01
May 2023............................... 0.00 0.00 0.00 426,625.84
June 2023.............................. 0.00 0.00 0.00 413,430.01
July 2023.............................. 0.00 0.00 0.00 400,489.16
August 2023............................ 0.00 0.00 0.00 387,798.99
September 2023......................... 0.00 0.00 0.00 375,355.27
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
CLASS 1-A-1 CLASS 1-A-2 CLASS 1-A-3 CLASS 1-A-4
DISTRIBUTION DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
October 2023........................... $ 0.00 $ 0.00 $ 0.00 $ 363,153.83
November 2023.......................... 0.00 0.00 0.00 351,190.58
December 2023.......................... 0.00 0.00 0.00 339,461.48
January 2024........................... 0.00 0.00 0.00 327,962.57
February 2024.......................... 0.00 0.00 0.00 316,689.94
March 2024............................. 0.00 0.00 0.00 305,639.75
April 2024............................. 0.00 0.00 0.00 294,808.23
May 2024............................... 0.00 0.00 0.00 284,191.65
June 2024.............................. 0.00 0.00 0.00 273,786.35
July 2024.............................. 0.00 0.00 0.00 263,588.73
August 2024............................ 0.00 0.00 0.00 253,595.24
September 2024......................... 0.00 0.00 0.00 243,802.39
October 2024........................... 0.00 0.00 0.00 234,206.76
November 2024.......................... 0.00 0.00 0.00 224,804.96
December 2024.......................... 0.00 0.00 0.00 215,593.67
January 2025........................... 0.00 0.00 0.00 206,569.63
February 2025.......................... 0.00 0.00 0.00 197,729.61
March 2025............................. 0.00 0.00 0.00 189,070.45
April 2025............................. 0.00 0.00 0.00 180,589.03
May 2025............................... 0.00 0.00 0.00 172,282.29
June 2025.............................. 0.00 0.00 0.00 164,147.21
July 2025.............................. 0.00 0.00 0.00 156,180.82
August 2025............................ 0.00 0.00 0.00 148,380.21
September 2025......................... 0.00 0.00 0.00 140,742.50
October 2025........................... 0.00 0.00 0.00 133,264.86
November 2025.......................... 0.00 0.00 0.00 125,944.52
December 2025.......................... 0.00 0.00 0.00 118,778.74
January 2026........................... 0.00 0.00 0.00 111,764.82
February 2026.......................... 0.00 0.00 0.00 104,900.12
March 2026............................. 0.00 0.00 0.00 98,182.03
April 2026............................. 0.00 0.00 0.00 91,607.99
May 2026............................... 0.00 0.00 0.00 85,175.47
June 2026.............................. 0.00 0.00 0.00 78,882.00
July 2026.............................. 0.00 0.00 0.00 72,725.13
August 2026............................ 0.00 0.00 0.00 66,702.46
September 2026......................... 0.00 0.00 0.00 60,811.63
October 2026........................... 0.00 0.00 0.00 55,050.31
November 2026.......................... 0.00 0.00 0.00 49,416.22
December 2026.......................... 0.00 0.00 0.00 43,907.11
January 2027........................... 0.00 0.00 0.00 38,520.76
February 2027.......................... 0.00 0.00 0.00 33,255.00
March 2027............................. 0.00 0.00 0.00 28,107.69
April 2027............................. 0.00 0.00 0.00 23,076.71
May 2027............................... 0.00 0.00 0.00 18,160.00
June 2027.............................. 0.00 0.00 0.00 13,355.52
July 2027.............................. 0.00 0.00 0.00 8,661.26
August 2027............................ 0.00 0.00 0.00 4,075.25
September 2027......................... 0.00 0.00 0.00 0.00
</TABLE>
B-7
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
BEAR STEARNS MORTGAGE SECURITIES INC.
SELLER
This Prospectus relates to Mortgage Pass-Through Certificates (the
'Certificates'), which may be sold from time to time in one or more Series on
terms determined at the time of sale and described in the related Prospectus
Supplement. The Certificates of a Series will evidence beneficial ownership of
one or more trust funds (each a 'Trust Fund'). As specified in the related
Prospectus Supplement, a Trust Fund for a Series of Certificates will include
certain mortgage-related assets (the 'Mortgage Assets') consisting of (i) first
lien mortgage loans or participations therein secured by one- to four-family
residential properties ('Single Family Loans'), (ii) first lien 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 ('FNMA'), the Federal Home Loan Mortgage Corporation
('FHLMC') 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
Certificates will evidence the entire beneficial ownership interest in a Trust
Fund which 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. A Trust Fund also may include
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.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates 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 Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more senior classes that receive certain
preferential treatment with respect to one or more other classes of Certificates
of such Series. One or more classes of Certificates of a Series may be entitled
to receive distributions of principal, interest or any combination thereof prior
to one or more other classes of Certificates 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 Certificates, in each case as
specified in the related Prospectus Supplement.
Distributions to holders of Certificates ('Certificateholders') 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
Certificates of a Series will be made only from the assets of the related Trust
Fund.
The Certificates 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 or by any other person. Unless otherwise
specified in the related Prospectus Supplement, the only obligations of the
Seller with respect to a Series of Certificates will be to obtain certain
representations and warranties from the Lenders or other third parties and to
assign to the trustee (the 'Trustee') for the related Series of Certificates the
Seller's rights with respect to such representations and warranties. 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 Certificates 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.
The yield on each class of Certificates of a Series will be affected by the
rate of payment of principal (including prepayments) on 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. A Trust Fund may be subject to
early termination under the circumstances described herein and in the related
Prospectus Supplement.
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') for federal income tax purposes. See
'Certain Federal Income Tax Consequences.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prior to issuance there will have been no market for the Certificates of any
Series and there can be no assurance that a secondary market for any
Certificates will develop. This Prospectus may not be used to consummate sales
of a Series of Certificates unless accompanied by a Prospectus Supplement.
Offers of the Certificates 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. All
Certificates will be distributed by, or sold by underwriters managed by:
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS IS JUNE 24, 1997.
<PAGE>
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 Certificates of each Series to be
offered hereunder will, among other things, set forth with respect to such
Certificates, as appropriate: (i) a description of the class or classes of
Certificates; (ii) the rate of interest (the 'Pass-Through Rate') or method of
determining the amount of interest, if any, to be passed through 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 payments 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
Certificates; (vi) information as to the nature and extent of subordination with
respect to any class of Certificates 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 Certificates; (x) whether one or
more REMIC elections will be made and designation of the regular interests and
residual interests; (xi) information as to the Trustee; and (xii) information as
to the 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 Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates 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: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street--Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center--13th Floor, New York, New York 10048.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor 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 Certificates subsequent to the date of this Prospectus and the related
Prospectus Supplement and prior to the termination of the offering of such
series of Certificates shall be deemed to be incorporated by reference in this
Prospectus as supplemented by the related Prospectus Supplement. If so specified
in any such documents, such document shall also be deemed to be incorporated by
reference in the Registration Statement of which this Prospectus forms a part.
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Any statement contained herein or in a Prospectus Supplement for a series
of Certificates or in a document incorporated or deemed to be incorporated by
reference herein or therein shall be deemed to be modified or superseded for
purposes of this Prospectus and such Prospectus Supplement 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 Depositor 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 CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust Fund will be
provided to the Certificateholders. See 'Description of the
Certificates--Reports to Certificateholders.'
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement which will be prepared in connection with each Series of
Certificates.
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Title of Securities....................... Mortgage Pass-Through Certificates (Issuable 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.'
Trustee................................... The Trustee for each Series of Certificates will be specified 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 Pooling and Servicing Agreement--Certain Matters Regarding the
Master Servicer and the Seller.'
Trust Fund Assets......................... A Trust Fund for a Series of Certificates 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, in each case as specified in the related Prospectus
Supplement.
A. Single Family, Cooperative and
Multi-family Loans................... Unless otherwise specified in the related Prospectus Supplement,
Single Family Loans will be secured by first mortgage liens on one-to
four-family residential properties. Unless otherwise specified in the
related Prospectus Supplement, Cooperative Loans 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. Unless otherwise
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.
Multifamily Loans will be secured by first 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. Unless otherwise 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.
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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
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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 or the District of Columbia. Unless otherwise
specified in the related Prospectus Supplement, all of the Mortgage
Loans 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. Unless otherwise specified in the related
Prospectus Supplement, each Contract will be fully amortizing and
will bear interest at a fixed accrual percentage rate ('APR'). Unless
otherwise specified in the related Prospectus Supplement, 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.
C. Agency Securities................... The Agency Securities will consist of (i) fully modified pass-through
mortgage-backed certificates guaranteed as to timely payment of
principal and interest by the Government National Mortgage
Association ('GNMA Certificates'), (ii) Guaranteed Mortgage
Pass-Through Certificates issued and guaranteed as to timely payment
of principal and interest by the Federal National Mortgage
Association ('FNMA Certificates'), (iii) Mortgage Participation
Certificates issued and guaranteed as to timely payment of interest
and, unless otherwise specified in the related Prospectus Supplement,
ultimate payment of principal by the Federal Home Loan Mortgage
Corporation ('FHLMC Certificates'), (iv) stripped mortgage-backed
securities representing an undivided interest in all or a part of
either the principal distributions (but not the interest
distributions) or the interest distributions (but not the principal
distributions) or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain
GNMA, FNMA, FHLMC or other government agency or government-sponsored
agency Certificates and, unless otherwise specified in the Prospectus
Supplement, guaranteed to the same extent as the underlying
securities, (v) another type of guaranteed pass-through certificate
issued or guaranteed by GNMA, FNMA, FHLMC or another government
agency or government-sponsored agency and described in the related
Prospectus Supplement, or (vi) a combination of such Agency
Securities. All GNMA Certificates will be backed by the full faith
and credit of the United States. No FNMA or FHLMC Certificates will
be backed, directly or indirectly, by the full faith and credit of
the United States. The Agency Securities may consist
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of pass-through securities issued under the GNMA I Program, the GNMA
II Program, FHLMC's Cash or Guarantor Program or another program
specified in the Prospectus Supplement. The payment characteristics
of the Mortgage Loans underlying the Agency Securities will be
described in the related Prospectus Supplement.
D. Private Mortgage-Backed
Securities.......................... Private Mortgage-Backed Securities may include (i) mortgage
participations or pass-through certificates representing beneficial
interests in certain Mortgage Loans or (ii) Collateralized Mortgage
Obligations ('CMOs') secured by such Mortgage Loans. 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.' Unless otherwise specified in the Prospectus Supplement
relating to a Series of Certificates, payments on the Private
Mortgage-Backed Securities will be distributed directly to the
Trustee as registered owner of such Private Mortgage-Backed
Securities. See 'The Trust Fund--Private Mortgage-Backed Securities.'
The related Prospectus Supplement for a Series will specify (i) the
aggregate approximate principal amount 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, and (D)
the minimum and maximum stated maturities of the Mortgage Loans at
origination; (iii) the maximum original term-to-stated maturity of
the Private Mortgage-Backed Securities; (iv) the weighted average
term-to-stated maturity of the Private Mortgage-Backed Securities;
(v) the pass-through or certificate rate or ranges thereof for the
Private Mortgage-Backed Securities; (vi) the weighted average
pass-through or certificate rate of the Private Mortgage-Backed
Securities; (vii) the issuer of the Private Mortgage-Backed
Securities (the 'PMBS Issuer'), the servicer of the Private
Mortgage-Backed Securities (the 'PMBS Servicer') and the trustee of
the Private Mortgage-Backed Securities (the 'PMBS Trustee'); (viii)
certain characteristics of credit support, if any, such as reserve
funds, insurance policies, letters of credit, financial guaranty
insurance policies or third party guarantees, relating to the
Mortgage Loans underlying the Private Mortgage-
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Backed Securities, or to such Private Mortgage-Backed Securities
themselves; (ix) the terms on which underlying Mortgage Loans for
such Private Mortgage-Backed Securities may, or are required to, be
repurchased prior to stated maturity; and (x) the terms on which
substitute Mortgage Loans may be delivered to replace those initially
deposited with the PMBS Trustee. See 'The Trust Fund.'
E. 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 Certificates of such
Series (such amount, the 'Pre-Funded Amount') will be deposited in
the Pre-Funding Account and may be used to purchase additional
Primary Assets during the period of time, not to exceed six months,
specified in the related Prospectus Supplement (the 'Pre-Funding
Period'). The Primary 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 Certificates of the applicable Series. The
amount initially deposited in a pre-funding account for a Series of
Certificates will not exceed fifty percent of the aggregate principal
amount of such Series of Certificates.
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 Certificates 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 Certificates
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 Primary 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 Certificates........... Each Certificate will represent a beneficial ownership interest in a
Trust Fund created by the Seller pursuant to a Pooling and Servicing
Agreement (each, an 'Agreement') among the Seller, the Master
Servicer(s) and the Trustee for the related Series. The Certificates
of any Series may be issued in one or more classes as specified in
the related Prospectus Supplement. A Series of Certificates may
include one or more classes of senior Certificates (collectively, the
'Senior Certificates') which receive certain preferential treatment
specified in the related Prospectus Supplement with respect to one or
more classes of subordinate Certificates (collectively, the
'Subordinated Certificates'). Certain Series or classes of
Certificates may be covered by insurance policies, cash accounts,
letters of credit,
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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 Certificates of each Series (i) may be
entitled to receive distributions allocable only to principal, only
to interest or to any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of principal throughout the
lives of the Certificates or during specified periods; (iii) may be
subordinated in the right to receive distributions of scheduled
payments of principal, prepayments of principal, interest or any
combination thereof to one or more other classes of Certificates of
such Series throughout the lives of the Certificates or during
specified periods 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
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 Certificates entitled to distributions
allocable to interest, may be entitled to receive interest at a fixed
rate or a rate that is subject to change from time to time; and (vii)
as to Certificates entitled to distributions allocable to interest,
may be entitled to distributions allocable to interest only after the
occurrence of events specified in the Prospectus Supplement and may
accrue interest until such events occur, in each case as specified in
the Prospectus Supplement. The timing and amounts of such
distributions may vary among classes, over time, or otherwise as
specified in the related Prospectus Supplement.
Distributions on the Certificates......... Distributions on the Certificates entitled thereto will be made
monthly, quarterly, semi-annually or at such other intervals and on
such other Distribution Dates specified in the 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
Certificates as specified in the related Prospectus Supplement. The
amount allocable to payments of principal and interest on any
Distribution Date will be determined as specified in the Prospectus
Supplement. Unless otherwise specified in the Prospectus Supplement,
all distributions will be made pro rata to Certificateholders of the
class entitled thereto, and the aggregate original principal balance
of the Certificates will equal the aggregate distributions allocable
to principal that such Certificates will be entitled to receive. If
specified in the Prospectus Supplement, the Certificates will have an
aggregate original principal balance equal to the aggregate unpaid
principal balance of the Mortgage Assets as of a date specified in
the related Prospectus Supplement related to the creation of the
Trust Fund (the 'Cut-off Date') and will bear interest in the
aggregate at a 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 Prospectus Supplement. If
specified in the Prospectus Supplement, the aggregate original
principal balance of the Certificates and interest rates on the
classes of Certificates will be determined based on the cash flow on
the
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Mortgage Assets. The Pass-Through Rate at which interest will be
passed through to holders of Certificates 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
Prospectus Supplement. Any such rate may be calculated on a loan-
by-loan, weighted average or other basis, in each case as described
in the Prospectus Supplement.
Credit Enhancement........................ The assets in a Trust Fund or the Certificates 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 Certificates 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 Certificates 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
Certificates of the full amount of payments which such holders would
be entitled to receive if there had been no losses or delinquencies.
The protection afforded to the holders of Senior Certificates 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
Certificates, 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 Certificate Account and, to the extent described
in the related Prospectus Supplement, by the right of such holders to
receive future distributions on the assets in the related Trust Fund
that would otherwise have been payable to the Subordinated
Certificateholders; (ii) reducing the ownership interest of the
related subordinated Certificates; (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 Certificates of a Series by means of the subordination feature
also may be accomplished by allocating certain types of losses or
delinquencies to the Subordinated Certificates to the extent
described in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the same class
of Certificates may be Senior Certificates with respect to certain
types of payments or certain types of losses or delinquencies and
Subordinated Certificates with respect to other types of 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 Prospectus Supplement, a reserve fund may be
established and maintained by the deposit therein of distributions
allocable to the holders of Subordinated Certificates until a
specified level is reached. The related Prospectus Supplement will
set forth
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information concerning the amount of subordination of a class or
classes of Subordinated Certificates in a Series, the circumstances
in which such subordination will be applicable, the manner, if any,
in which the amount of subordination will decrease over time, the
manner of funding the related reserve fund, if any, and the
conditions under which amounts in any such reserve fund will be used
to make distributions to holders of Senior Certificates or released
from the related Trust Fund.
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 Certificates 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').
Unless otherwise specified in the related Prospectus Supplement, each
Special Hazard Insurance Policy 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.
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G. Other Arrangements................... Other arrangements as described in the related Prospectus Supplement
including, but not limited to, one or more 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 Certificates (the 'Rating
Agency').
H. Cross Support........................ If specified in the Prospectus Supplement, the beneficial ownership
of separate groups of assets or separate Trust Funds may be evidenced
by separate classes of the related Series of Certificates. In such
case, credit support may be provided by a cross-support feature which
requires that distributions be made with respect to certain
Certificates evidencing beneficial ownership of one or more asset
groups or Trust Funds prior to distributions to other Certificates
evidencing a beneficial ownership interest in other asset groups or
Trust Funds. If specified in the Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply
concurrently to two or more separate Trust Funds, without priority
among such Trust Funds, until the credit support is exhausted. If
applicable, the 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.................................. Unless otherwise specified in the related Prospectus Supplement, 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') 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 Certificates
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
Certificates--Advances.' Advances will be reimbursable to the extent
described herein and in the related Prospectus Supplement.
Optional Termination...................... The Master Servicer, the holders of the residual interests in a
REMIC, or any other entity specified in the related Prospectus
Supplement may have the option to effect early retirement of a Series
of Certificates 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 Pooling and Servicing
Agreement--Termination; Optional Termination.'
Legal Investment.......................... Unless otherwise specified in the related Prospectus Supplement, each
class of Certificates offered hereby and by the related Prospectus
Supplement will constitute 'mortgage-related
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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
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.
Certain Federal Income Tax Consequences... The federal income tax consequences of the purchase, ownership and
disposition of the Certificates of each series will depend on whether
an election is made to treat the corresponding Trust Fund (or certain
assets of the Trust Fund) as a REMIC under the Internal Revenue Code
of 1986, as amended (the 'Code').
REMIC. If an election is to be made to treat the Trust Fund for a
series of Certificates as a REMIC for federal income tax purposes,
the related Prospectus Supplement will specify which class or classes
thereof will be designated as regular interests in the REMIC ('REMIC
Regular Certificates') and which class of Certificates will be
designated as the residual interest in the REMIC ('REMIC Residual
Certificates').
For federal income tax purposes, REMIC Regular Certificates generally
will be treated as debt obligations of the Trust Fund with payment
terms equivalent to the terms of such Certificates. Holders of REMIC
Regular Certificates will be required to report income with respect
to such Certificates under an accrual method, regardless of their
normal tax accounting method. Original issue discount, if any, on
REMIC Regular Certificates will be includible in the income of the
Holders thereof as it accrues, in advance of receipt of the cash
attributable thereto, which rate of accrual will be determined based
on a reasonable assumed prepayment rate. The REMIC Residual
Certificates generally will not be treated as evidences of
indebtedness for federal income tax purposes, but instead, as
representing rights to the taxable income or net loss of the REMIC.
Each holder of a REMIC Residual Certificate will be required to take
into account separately its pro rata portion of the REMIC's taxable
income or loss. Certain income of a REMIC (referred to as 'excess
inclusions') generally may not be offset by such a holder's net
operating loss carryovers or other deductions, and in the case of a
tax-exempt holder of a REMIC Residual Certificate will be treated as
'unrelated business taxable income'. In certain situations,
particularly in the early years of a REMIC, holders of a REMIC
Residual Certificate may have taxable income, and possibly tax
liabilities with respect to such income, in excess of cash
distributed to them. 'DISQUALIFIED ORGANIZATIONS,' AS DEFINED IN
'CERTAIN FEDERAL INCOME TAX CONSEQUENCES--REMIC RESIDUAL
</TABLE>
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<TABLE>
<S> <C>
CERTIFICATES--TAX ON DISPOSITION OF REMIC RESIDUAL CERTIFICATES;
RESTRICTION ON TRANSFER; HOLDING BY PASS-THROUGH ENTITIES,' ARE
PROHIBITED FROM ACQUIRING OR HOLDING ANY BENEFICIAL INTEREST IN THE
REMIC RESIDUAL CERTIFICATES. In certain cases, a transfer of a REMIC
Residual Certificate will not be effective for Federal income tax
purposes. See 'Certain Federal Income Tax Consequences-Transfers of
REMIC Residual Certificates' and '-Foreign Investors' herein.
Grantor Trust. If no election is to be made to treat the Trust Fund
for a series of Certificates ('Non-REMIC Certificates') as a REMIC,
the Trust Fund will be classified as a grantor trust for federal
income tax purposes and not as an association taxable as a
corporation. Holders of Non-REMIC Certificates will be treated for
such purposes, subject to the possible application of the stripped
bond rules, as owners of undivided interests in the related Mortgage
Loans 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 Mortgage Loan and will be
entitled, subject to certain limitations, to deduct their pro rata
share of expenses of the Trust Fund.
Investors are advised to consult their tax advisors and to review
'Certain Federal Income Tax Consequences' herein and, if applicable,
in the related Prospectus Supplement.
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'), or Section 4975 of the Code should
carefully review with its legal advisors whether the purchase,
holding or disposition of Certificates 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.'
</TABLE>
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THE TRUST FUND
A Trust Fund for a Series of Certificates 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, in each case as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and 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 Certificates will evidence the entire beneficial
ownership interest in a Trust Fund which will contain a beneficial ownership
interest in another Trust Fund which will contain the Mortgage Assets. Unless
otherwise specified in the related Prospectus Supplement, the Mortgage Assets of
any Trust Fund will consist of Mortgage Loans, Agency Securities or Private
Mortgage-Backed Securities but not a combination thereof.
The Mortgage Assets will be acquired by the Seller, either directly or
through affiliates, from the 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 'Mortgage Loan
Program-- Underwriting Standards.'
The following is a brief description of the Mortgage Assets expected to be
included in the Trust Funds. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Certificates initially is
offered, more general information of the nature described below will be provided
in the Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Certificates (the 'Detailed Description'). A copy of
the Agreement with respect to each Series of Certificates will be attached to
the Form 8-K and will be available for inspection at the corporate trust office
of the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
THE MORTGAGE LOANS--GENERAL
The real property and Manufactured Homes, as the case may be, which secure
repayment of the Mortgage Loans (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 Prospectus Supplement and described below. Mortgage Loans with
certain Loan-to-Value Ratios (as defined herein) and/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 applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans in a Mortgage Pool will provide for payments to be made monthly
or bi-weekly. Unless otherwise specified in the related Prospectus Supplement,
all of the monthly-pay Mortgage Loans in a Mortgage Pool will have payments due
on the first day of each month. The payment terms of the Mortgage Loans to be
included in a Trust Fund will be
- ------------------
* Whenever the terms 'Mortgage Pool' and 'Certificates' are used in this
Prospectus, such terms will be deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single Trust Fund
consisting primarily of the Mortgage Loans in such Mortgage Pool. Similarly,
the term 'Pass-Through Rate' will refer to the Pass- Through Rate borne by the
Certificates of one specific Series and the term 'Trust Fund' will refer to
one specific Trust Fund.
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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 (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
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Loans is not known to the Seller at the time the related Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement and specific information will be set
forth in the Detailed Description.
The '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.
Unless otherwise specified in the related Prospectus Supplement, 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'), 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. Unless otherwise
specified in the related Prospectus Supplement, in the case of Refinance Loans,
the Collateral Value of the related Mortgaged Property is the appraised value
thereof determined in an appraisal obtained at the time of refinancing. Unless
otherwise specified in the related Prospectus Supplement, for purposes of
calculating the Loan-to-Value Ratio of a Contract relating to a new Manufactured
Home, the Collateral Value 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. Unless otherwise
specified in the related Prospectus Supplement, the Collateral Value of a used
Manufactured Home 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 Certificates 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 Certificates of the related Series. One or more
Master Servicers named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through Sub-Servicers, pursuant to the
Agreement and will receive a fee for such services. See 'Mortgage Loan Program'
and 'The Pooling and Servicing Agreement.' 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 related Agreement as if
the Master Servicer alone were servicing such Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Seller with respect to a Series of Certificates will be to
obtain certain representations and warranties from the Lenders or other third
parties and to assign to the Trustee for such Series of Certificates the
Seller's rights with respect to such representations and warranties. See 'The
Pooling and Servicing Agreement--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 'Mortgage
Loan Program--Representations by Lenders; Repurchases' and 'The Pooling and
Servicing Agreement--Sub-
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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 Certificates--Advances.' The obligations of a Master Servicer to make
advances may be subject to limitations, to the extent provided herein and in the
related Prospectus Supplement.
SINGLE FAMILY AND COOPERATIVE LOANS
Unless otherwise specified in the Prospectus Supplement, Single Family
Loans will consist of mortgage loans, deeds of trust or participation or other
beneficial interests therein, secured by first liens on one- to four-family
residential properties. If so specified, the Single Family Loans 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. Unless
otherwise specified, the Cooperative Loans 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. Unless otherwise 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.
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 will exceed the scheduled maturity of the Mortgage Loan by at
least five years, unless otherwise specified in the related Prospectus
Supplement. 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 first 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. Unless otherwise specified in the related
Prospectus Supplement, Multifamily Loans will all 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.
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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. Unless otherwise specified in the related Prospectus Supplement,
each Contract will be fully amortizing and will bear interest at its APR. Unless
otherwise specified in the related Prospectus Supplement, 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 40 years.
Unless otherwise specified in the related Prospectus Supplement, the
'Manufactured Homes' securing the Contracts will consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
'manufactured home' as 'a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter.'
The related Prospectus Supplement will specify for the Contracts contained
in the related Trust 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 FNMA 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
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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
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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 Prospectus Supplement, GNMA Certificates may be backed by
multifamily mortgage loans having the characteristics specified in such
Prospectus Supplement.
The GNMA 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.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act (the 'Charter Act'). FNMA was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage Pass-Through
Certificates representing fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA 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 FNMA 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 FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA 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 FNMA'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 FNMA 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 FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. If specified
in the Prospectus Supplement, FNMA Certificates may be backed by adjustable rate
mortgages.
FNMA guarantees to each registered holder of a FNMA 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 FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guarantees are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's operations or to assist
FNMA in any other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
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FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA 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 FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.
The FNMA 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.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly held United
States government-sponsored enterprise created pursuant to the Federal Home Loan
Mortgage Corporation Act, Title III of the Emergency Home Finance Act of 1970,
as amended (the 'FHLMC Act'). The common stock of FHLMC is owned by the Federal
Home Loan Banks. FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of urgently needed
housing. It seeks to provide an enhanced degree of liquidity for residential
mortgage investments primarily by assisting in the development of secondary
markets for conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien conventional mortgage loans or
participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of mortgage securities,
primarily FHLMC Certificates. FHLMC is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of such quality, type and class
as to meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a 'FHLMC Certificate group'). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Unless otherwise described in the Prospectus Supplement, Mortgage loans
underlying the FHLMC Certificates held by a Trust Fund will consist of mortgage
loans with original terms to maturity of between 10 and 30 years. Each such
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
FHLMC Certificate group may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate group. Under the Guarantor Program, any
such FHLMC Certificate group may include only whole loans or participation
interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
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 FHLMC's Gold PC Program, FHLMC guarantees the timely
payment of principal based on the difference between the pool factor, published
in the month preceding the month of distribution and the pool factor published
in such month of distribution. Pursuant to its guarantees, FHLMC indemnifies
holders of FHLMC Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. FHLMC may remit the
amount due on account of its guarantee of collection of principal at any time
after default on an underlying mortgage loan, but not later than (i) 30 days
following foreclosure sale, (ii) 30 days following payment of the claim by any
mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing
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of demand for acceleration, FHLMC reserves the right to exercise its judgment
with respect to the mortgage loans in the same manner as for mortgage loans
which it has purchased but not sold. The length of time necessary for FHLMC to
determine that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial repayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, interest rates on the mortgage loans underlying
a FHLMC Certificate may exceed the pass-through rate on the FHLMC Certificate by
50 to 100 basis points. Under such program, FHLMC purchases groups of whole
mortgage loans from sellers at specified percentages of their unpaid principal
balances, adjusted for accrued or prepaid interest, which when applied to the
interest rate of the mortgage loans and participations purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a FHLMC Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a FHLMC Certificate group based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans. Under FHLMC's Guarantor Program,
the pass-through rate on a FHLMC Certificate is established based upon the
lowest interest rate on the underlying mortgage loans, minus a minimum servicing
fee and the amount of FHLMC's management and guaranty income as agreed upon
between the seller and FHLMC.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA, GNMA
or other government agency or government-sponsored agency Certificates. The
underlying securities will be held under a trust agreement by FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency, each as trustee, or
by another trustee named in the related Prospectus Supplement. FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
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Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of Mortgage
Loans, or (b) collateralized mortgage obligations secured by Mortgage Loans.
Private Mortgage-Backed Securities will have been issued pursuant to a PMBS
agreement (the 'PMBS Agreement'). The seller/servicer of the underlying Mortgage
Loans will have entered into the PMBS Agreement with the PMBS Trustee under the
PMBS Agreement. The PMBS Trustee or its agent, or a custodian, will possess the
Mortgage Loans underlying such Private Mortgage-Backed Security. Mortgage Loans
underlying a Private Mortgage-Backed Security will be serviced by the PMBS
Servicer directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS Servicer. Unless otherwise described in the Prospectus
Supplement, the PMBS Servicer will be a FNMA or FHLMC 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.
The PMBS Issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of mortgage
loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the Prospectus Supplement, the PMBS Issuer may be an affiliate of
the 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. Unless otherwise specified in the related Prospectus
Supplement, the PMBS Issuer will not have guaranteed any of the assets conveyed
to the related trust or any of the Private Mortgage-Backed Securities issued
under the PMBS Agreement. Additionally, although the Mortgage Loans underlying
the Private Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will he made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing loans or graduated payment mortgage loans, buydown loans, adjustable
rate mortgage loans, or loans having balloon or other special payment features.
Such Mortgage Loans may be 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. Except as otherwise specified in the
related Prospectus Supplement, (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.
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Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Mortgage Loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for which
the 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, and (D) the minimum and maximum stated maturities
of the underlying Mortgage Loans at origination, (iii) the maximum original
term-to-stated maturity of the Private Mortgage-Backed Securities, (iv) the
weighted average term-to-stated maturity of the Private Mortgage-Backed
Securities, (v) the pass-through or certificate rate of the Private
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, letters of
credit or guarantees relating to the Mortgage Loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (ix) the terms on which the underlying Mortgage Loans for such
Private Mortgage-Backed Securities may, or are required to, be purchased prior
to their stated maturity or the stated maturity of the Private Mortgage-Backed
Securities and (x) the terms on which Mortgage Loans may be substituted for
those originally underlying the Private Mortgage-Backed Securities.
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 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 Certificates of each Series to repay short-term loans incurred to finance
the purchase of the Mortgage Assets related to such Certificates, to acquire
certain of the Mortgage Assets to be deposited in the related trust Fund, and/or
to pay other expenses connected with pooling Mortgage Assets and issuing
Certificates. Any amounts remaining after such payments may be used for general
corporate purposes. The Seller expects to sell Certificates 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.
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MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Seller, either directly
or through affiliates, from Lenders. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans so acquired by the Seller will have
been originated in accordance with the underwriting criteria specified below
under 'Underwriting Standards.'
UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, 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.
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A Lender may originate Mortgage Loans under a reduced documentation
program. 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 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
Unless otherwise specified in the related Prospectus Supplement, each
Lender will be required to satisfy the qualifications set forth herein. 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. Unless otherwise
specified in the Prospectus Supplement, each Lender must be a seller/servicer
approved by either FNMA or FHLMC, 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
Unless otherwise specified in the related Prospectus Supplement or
Agreement, each Lender will have made representations and warranties in respect
of the Mortgage Loans sold by such Lender and evidenced by a Series of
Certificates. 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 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 thirty 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.
Unless otherwise specified in the related Prospectus Supplement, 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. A substantial period of time may have elapsed
between such date and the date of initial issuance of the Series of Certificates
evidencing an interest in 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.
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Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or the Trustee, if the Master Servicer is the Lender, will 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 Certificateholders in such Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, if such Lender cannot cure such
breach within 60 days after notice from the Master Servicer or the Trustee, as
the case may be, then such Lender 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. Except in those cases in which the Master
Servicer is the Lender, the Master Servicer will be required under the
applicable Agreement to enforce this obligation for the benefit of the Trustee
and the holders of the Certificates, following the practices it would employ in
its good faith business judgment were it the owner of such Mortgage Loan. This
repurchase obligation will constitute the sole remedy available to holders of
Certificates 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 Master
Servicer, the Master Servicer may have a repurchase obligation as described
below under 'The Pooling and Servicing Agreement--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 Certificateholders. 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
Certificates.
OPTIONAL PURCHASE OF DEFAULTED LOANS
If specified in the related Prospectus Supplement, the Master Servicer 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 CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement, dated
as of the related Cut-off Date, among the Seller, one or more Master Servicers
and the Trustee for the benefit of the holders of the Certificates of such
Series. The provisions of each Agreement will vary depending upon the nature of
the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of an Agreement is an exhibit to the Registration Statement of
which this Prospectus is a part. The following summaries describe certain
provisions which may appear in each Agreement. The Prospectus Supplement for a
Series of Certificates will describe any provision of the Agreement relating to
such Series that materially differs from the description thereof contained in
this Prospectus. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Agreement for each Series of Certificates and the applicable Prospectus
Supplement. The Seller will provide a copy of the Agreement (without exhibits)
relating to any Series
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without charge upon written request of a holder of a Certificate of such Series
addressed to Bear Stearns Mortgage Securities Inc., 245 Park Avenue, New York,
New York 10167.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in fully registered form only, in the
denominations specified in the related Prospectus Supplement, will evidence
specified beneficial ownership interests in the related Trust Fund created
pursuant to each Agreement and will not be entitled to payments in respect of
the Mortgage Assets included in any other Trust Fund established by the Seller.
The Certificates will not represent obligations of the Seller or any affiliate
of the Seller. The Mortgage Loans will not be insured or guaranteed by any
governmental entity or other person, unless otherwise specified in the
Prospectus Supplement. 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 Prospectus
Supplement ('Retained Interest')), (ii) such assets as from time to time are
required to be deposited in the related Protected Account, Certificate 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 Certificateholders by foreclosure or deed in lieu of
foreclosure and (iv) any Primary Insurance Policies, FHA insurance (the 'FHA
Insurance'), VA guarantees (the '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 Mortgage 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 or other agreements. If provided in the related
Agreement, a certificate administrator may be obligated to perform certain
duties in connection with the administration of the Certificates.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates 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 Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that receive certain preferential
treatment with respect to one or more other classes of Certificates of such
Series. Certain Series or classes of Certificates 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 Certificates may be made prior to one or more other classes,
after the occurrence of specified events, in accordance with a schedule or
formula, on the basis of collections from designated portions of the Mortgage
Assets in the related Trust 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.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the Prospectus Supplement) in
proportion to the percentages specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the dates specified in the 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 Certificates (the 'Certificate Register') or,
if specified in the related Prospectus Supplement, in the case of Certificates
that are of a certain minimum denomination, upon written request by the
Certificateholder, by wire transfer or by such other means as are described
therein; provided, however, that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or other person specified in
the notice to Certificateholders of such final distribution.
The Certificates 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
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or transfer of Certificates of any Series but the Trustee may require payment of
a sum sufficient to cover any related tax or other governmental charge.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates 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 Certificates of a
particular Series. The Prospectus Supplement for each Series of Certificates
will describe the method to be used in determining the amount of distributions
on the Certificates of such Series.
Distributions allocable to principal and interest on the Certificates will
be made by the Trustee out of, and only to the extent of, funds in the related
Certificate Account, including any funds transferred from any Reserve Account
and funds received as a result of credit enhancement. As between Certificates 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 Prospectus Supplement. Unless otherwise specified in
the Prospectus Supplement, distributions to any class of Certificates will be
made pro rata to all Certificateholders of that class.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. Unless otherwise provided in the related Prospectus
Supplement, 'Available Funds' for each Distribution Date will equal the sum of
the following amounts:
(i) the aggregate of all previously undistributed payments on account
of principal (including principal prepayments, if any, and prepayment
penalties, if so provided in the related Prospectus Supplement) and
interest on the Mortgage Loans in the related Trust Fund received by the
Master Servicer after the Cut-off
Date and on or prior to the day of the month of the related Distribution
Date specified in the Prospectus Supplement (the 'Determination Date')
except:
(a) all payments which were due on or before the Cut-off Date;
(b) all Liquidation Proceeds, all Insurance Proceeds, all Principal
Prepayments (each defined herein) and all proceeds of any Mortgage Loan
purchased by a Lender or any other entity pursuant to the Agreement that
were received after the prepayment period specified in the Prospectus
Supplement and all related payments of interest representing interest
for any period after such prepayment period;
(c) all scheduled payments of principal and interest due on a date
or dates subsequent to the first day of the month of distribution;
(d) amounts received on particular Mortgage Loans as late payments
of principal or interest or other amounts required to be paid by the
mortgagors (the 'Mortgagors'), but only to the extent of any
unreimbursed advance in respect thereof made by the Master Servicer
(including the related Sub-Servicers);
(e) amounts representing reimbursement, to the extent permitted by
the Agreement and as described under 'Advances' below, for advances made
by the Master Servicer and advances made by Sub-Servicers that were
deposited into the Certificate Account, and amounts representing
reimbursement for certain other losses and expenses incurred by the
Master Servicer or the Seller and described below or in the related
Agreement; and
(f) that portion of each collection of interest on a particular
Mortgage Loan in such Trust Fund which represents servicing compensation
payable to the Master Servicer or Retained Interest which is to be
retained from such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or proceeds of Mortgage
Loans purchased pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer (including
Sub-Servicers) as described under 'Advances' below and deposited by it in
the Certificate Account; and
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(iii) if applicable, amounts withdrawn from a Reserve Account or
received in connection with other credit support.
Distributions of Interest. Unless otherwise specified in the Prospectus
Supplement, interest will accrue on the aggregate Current Principal Amount
(defined herein) (or, in the case of Certificates entitled only to distributions
allocable to interest, the aggregate notional principal balance) of each class
of Certificates entitled to interest from the date, at the Pass-Through Rate and
for the periods specified in the Prospectus Supplement. To the extent funds are
available therefor, interest accrued during each such specified period on each
class of Certificates entitled to interest (other than a class of Certificates
that provides for interest that accrues, but is not currently payable, referred
to hereafter as 'Accrual Certificates') will be distributable on the
Distribution Dates specified in the Prospectus Supplement until the aggregate
Current Principal Amount of the Certificates of such class has been distributed
in full or, in the case of Certificates entitled only to distributions allocable
to interest, until the aggregate notional principal balance of such Certificates
is reduced to zero or for the period of time designated in the Prospectus
Supplement. The original Current Principal Amount of each Certificate will equal
the aggregate distributions allocable to principal to which such Certificate is
entitled. Unless otherwise specified in the Prospectus Supplement, distributions
allocable to interest on each Certificate that is not entitled to distributions
allocable to principal will be calculated based on the notional principal
balance of such Certificate. The notional principal balance of a Certificate
will not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
With respect to any class of Accrual Certificates, if specified in the
Prospectus Supplement, any interest that has accrued but is not paid on a given
Distribution Date will be added to the aggregate Current Principal Amount of
such class of Certificates on that Distribution Date. Unless otherwise specified
in the Prospectus Supplement, distributions of interest on each class of Accrual
Certificates will commence only after the occurrence of the events specified in
the Prospectus Supplement. Unless otherwise specified in the Prospectus
Supplement, prior to such time, the beneficial ownership interest of such class
of Accrual Certificates in the Trust Fund, as reflected in the aggregate Current
Principal Amount of such class of Accrual Certificates, will increase on each
Distribution Date by the amount of interest that accrued on such class of
Accrual Certificates during the preceding interest accrual period but that was
not required to be distributed to such class on such Distribution Date. Any such
class of Accrual Certificates will thereafter accrue interest on its outstanding
Current Principal Amount as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the aggregate 'Current Principal Amount' of any class of
Certificates entitled to distributions of principal will be the aggregate
original Current Principal Amount of such class of Certificates specified in the
Prospectus Supplement, reduced by all distributions and losses reported to the
holders of such Certificates as allocable to principal, and, in the case of
Accrual Certificates, unless otherwise specified in the Prospectus Supplement,
increased by all interest accrued but not then distributable on such Accrual
Certificates. The Prospectus Supplement will specify the method by which the
amount of principal to be distributed on the Certificates on each Distribution
Date will be calculated and the manner in which such amount will be allocated
among the classes of Certificates entitled to distributions of principal.
If so provided in the Prospectus Supplement, one or more classes of Senior
Certificates 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
Prospectus Supplement. Any such allocation of Principal Prepayments to such
class or classes of Certificateholders will have the effect of accelerating the
amortization of such Senior Certificates while increasing the interests
evidenced by the Subordinated Certificates in the Trust Fund. Increasing the
interests of the Subordinated Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the subordination
provided by the Subordinated Certificates. See 'Credit
Enhancement--Subordination.'
Unscheduled Distributions. If specified in the Prospectus Supplement, the
Certificates will be subject to receipt of distributions before the next
scheduled Distribution Date under the circumstances and in the manner described
below and in the Prospectus Supplement. If applicable, the Trustee will be
required to make such
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unscheduled distributions on the day and in the amount specified in the
Prospectus Supplement if, due to substantial payments of principal (including
Principal Prepayments) on the Mortgage 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 Certificate Account on the next Distribution
Date, together with, if applicable, any amounts available to be withdrawn from
any Reserve Account, may be insufficient to make required distributions on the
Certificates on such Distribution Date. Unless otherwise specified in the
Prospectus Supplement, the amount of any such unscheduled distribution that is
allocable to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Certificates on the next
Distribution Date. Unless otherwise specified in the Prospectus Supplement, all
unscheduled distributions will include interest at the applicable Pass-Through
Rate (if any) on the amount of the unscheduled distribution allocable to
principal for the period and to the date specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, all distributions
allocable to principal in any unscheduled distribution will be made in the same
priority and manner as distributions of principal on the Certificates would have
been made on the next Distribution Date, and with respect to Certificates of the
same class, unscheduled distributions of principal will be made on a pro rata
basis. Notice of any unscheduled distribution will be given by the Trustee prior
to the date of such distribution.
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 Certificates), 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
Certificates, rather than to guarantee or insure against losses. If advances are
made by the Master Servicer from cash being held for future distribution to
Certificateholders, 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 Certificateholders 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 hereinabove). 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
Certificateholders (including the holders of Senior Certificates) 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.
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REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date and
except as otherwise set forth in an applicable Prospectus Supplement or
Agreement, the Master Servicer or the Trustee will furnish to each
Certificateholder of record of the related Series a statement setting forth, to
the extent applicable or material to such Series of Certificates, 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
Certificateholders on such Distribution Date, and (b) withdrawn from the
Reserve Fund, if any, that is included in the amounts distributed to the
Senior Certificateholders;
(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) if applicable, 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) unless the Pass-Through Rate is a fixed rate, the Pass-Through
Rate applicable to the distribution on the Distribution Date;
(viii) the number and aggregate principal balances of Mortgage Loans
in the related Mortgage Pool delinquent (a) one month and (b) two or more
months;
(ix) 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
(x) 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 Certificate of the relevant class having a denomination or
interest specified in the related Prospectus Supplement or the report to
Certificateholders. The report to Certificateholders for any Series of
Certificates 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
Certificateholder 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 Certificateholders to prepare their tax returns.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, a class of
Certificates initially may be represented by one or more certificates registered
in the name of Cede & Co. ('Cede'), the nominee for The Depository Trust Company
('DTC'). DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the New York Uniform Commercial Code ('UCC')
and a 'clearing agency' registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ('Participants') and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also is
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available to others such as brokers, dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ('Indirect Participant').
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of Certificates
registered in the name of Cede, as nominee of DTC, may do so only through
Participants and Indirect Participants. In addition, such Certificateholders
will receive all distributions of principal of and interest on the Certificates
from the Trustee through DTC and its Participants. Under a book-entry format,
Certificateholders will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to its Participants which
thereafter will be required to forward them to Indirect Participants or
Certificateholders. Under a book-entry format, it is anticipated that the only
Certificateholder will be Cede, as nominee of DTC, and that the beneficial
holders of Certificates will not be recognized by the Trustee as
Certificateholders under the Agreement. The beneficial holders of such
Certificates will only be permitted to exercise the rights of Certificateholders
under the Agreement indirectly through DTC and its Participants who in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit payments of principal of and interest of the Certificates.
Participants and Indirect Participants with which Certificateholders have
accounts with respect to the Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates may be limited due to the lack of a physical certificate for such
Certificates.
DTC in general advises that it will take any action permitted to be taken
by a Certificateholder under an Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Certificateholders only at the direction of and
on behalf of Participants whose holdings include current principal amounts of
outstanding Certificates that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Certificates to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Certificates.
Any Certificates initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered, certificated form to Certificateholders
or their nominees ('Definitive Certificates'), rather than to DTC or its nominee
only under the events specified in the related Agreement. 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 Certificates, 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), Certificateholders representing not less
than 50% of the aggregate Current Principal Amount of the Certificates 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 Certificateholders. 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 Certificates. Upon
surrender by DTC of the certificates representing the Certificates and
instruction for re-registration, the Trustee will issue the Certificates in the
form of Definitive Certificates, and thereafter the Trustee will recognize the
holders of such Definitive Certificates as Certificateholders. Thereafter,
payments of principal of and interest on the Certificates will be made by the
Trustee directly to Certificateholders in accordance with the procedures set
forth herein and in the Agreement. The final distribution of any Certificate
(whether Definitive Certificates or Certificates registered in the name of
Cede), however, will be made only upon presentation and surrender of such
Certificates on the final Distribution Date at such office or agency as is
specified in the notice of final payment to Certificateholders.
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CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Certificates or with respect to the Mortgage Assets in the related
Trust Fund. Credit enhancement may be in the form of (i) the subordination of
one or more classes of the Certificates of such Series, (ii) the use of a 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. Unless
otherwise specified in the Prospectus Supplement, any credit enhancement will
not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the Certificates and interest
thereon. If losses occur which exceed the amount covered by credit enhancement
or which are not covered by the credit enhancement, holders of one or more
classes of Certificates will bear their allocable share of deficiencies. If a
form of credit enhancement applies to several classes of Certificates, and if
principal payments equal to the 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. Unless otherwise
specified in the Prospectus Supplement, coverage under any credit enhancement
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 Certificates.
SUBORDINATION
If so specified in the Prospectus Supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination thereof
that otherwise would have been payable to one or more classes of Subordinated
Certificates of a Series will instead be payable to holders of one or more
classes of Senior Certificates under the circumstances and to the extent
specified in the Prospectus Supplement. If specified in the Prospectus
Supplement, delays in receipt of scheduled payments on the Mortgage Loans and
losses on defaulted Mortgage Loans will be borne first by the various classes of
Subordinated Certificates and thereafter by the various classes of Senior
Certificates, in each case under the circumstances and subject to the
limitations specified in the Prospectus Supplement. The aggregate distributions
in respect of delinquent payments on the Mortgage Loans over the lives of the
Certificates or at any time, the aggregate losses in respect of defaulted
Mortgage Loans which must be borne by the Subordinated Certificates by virtue of
subordination and the amount of the distributions otherwise distributable to the
Subordinated Certificateholders that will be distributable to Senior
Certificateholders on any Distribution Date may be limited as specified in the
Prospectus Supplement. If aggregate distributions in respect of delinquent
payments on the Mortgage Loans or aggregate losses in respect of such Mortgage
Loans were to exceed the total amounts payable and available for distribution to
holders of Subordinated Certificates or, if applicable, were to exceed the
specified maximum amount, holders of Senior Certificates would experience losses
on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee. If so
specified in the Prospectus Supplement, such deposits may be made on each
Distribution Date, on each Distribution Date for specified periods or until the
balance in the Reserve Account has reached a specified amount and, following
payments from the Reserve Account to holders of Senior Certificates or
otherwise, thereafter to the extent necessary to restore the balance in the
Reserve Account to required levels, in each case as specified in the Prospectus
Supplement. If so specified in the Prospectus Supplement, amounts on deposit in
the Reserve Account may be released to the holders of the class of Certificates
specified in the Prospectus Supplement at the times and under the circumstances
specified in the Prospectus Supplement.
If so specified in the Prospectus Supplement, the same class of
Certificates may be Senior Certificates with respect to certain types of
payments or certain types of losses or delinquencies and Subordinated
Certificates with respect to other types of payment or types of losses or
delinquencies. If specified in the Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right
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to receive certain distributions to other classes of Senior and Subordinated
Certificates, respectively, through a cross support mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the Prospectus Supplement.
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 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 Certificates. 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. Unless
otherwise specified in the Prospectus Supplement, a Pool Insurance Policy will
not cover losses due to a failure to pay or denial of a claim under a Primary
Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, 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 Certificateholders, or (b) to pay
the amount by which the sum of the principal balance of the defaulted Mortgage
Loan plus accrued and unpaid interest at the Mortgage Rate to the date of
payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under 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 Certificateholders 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 related 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
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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.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Certificates by the aggregate dollar amount of
claims paid less the aggregate of the net 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
Certificateholders.
The terms of any pool insurance policy relating to a pool of Contracts will
be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the 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 Certificates from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located or under a flood
insurance policy if the Mortgaged Property is located in a federally designated
flood area, and (ii) loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies. See 'The Pooling and Servicing
Agreement-Hazard Insurance'. Each Special Hazard Insurance Policy 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 Certificateholders, but will affect the
relative amounts of coverage remaining under the related Special Hazard
Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, since each
Special Hazard Insurance Policy will be designed to permit full recovery under
the Pool Insurance Policy in circumstances in which such recoveries would
otherwise be unavailable because property has been damaged by a cause not
insured against by a standard hazard policy and thus would not be restored, each
Agreement will provide that, if the related 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.
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To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in 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 Certificates may be reduced so
long as any such reduction will not result in a downgrading of the rating of
such Certificates 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 Certificates 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 Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in 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 Certificates may be reduced so long as any such reduction will
not result in a downgrading of the rating of such Certificates 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. Single Family 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 Single Family 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 Single Family 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 Single Family
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
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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.
Single Family 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 Single Family 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
January 1, 1993, 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 $46,000. 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.
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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 ACCOUNTS
If specified in the Prospectus Supplement, cash, U.S. Treasury 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 Prospectus Supplement will be deposited by the Master
Servicer or Seller on the date specified in the Prospectus Supplement 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 enhance the
likelihood of timely payment of principal of, and interest on, or, if so
specified in the Prospectus Supplement, to provide additional protection against
losses in respect of, the assets in the related Trust Fund, to pay the expenses
of the Trust Fund or for such other purposes specified in the Prospectus
Supplement. Whether or not the Master Servicer or Seller has any obligation to
make such a deposit, certain amounts to which the Subordinated
Certificateholders, if any, will otherwise be entitled may instead be deposited
into the Reserve Account from time to time and in the amounts as specified in
the Prospectus Supplement. Any cash in the Reserve Account and the proceeds of
any other instrument upon maturity will be invested, 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'). Unless otherwise specified in the
Prospectus Supplement, any instrument deposited in the Reserve Account will name
the Trustee, in its capacity as trustee for the holders of the Certificates, as
beneficiary and will be issued by an entity acceptable to the applicable Rating
Agency. Additional information with respect to such instruments deposited in the
Reserve Accounts will be set forth in the Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the 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, and other
arrangements for 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
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 Certificates has
a floating interest rate, or if any of the Mortgage Assets has a floating
interest rate,
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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 Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust Fund may be evidenced by separate
classes of the related Series of Certificates. In such case, credit support may
be provided by a cross-support feature which requires that distributions be made
with respect to Certificates evidencing a beneficial ownership interest in other
asset groups within the same Trust Fund. The Prospectus Supplement for a Series
which includes a cross-support feature will describe the manner and conditions
for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trust Funds. If applicable, the Prospectus Supplement will identify the Trust
Funds to which such credit support relates and the manner of determining the
amount of the coverage provided hereby and of the application of such coverage
to the identified Trust Funds.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity of the Certificates will be affected by the amount
and timing of principal payments on or in respect of the Mortgage Assets
included in the related Trust Funds, the allocation of available funds to
various Classes of Certificates, the Pass-Through Rate for various Classes of
Certificates and the purchase price paid for the Certificates.
The original terms to maturity of the Mortgage Loans in a given 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. Unless otherwise
specified in the related Prospectus Supplement, Single Family Loans, Cooperative
Loans and Contracts 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.
Unless otherwise provided in the related Prospectus Supplement, all
conventional Single Family Loans, Cooperative Loans and Contracts 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 Pooling and Servicing Agreement--Collection
Procedures' and 'Certain Legal Aspects of the Mortgage Loans' for a description
of certain provisions of each Agreement and certain legal developments that may
affect the prepayment experience on the Mortgage Loans.
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. Unless otherwise specified in the
related Prospectus Supplement, the effect of prepayments in full and
liquidations will be to reduce the amount of interest passed through in the
following month to holders of Certificates because interest on the principal
amount of any Mortgage Loan so prepaid will be paid only to the date of
prepayment or liquidation. Interest shortfalls
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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 Certificates, 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 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 Certificates. See
'The Pooling and Servicing Agreement--Termination; Optional Termination.'
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
Certificates will not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Certificateholders 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 Certificates 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 Certificates 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 Certificate will yield
its Pass-Through Rate, after giving effect to any payment delay.
Factors other than those identified herein and in the Prospectus Supplement
could significantly affect principal prepayments at any time and over the lives
of the Certificates. The relative contribution of the various factors affecting
prepayment may also vary from time to time. There can be no assurance as to the
rate of payment of principal of the Mortgage Assets at any time or over the
lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments) on the yield, weighted average lives and maturities of
such Certificates.
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THE POOLING AND SERVICING AGREEMENT
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.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Seller will cause the Mortgage Loans comprising
the related 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 Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver the Certificates to the Seller in exchange for the Mortgage
Loans. Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the 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, unless otherwise specified in the Prospectus Supplement, the
Seller 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.
Unless otherwise specified in the related Prospectus Supplement, (i) in the case
of Single Family Loans or Multifamily Loans, the Seller or Master Servicer 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,
and (ii) in the case of Contracts, the Seller or Master Servicer 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 Certificateholders. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found to
be missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Seller, and the Master Servicer will
notify the related Lender. Unless otherwise specified in the related Prospectus
Supplement, 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, the Lender or such entity 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 'Mortgage Loan Program-Representations by Lenders;
Repurchases,' neither the Master Servicer nor the Seller
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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. Unless otherwise specified in the related Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Certificateholders 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, and the Trustee
concurrently will execute, countersign and deliver the Certificates. 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.
The Trustee (or the custodian) will have possession of any certificated Private
Mortgage-Backed Securities. Unless otherwise specified in the related Prospectus
Supplement, the Trustee 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
Unless otherwise specified in the related Prospectus Supplement or provided
in the Agreement, each Master Servicer and Sub-Servicer servicing the Mortgage
Loans will be required to establish and maintain for one or more Series of
Certificates a separate account or accounts for the collection of payments on
the related Mortgage Assets (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
Certificates, (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. Unless otherwise specified in the related Prospectus
Supplement, the related Master Servicer or Sub-Servicer or its designee 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 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 will be required to deposit or cause
to be deposited in the Protected Account for each Trust Fund on a daily basis,
to the extent applicable and unless otherwise specified in the related
Prospectus Supplement or provided in the Agreement, 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;
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(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 Certificateholders by foreclosure or
deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased as described under 'Mortgage Loan Program--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 Certificates, 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 Certificates a trust account or another account acceptable to
each Rating Agency (the 'Certificate Account'). The Certificate 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 Certificates,
there may be a separate Certificate Account or a separate subaccount in a single
Certificate Account for funds received from each Master Servicer. Unless
otherwise specified in the Prospectus Supplement, the related Master Servicer or
its designee will be entitled to receive any interest or other income earned on
funds in the Certificate Account or subaccount of the Certificate Account as
additional compensation and will be obligated to deposit in the Certificate
Account or subaccount the amount of any loss immediately as realized. The
Trustee will be required to deposit into the Certificate Account on the business
day received all funds received from the Master Servicer for deposit into the
Certificate Account and any other amounts required to be deposited into the
Certificate Account pursuant to the Agreement. In addition to other purposes
specified in the Agreement, the Trustee will be required to make withdrawals
from the Certificate Account to make distributions to Certificateholders. If the
Series includes one Trust Fund which contains a beneficial ownership interest in
another Trust Fund, funds from the Mortgage Assets may be withdrawn from the
Certificate Account included in the latter Trust Fund and deposited into another
Account included in the former Trust Fund prior to transmittal to
Certificateholders with a beneficial ownership interest in the former Trust
Fund. If specified in the related Prospectus Supplement, the Protected Account
and the Certificate Account may be combined into a single Certificate Account.
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 each
Sub-Servicing Agreement will be
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a contract solely between the Master Servicer and the Sub-Servicer, the
Agreement pursuant to which a Series of Certificates is issued will provide
that, if for any reason the Master Servicer for such Series of Certificates 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, but, unless otherwise specified
in the Prospectus Supplement, such Sub-Servicer will remain obligated under the
related Sub-Servicing Agreement. 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 any 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
impoundment 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, unless
otherwise specified in the related Prospectus Supplement, 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 is also 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. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
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
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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.
Unless otherwise specified in the related Prospectus Supplement, 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 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, and unless otherwise specified in the related
Prospectus Supplement, the Master Servicer 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
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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
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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 Certificates 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 Certificates 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 Certificateholders, 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
Certificateholders, 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.
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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 Certificateholders 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 Certificateholders, 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
Certificateholders, 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.'
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a Series of
Certificates 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 Prospectus Supplement of the outstanding principal balance
thereof. Since 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 will be entitled to retain all assumption fees and
late payment charges, to the extent collected from Mortgagors, and, unless
otherwise provided in the related Prospectus Supplement or Agreement, any
prepayment penalties and any interest or other income which may be earned on
funds held in any Accounts. Unless otherwise specified in the related Prospectus
Supplement, any Sub-Servicer 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 will 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 Certificateholders, 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 Sellers 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.
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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 or the Audit Program for Mortgages serviced for FHLMC, 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 or the Audit Program for Mortgages
serviced for FHLMC 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 or the Audit Program
for Mortgages serviced for FHLMC or FNMA (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 Certificateholders 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.
Unless otherwise provided in the related Prospectus Supplement, each
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. 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 Certificateholders 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 Certificates, 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 Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities
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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 Certificateholders.
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, FNMA or FHLMC 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 Certificates of such Series that
have been rated.
EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement or
Agreement, 'Events of Default' under each Agreement will include (i) any failure
by the Master Servicer to cause to be deposited in the Certificate 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 sixty 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 Certificates 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 proceeding
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 Prospectus Supplement, the Agreement will permit the
Trustee to sell the Mortgage Assets and the other 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 Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT
Except as otherwise specified in the related Agreement, so long as an Event
of Default under an Agreement remains unremedied, the Trustee may, and at the
direction of holders of Certificates 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, unless otherwise specified in the related Prospectus Supplement, the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer under the Agreement, including, if specified in the
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.
Except as otherwise specified in the related Agreement, no
Certificateholder, solely by virtue of such holder's status as a
Certificateholder, 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
Certificates of any class of such Series evidencing not less than 25% of the
aggregate Percentage Interests 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.
AMENDMENT
Unless otherwise specified in the Prospectus Supplemenet, each Agreement
may be amended by the Seller, each Master Servicer and the Trustee, without the
consent of any of the Certificateholders, (i) to cure any ambiguity; (ii) to
correct or supplement any provision therein which may be defective or
inconsistent with any
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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 Certificateholder. In addition, to the
extent provided in the related Agreement, an Agreement may be amended without
the consent of any of the Certificateholders, to change the manner in which the
Certificate 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 Certificates 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. Unless otherwise specified in the Prospectus Supplement, each
Agreement may also be amended by the Seller, each Master Servicer and the
Trustee with consent of holders of Certificates of such Series evidencing not
less than 66% 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 Certificates; provided, however, that
no such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received on Mortgage Assets which are required to be distributed on
any Certificate without the consent of the holder of such Certificate, or (ii)
reduce the aforesaid percentage of Certificates of any class of holders which
are required to consent to any such amendment without the consent of the holders
of all Certificates 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
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders 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 Mortgage Assets subject thereto or the disposition of all
property acquired upon foreclosure or deed in lieu of foreclosure of any such
Mortgage Assets remaining in the Trust Fund and (ii) the purchase by the Master
Servicer or other entity specified in the related Prospectus Supplement
including, if REMIC treatment has been elected, by the holder of the residual
interest in the REMIC (see 'Certain Federal Income Tax Consequences' below),
from the related Trust Fund of all of the remaining Mortgage Assets and all
property acquired in respect of such Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any such
purchase of Mortgage Assets and property acquired in respect of Mortgage Assets
evidenced by a Series of Certificates will be made at the option of the Master
Servicer or other entity at a price, and in accordance with the procedures,
specified in the Prospectus Supplement. The exercise of such right will effect
early retirement of the Certificates of that Series, but the right of the Master
Servicer or other entity to so purchase is subject to the principal balance of
the related Mortgage Assets being less than the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the Mortgage
Assets at the Cut-off Date for the Series. The foregoing is subject to the
provision that if a REMIC 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 within the meaning of Section 860F(g)(4) of
the Code.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Seller, each Master Servicer and any of
their respective affiliates.
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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 individual condominium units) and all areas or
facilities, if any, for the common use of the condominium units. The condominium
unit owners appoint or elect the condominium association to govern the affairs
of the condominium.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative (i) owns all the real property that comprises the project, including
the land and the apartment building comprised of separate dwelling units and
common areas or (ii) leases the land generally by a long-term ground lease and
owns the apartment building. The Cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the Cooperative and/or
underlying land, as is generally the case, the Cooperative, as project
mortgagor, is also responsible for meeting these mortgage obligations. A blanket
mortgage is ordinarily incurred by the Cooperative in connection with the
construction or purchase of the Cooperative's apartment building. The interest
of the occupants under proprietary leases or occupancy agreements to which the
Cooperative is a party are generally subordinate to the interest of the holder
of the blanket mortgage in that building. If the Cooperative is unable to meet
the payment obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the Cooperative to
refinance this mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual
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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 a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
Contracts. Each Contract evidences both (a) the obligation of the obligor
to repay the loan evidenced thereby, and (b) the grant of a security interest in
the Manufactured Home to secure repayment of such loan. The Contracts generally
are 'chattel paper' as defined in the UCC in effect in the states in which the
Manufactured Homes initially were registered. Pursuant to the UCC, the rules
governing the sale of chattel paper are similar to those governing the
perfection of a security interest in chattel paper. Unless otherwise specified
in the Prospectus Supplement, under the Agreement, the Seller 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. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be required to
effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any Manufactured Home is registered. If the Master Servicer
fails, due to clerical errors or otherwise, to effect such notation or delivery,
or files the security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states), the Trustee
may not have a first priority security interest in the Manufactured Home
securing a Contract.
As manufactured homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes may, under certain circumstances, become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a Manufactured Home under
real estate laws, the holder of the security interest must file either a
'fixture filing' under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, Contracts will contain provisions prohibiting the obligor
from permanently attaching the Manufactured Home to its site. So long
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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 Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, neither the Seller,
the Master Servicer nor the Trustee will amend the certificates of title to
identify the Trustee, on behalf of the Certificateholders, as the new secured
party and, accordingly, the 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
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trustee could be
released.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to relocate
a Manufactured Home to another state and re-register the Manufactured Home in
such state, and if steps are not taken to re-perfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to re-register a Manufactured Home; accordingly, the
Trustee must surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Master Servicer would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a Manufactured Home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. The Master Servicer will be obligated to take such steps, at the Master
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
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 Certificateholders in the event such a
lien arises.
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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.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties. When the
mortgagee's right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the mortgage is not reinstated, a
notice of sale must be posted in a public place and, in most states, published
for a specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's Certificate of Incorporation and
Bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the Cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such
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lease or agreement in the event an obligor fails to make payments or defaults in
the performance of covenants required thereunder. Typically, the lender and the
Cooperative enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the tenant-stockholder
on its obligations under the proprietary lease or occupancy agreement. A default
by the tenant-stockholder under the proprietary lease or occupancy agreement
will usually constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a 'commercially reasonable' manner. Whether a foreclosure sale has
been conducted in a 'commercially reasonable' manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See 'Anti-Deficiency Legislation and Other
Limitations on Lenders' below.
Contracts. The Master Servicer on behalf of the Trustee, to the extent
required by the related agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
the Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender, by
'self-help' repossession that is 'peaceful' (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, generally varying from 10 to 30 days depending
on the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee would be entitled to be paid out of the sale
proceeds before such proceeds could be applied to the payment of the claims of
unsecured creditors or the holders of subsequently perfected security interests
or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
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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.
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 Certificates and
possible reductions in the aggregate amount of such payments. Some states also
have homestead exemption laws which would protect a principal residence from a
liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
and manufactured housing lenders in connection with the origination, servicing
and enforcement of Single Family Loans, Cooperative Loans and Contracts. These
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These federal and state laws
impose specific statutory liabilities upon lenders who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans or contracts.
The so-called 'Holder-in-Due-Course' Rule of the Federal Trade Commission
(the 'FTC Rule') has the effect of subjecting a seller (and certain related
creditors and their assignees) in a consumer credit transaction and
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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
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that if the mortgagor or obligor sells, transfers or conveys
the Mortgaged Property, the loan or contract may be accelerated by the mortgagor
or secured party. The Garn-St Germain Depository Institutions Act of 1982 (the
'Garn-St Germain Act'), subject to certain exceptions, preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As to loans secured by an owner-occupied residence (which
would include a Manufactured Home), the Garn-St Germain Act sets forth nine
specific instances in which a mortgagee covered by the Act may not exercise its
rights under a due-on-sale clause, notwithstanding the fact that a transfer of
the property may have occurred. The inability to enforce a due-on-sale clause
may result in transfer of the related Mortgaged Property to an uncreditworthy
person, which could increase the likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following origination of 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.
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Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayment, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels will be included in
any Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Unless
otherwise provided in the applicable Prospectus Supplement, any shortfall in
interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Certificates. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
PRODUCT LIABILITY AND RELATED LITIGATION
Certain environmental and product liability claims may be asserted alleging
personal injury or property damage from the existence of certain chemical
substances which may be present in building materials. For example, formaldehyde
and asbestos have been and in some cases are incorporated into many building
materials utilized in manufactured and other housing. As a consequence, lawsuits
may arise from time to time asserting claims against manufacturers or builders
of the housing, suppliers of component parts, and related persons in the
distribution process. Plaintiffs have won such judgments in certain such
lawsuits.
Under the FTC Rule described above, the holder of any Contract secured by a
Manufactured Home with respect to which a product liability claim has been
successfully asserted may be liable to the obligor for the amount paid by the
obligor on the related Contract and may be unable to collect amounts still due
under the Contract. Unless otherwise described in the related Prospectus
Supplement, the successful assertion of such claim constitutes a breach of a
representation or warranty of the Lender, and the Certificateholders 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
Certificateholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde and certain other chemicals in
manufactured housing, with the result that recoveries from such manufacturers,
suppliers or other persons may be limited to their corporate assets without the
benefit of insurance.
To the extent described in the Prospectus Supplement, the Mortgage Loans
may include installment sales contracts entered into with the builders of the
homes located on the Mortgaged Properties. The Mortgagors in some instances may
have claims and defenses against the builders which could be asserted against
the Trust Fund.
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ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Assets and
give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
radon and other materials which may affect the property securing the Mortgage
Assets. For example, under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and possibly under state law in
certain states, a secured party which takes a deed in lieu of foreclosure or
purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a remedial action ('Cleanup Costs') if
hazardous wastes or hazardous substances have been released or disposed of on
the property. Such Cleanup Costs may be substantial. It is possible that such
costs could become a liability of the Trust Fund and reduce the amounts
otherwise distributable to the Certificateholders 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 lien for any Cleanup Costs incurred by such state on the
property that is the subject of such Cleanup Costs (a 'Superlien'). All
subsequent liens on such property are subordinated to such Superlien and, in
some states, even prior recorded liens are subordinated to such Superliens. In
the latter states, the security interest of the Trustee in a property that is
subject to such a Superlien could be adversely affected.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereby. The discussion, and the opinions referred to below,
are based on laws, regulations, rulings and decisions now in effect (or, in the
case of certain regulations, proposed), all of which are subject to change or
possibly differing interpretations. Because tax consequences may vary based upon
the status or tax attributes of the owner of a Certificate, prospective
investors should consult their own tax advisors in determining the federal,
state, local and other tax consequences to them of the purchase, ownership and
disposition of Certificates. For purposes of this tax discussion (except with
respect to information reporting, or where the context indicates otherwise), the
terms 'Certificateholder' and 'holder' mean the beneficial owner of a
Certificate and the term 'Mortgage Loan' includes Agency Securities and Private
Mortgage-Backed Securities.
REMIC ELECTIONS
Under the Code, an election may be made with respect to each Trust Fund
related to a series of Certificates to treat such Trust Fund or certain assets
of such Trust Fund as a REMIC. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election will be made with respect to
the related Trust Fund. To the extent provided in the Prospectus Supplement for
a series, Certificateholders may also have the benefit of a Reserve Account and
of certain agreements (each, a 'Yield Supplement Agreement') under which payment
will be made from the Reserve Account in the event that interest accrued on the
Mortgage Loans at their Mortgage Rates is insufficient to pay interest on the
Certificates of such Series (a 'Basis Risk Shortfall'). If a REMIC election is
to be made, the Prospectus Supplement will designate the Certificates of such
series or the interests composing such Certificates as 'regular interests'
('REMIC Regular Certificates,' which where the context so requires includes a
reference to each interest composing a Certificate where such interest has been
designated as a regular interest, in lieu of such Certificates) 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). The terms 'REMIC Certificates' and 'Non-REMIC Certificates' denote,
respectively, Certificates (or the interests composing Certificates) of a series
with respect to which a REMIC election will, or will not, be made. The
discussion below is divided into two parts, the first part applying only to
REMIC Certificates and the second part applying only to Non-REMIC Certificates.
REMIC CERTIFICATES
With respect to each series of REMIC Certificates, the Trustee will agree
in the Agreement to elect to treat the related Trust 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 Certificates,
Stroock & Stroock & Lavan LLP, counsel to the Seller, will deliver its opinion
generally to the effect that, with respect to each series of REMIC Certificates
for which a REMIC election is to be made, under then existing law, and
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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 Certificates will be considered to evidence
ownership of 'regular interests' or 'residual interests' within the meaning of
the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a series, holders
of REMIC Regular Certificates who are entitled to payments from the Reserve
Account in the event of a Basis Risk Shortfall will be required to allocate
their purchase price between their beneficial ownership interests in the related
REMIC regular interests and Yield Supplement Agreements, and will be required to
report their income realized with respect to each, calculated taking into
account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related REMIC Regular
Certificate. However, a portion of the purchase price of a REMIC Regular
Certificate should be allocated to accrued but unpaid interest. No
representation is or will be made as to the fair market value of the Yield
Supplement Agreements or the relative values of the REMIC regular interests and
the Yield Supplement Agreements, upon initial issuance of the related REMIC
Regular Certificates or at any time thereafter. Holders of REMIC Regular
Certificates are advised to consult their own tax advisors concerning the
determination of such fair market values. Under the Agreement, holders of
applicable REMIC Regular Certificates 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 Certificates. The REMIC Certificates will be 'real estate
assets' for purposes of Section 856(c)(5)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, 'qualifying assets') to the extent
that the REMIC's assets are qualifying assets, but not to the extent that the
REMIC's assets consist of Yield Supplement Agreements. However, if at least 95
percent of the REMIC's assets are qualifying assets, then 100 percent of the
REMIC Certificates will be qualifying assets. Similarly, income on the REMIC
Certificates will be treated as 'interest on obligations secured by mortgages on
real property' within the meaning of Section 856(c)(3)(B) of the Code, subject
to the limitations of the preceding two sentences. In addition to Mortgage
Loans, the REMIC's assets will include payments on Mortgage Loans held pending
distribution to holders of REMIC Certificates, amounts in Reserve Accounts (if
any), other credit enhancements (if any), and possibly buydown funds ('Buydown
Funds'). The Mortgage Loans 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 mortgage or pool of
mortgages to which they relate, and therefore credit enhancements generally
should be qualifying assets. Regulations issued in conjunction with the REMIC
Regulations provide that amounts paid on Mortgage Loans and held pending
distribution to holders of REMIC Certificates ('cash flow investments') will be
treated as qualifying assets. It is unclear whether amounts in a Reserve Account
or Buydown Funds would also constitute qualifying assets. The Prospectus
Supplement for each series will indicate (if applicable) that it has Buydown
Funds. The REMIC Certificates 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 Certificates, 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 Certificates, Stroock & Stroock & Lavan LLP 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 Certificates issued by the Tiered REMICs,
respectively, will be considered to evidence ownership of 'regular interests' or
'residual interests' in the related REMIC within the meaning of the REMIC
provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will be
'real estate assets' within the meaning of Section 856(c)(5)(A) of the Code, and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the Code,
the Tiered REMICs will be treated as one REMIC.
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REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as otherwise
indicated herein, the REMIC Regular Certificates will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the REMIC on the date of issuance of the
REMIC Regular Certificates and not as ownership interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Certificates who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified mortgages where such
portion does not vary during the period the REMIC Regular Certificate is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the 'OID Regulations')
with certain modifications and permissible variations. See 'REMIC Regular
Certificates--Current Income on REMIC Regular Certificates--Original Issue
Discount--Variable Rate REMIC Regular Certificates,' below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purposes of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See 'REMIC Regular Certificates--Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates,' below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a 'REMIC qualified floating rate'), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a 'current rate' as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate 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 Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a 'funds available cap' as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain series may
be issued with 'original issue discount' within the meaning of Section 1273(a)
of the Code. Holders of REMIC Regular Certificates issued with original issue
discount generally must include original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust Fund will report original issue discount, if any, to the holders
of REMIC Regular Certificates based on the OID Regulations. OID Regulations
concerning contingent payment debt instruments do not apply to the REMIC Regular
Certificates.
The OID Regulations provide that, in the case of a debt instrument such as
a REMIC Regular Certificate, (i) the amount and rate of accrual of original
issue discount will be calculated based on a reasonable assumed
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prepayment rate (the 'Prepayment Assumption'), and (ii) adjustments will be made
in the amount and rate of accrual of such discount to reflect differences
between the actual prepayment rate and the Prepayment Assumption. The method for
determining the appropriate assumed prepayment rate will eventually be set forth
in Treasury regulations, but those regulations have not yet been issued. The
applicable legislative history indicates, however, that such regulations will
provide that the assumed prepayment rate for securities such as the REMIC
Regular Certificates will be the rate used in pricing the initial offering of
the securities. The Prospectus Supplement for each series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will, in fact, prepay at a rate based
on the Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under 'Payment Lag REMIC Regular
Certificates; Initial Period Considerations,' and 'Qualified Stated Interest,'
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated redemption price at maturity of a
REMIC Regular Certificate is its principal amount. The issue price of a REMIC
Regular Certificate is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the class of REMIC Regular
Certificates was sold. The issue price will be reduced if any portion of such
price is allocable to a related Yield Supplement Agreement. Notwithstanding the
general definition of original issue discount, such discount will be considered
to be zero for any REMIC Regular Certificate on which such discount is less than
0.25% of its stated redemption price at maturity multiplied by its weighted
average life. The weighted average life of a REMIC Regular Certificate
apparently is computed for purposes of this de minimis rule as the sum, for all
distributions included in the stated redemption price at maturity of the REMIC
Regular Certificate, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Closing Date to the
date on which each such distribution is expected to be made, determined under
the Prepayment Assumption, by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the REMIC Regular
Certificate's stated redemption price at maturity. The OID Regulations provide
that holders will include any de minimis original issue discount ratably as
payments of stated principal are made on the REMIC Regular Certificates.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the 'daily portions' of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an 'accrual period') that begins on the day
following a Distribution Date (or in the case of the first such period, begins
on the Closing Date) and ends on the next succeeding Distribution Date. The
original issue discount accruing during each accrual period is then allocated
ratably to each day during such period to determine the daily portion of
original issue discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during
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any accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although 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 Certificate 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 Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Interest payable on a REMIC Regular Certificate
which qualifies as 'qualified stated interest' for purposes of the OID
Regulations will not be includable in the stated redemption price at maturity of
the REMIC Regular Certificate. Accordingly, if the interest on a REMIC Regular
Certificate does not constitute 'qualified stated interest,' the REMIC Regular
Certificate will have original issue discount. Interest payments will not
qualify as qualified stated interest unless the interest payments are
'unconditionally payable.' The OID Regulations state that interest is
unconditionally payable if reasonable legal remedies exist to compel timely
payment, or the debt instrument otherwise provides terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment of interest a remote
contingency, as defined in the OID Regulations. It is unclear whether the terms
and conditions of the Mortgage Loans underlying the REMIC Regular Certificates
or the terms and conditions of the REMIC Regular Certificates are considered
when determining whether the likelihood of late payment or nonpayment of
interest is a remote contingency. Any terms or conditions that do not reflect
arm's length dealing or that the holder does not intend to enforce are not
considered.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period
Considerations. Certain REMIC Regular Certificates will provide for
distributions of interest based on a period that is the same length as the
interval between Distribution Dates but ends prior to each Distribution Date.
Any interest that accrues prior to the Closing Date may be treated under the OID
Regulations either (i) as part of the issue price and the stated redemption
price at maturity of the REMIC Regular Certificates or (ii) as not included in
the issue price or the stated redemption price. The OID Regulations provide a
special application of the de minimis rule for debt instruments with long first
accrual periods where the interest payable for the first period is at a rate
which is effectively less than that which applies in all other periods. In such
cases, for the sole purpose of determining whether original issue discount is de
minimis, the OID Regulations provide that the stated redemption price is equal
to the instrument's issue price plus the greater of the amount of foregone
interest or the excess (if any) of the instrument's stated principal amount over
its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a 'Variable Rate REMIC
Regular Certificate') are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a 'variable rate debt instrument' if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount; (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate; and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID
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Regulations, except as provided in (i), above. Because the OID Regulations
relating to contingent payment debt instruments do not apply to REMIC regular
interests, principal payments on the REMIC Regular Certificates should not be
considered contingent for this purpose.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a 'Presumed Single Qualified Floating Rate'). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate, but which is subject to one or more restrictions such
as a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction is not reasonably expected as
of the issue date to significantly affect the yield of the Variable Rate REMIC
Regular Certificate.
An 'objective rate' is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the Internal Revenue Service in the future. An interest rate on a REMIC Regular
Certificate that is the weighted average of the interest rates on some or all of
the qualified mortgages held by the REMIC should constitute an objective rate.
Despite the foregoing, a variable rate of interest on a Variable Rate REMIC
Regular Certificate will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Rate REMIC Regular Certificate's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate REMIC Regular Certificate's term. Further, an
objective rate does not include a rate that is based on information that is
within the control of the issuer (or a party related to the issuer) or that is
unique to the circumstances of the issuer (or a party related to the issuer). An
objective rate will qualify as a 'qualified inverse floating rate' if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Certificate provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Certificate's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a 'Presumed Single Variable Rate'). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Certificate's
issue date, the variable rate will be conclusively presumed to approximate the
fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a 'variable
rate debt instrument' under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a 'Single Variable Rate REMIC Regular Certificate'), original issue
discount is computed as described in 'REMIC Regular Certificates--Current Income
on REMIC Regular Certificates--Original Issue Discount' based on the following:
(i) stated interest on the Single Variable Rate REMIC Regular Certificate which
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually will constitute qualified stated interest; (ii) by
assuming that the variable rate on the Single Variable Rate REMIC Certificate is
a fixed rate equal to: (a) in the case of a Single Variable Rate REMIC Regular
Certificate with a qualified floating rate or a qualified inverse floating rate,
the value, as of the issue date, of the qualified floating rate or the qualified
inverse floating rate or (b) in the case of a Single Variable Rate REMIC Regular
Certificate with an objective rate
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(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate REMIC Regular
Certificate; and (iii) the qualified stated interest allocable to an accrual
period is increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to be paid under
the assumed fixed rate described in (ii), above.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a 'Multiple Variable Rate REMIC Regular
Certificate') that qualifies as a 'variable rate debt instrument' will be
converted into an 'equivalent' fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an 'equivalent' fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. (A Multiple Variable Rate REMIC Regular
Certificate may not bear more than one objective rate.) In the case of a
Multiple Variable Rate REMIC Regular Certificate that qualifies as a 'variable
rate debt instrument' and provides for stated interest at a fixed rate in
addition to either one or more qualified floating rates or a qualified inverse
floating rate, the fixed rate is initially converted into a qualified floating
rate (or a qualified inverse floating rate, if the Multiple Variable Rate REMIC
Regular Certificate provides for a qualified inverse floating rate). Under such
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Multiple Variable Rate REMIC Regular Certificate as of the Multiple Variable
Rate REMIC Regular Certificate's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate REMIC Regular Certificate is then converted into an 'equivalent'
fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an 'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
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 in 'REMIC Regular Certificates--Current Income on REMIC
Regular Certificates--Original Issue Discount'. A holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the holder held the 'equivalent'
fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the 'equivalent' fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
If a Variable Rate REMIC Regular Certificate does not qualify as a
'variable rate debt instrument' under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. It is not clear under current law how a Variable Rate REMIC Regular
Certificate would be taxed if such REMIC Regular Certificate were treated as a
contingent payment debt obligation since the OID Regulations relating to
contingent payment debt obligations do not apply to REMIC regular interests.
Interest-Only REMIC Regular Certificates. The Trust Fund intends to report
income from interest-only REMIC Regular Certificates to the Internal Revenue
Service and to holders of interest-only REMIC Regular Certificates based on the
assumption that the stated redemption price at maturity is equal to the sum of
all payments determined under the Prepayment Assumption. As a result, such
interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal
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distribution, regardless of whether the distribution is scheduled or is a
prepayment. In particular, the REMIC Regular Certificateholder will be required
to allocate that principal distribution first to the portion of the market
discount on such REMIC Regular Certificate that has accrued but has not
previously been 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 Certificate may be treated, at the
REMIC Certificateholder's election, as accruing either (i) under a constant
yield method, taking into account the Prepayment Assumption, or (ii) in
proportion to accruals of original issue discount (or, if there is no original
issue discount, in proportion to stated interest at the Pass-Through Rate).
In addition, a holder may be required to defer deductions for a portion of
the holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under 'Current Income on REMIC Regular
Certificates--Original Issue Discount'), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate 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 Certificates
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
Certificates. The deductibility of such expenses may be subject to certain
limitations. See 'Deductibility of Trust Fund Expenses' below.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of 'the applicable Federal
rate' (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includable in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular
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Certificate was held by such seller, reduced by any market discount includable
in income under the rules described above under 'Current Income on REMIC Regular
Certificates--Market Discount.'
REMIC Regular Certificates will be 'evidences of indebtedness' within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate, 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 Certificate should be
treated as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as 'residual
interests' in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss as the case may be. Income from residual interests is
'portfolio income' which cannot be offset by 'passive activity losses' in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, 'startup day' means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the amounts
taken into account by holders of REMIC Residual Certificates, is determined in
the same manner as in the case of an individual, with certain exceptions. The
accrual method of accounting must be used and the taxable year of the REMIC must
be the calendar year. The basis of property contributed to the REMIC in exchange
for regular or residual interests is its fair market value immediately after the
transfer. The REMIC Regulations determine the fair market value of the
contributed property by deeming it equal to the aggregate issue prices of all
regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the REMIC.
Market discount on any of the Mortgage Loans 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 Loans or as principal on the Mortgage Loans is
paid. The REMIC is not entitled to any personal exemptions or to deductions for
taxes paid to foreign countries and U.S. possessions, charitable contributions
or net operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a 'prohibited transaction'
is disregarded. See 'Prohibited Transactions.'
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the 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
Certificate would exceed the maximum amount of future payments with respect to
such REMIC Regular Certificate. It is unclear whether the Prepayment Assumption
is taken into account for this purpose.
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A REMIC Residual Certificate has a tax basis in its holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (i.e., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to qualified mortgages, on the one hand,
and the timing of deductions for interest (including original issue discount) on
the REMIC Regular Certificates, on the other. In the case of multiple classes of
REMIC Regular Certificates issued at different yields, and having different
weighted average lives, taxable income recognized by the holders of REMIC
Residual Certificates may be greater than cash flow in earlier years of the
REMIC (with a corresponding taxable loss or less taxable income than cash flow
in later years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding classes of REMIC Regular Certificates are paid, whereas interest income
from the Mortgage Loans may not increase over time as a percentage of the
outstanding principal amount of the Mortgage Loans.
In the case of Tiered REMICs, the OID Regulations provide that the regular
interests in the REMIC which directly owns the Mortgage Loans (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.
Any 'excess inclusions' with respect to a REMIC Residual Certificate will
be subject to certain special rules. The excess inclusions with respect to a
REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates (if they were debt instruments) on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a holder's
return.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular taxable
income computed without regard to the rule that taxable income cannot be less
than the amount of excess inclusions, (ii) the alternative minimum taxable
income of a taxpayer for a taxable year cannot be less than
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the amount of excess inclusions for that year, and (iii) the amount of any
alternative minimum tax net operating loss is computed without regard to any
excess inclusions. While these provisions are generally effective for tax years
beginning after December 31, 1986, a taxpayer may elect to have these provisions
apply only with respect to tax years beginning after August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Code Section 511, the excess
inclusions will be treated as unrelated business taxable income of such holder
for purposes of Code Section 511. In addition, the Code provides that under
Treasury regulations, if a real estate investment trust ('REIT') owns a REMIC
Residual Certificate, to the extent excess inclusions of the REIT exceed its
real estate investment trust taxable income (excluding net capital gains), the
excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ('RICs'), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be 'significant,' then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations. This authority has not been exercised to
date.
The REMIC is subject to tax at a rate of 100 percent on any net income it
derives from 'prohibited transactions.' In general, 'prohibited transaction'
means the disposition of a 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 Certificates. In addition, a tax is imposed on the REMIC equal to 100
percent of the value of certain property contributed to the REMIC after its
'startup day.' No REMIC in which interests are offered hereunder will accept
contributions that would cause it to be subject to such tax. This provision will
not affect a REMIC's ability in accordance with the Agreement to accept
substitute Mortgage Loans or to sell defective Mortgage Loans.
A REMIC is subject to a tax (deductible from its income) on any 'net income
from foreclosure property' (determined in accordance with Section 857(b)(4)(B)
of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed on
the Trust Fund initially would be borne by the REMIC Residual Certificates in
the related REMIC rather than by the REMIC Regular Certificates, 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 Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although 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
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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.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
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guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See 'Deductibility of Trust Fund Expenses' below. No prediction can be made
regarding whether such legislation or similar legislation will be enacted.
The REMIC Regulations provide that a transfer of a 'noneconomic residual
interest' will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a 'noneconomic residual
interest' unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate, 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' below.
DEDUCTIBILITY OF TRUST FUND EXPENSES
A holder of REMIC Certificates that is an individual, estate or trust will
be subject to the limitation with respect to certain itemized deductions
described in Code Section 67, to the extent that such deductions, in the
aggregate, do not exceed two percent of the holder's adjusted gross income, and
such holder may not be able to deduct such fees and expenses to any extent in
computing such holder's alternative minimum tax liability. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the 'applicable amount' ($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 Loans. 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 Certificates that do not pay their principal amounts
ratably. As a result, the REMIC will report additional taxable income to holders
of REMIC Residual Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding an interest in such
REMIC Residual Certificates may have taxable income in excess of the cash
received. In the case of a 'single-class REMIC,' the expenses will be allocated,
under Treasury regulations, among the holders of the REMIC Regular Certificates
and the REMIC Residual Certificates on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
the case of a holder of a REMIC Regular Certificate who is an individual or a
'pass-through interest holder' (including certain pass-through entities, but not
including 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 Certificates to such
a holder. In general terms, a single-class REMIC is one that either (i) would
qualify, under existing Treasury regulations, as a grantor trust if it were not
a REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income purposes) or (ii) is similar to such a
trust and which is structured with the principal purpose of avoiding the
single-class REMIC rules.
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FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a holder of a REMIC
Regular Certificate who is not a 'United States person' (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the holder, (ii) the holder is not a
'10-percent shareholder' within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the holder is not a 'controlled foreign corporation' (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term 'United
States person' means (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. Proposed Treasury regulations, which would
be effective with respect to payments made after December 31, 1997 if adopted in
their current form, would provide alternative certification requirements and
means by which a holder of REMIC Certificates could claim the exemption from
federal income and withholding tax.
REMIC Residual Certificates. The Conference Report to the Tax Reform Act
of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
'portfolio interest' (if certain certifications as to beneficial ownership are
made, as discussed above under 'Foreign Investors--Regular Certificates') or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Mortgage Loans held by a
Trust 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 Loans 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.
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BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale of
REMIC Certificates to or through certain brokers may be subject to a 'backup'
withholding tax of 31 percent of 'reportable payments' (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or 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 Seller 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 Seller or its
designee will act as the holder's fiduciary in the performance of any duties
required of the holder in the event that the holder is the tax matters person.
NON-REMIC CERTIFICATES
The discussion under this heading applies only to a series of Certificates
with respect to which a REMIC election is not made.
Tax Status of the Trust Fund. Upon the issuance of each series of
Non-REMIC Certificates, Stroock & Stroock & Lavan LLP, counsel to the Seller,
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. Accordingly, each holder of a
Non-REMIC Certificate will be treated for federal income tax purposes as the
owner of an undivided interest in the Mortgage Loans included in the Trust Fund.
As further described below, each holder of a Non-REMIC Certificate therefore
must report on its federal income tax return the gross income from the portion
of the Mortgage Loans that is allocable to such Non-REMIC Certificate and may
deduct the portion of the expenses incurred by the Trust Fund that is allocable
to such Non-REMIC Certificate, at the same time and to the same extent as such
items would be reported by such holder if it had purchased and held directly
such interest in the Mortgage Loans and received directly its share of the
payments on the Mortgage Loans 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-REMIC Certificate that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the holder's other miscellaneous itemized deductions exceeds
two percent of such holder's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the 'applicable amount' ($100,000 (or
$50,000 in the case of a separate return by a married individual), adjusted for
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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-REMIC Certificate that is not
a corporation cannot deduct such expenses for purposes of the alternative
minimum tax (if applicable). Such deductions will include servicing, guarantee
and administrative fees paid to the servicer of the Mortgage Loans. As a result,
individuals, estates, or trusts holding Non-REMIC Certificates may have taxable
income in excess of the cash received.
Status of the Non-REMIC Certificates. The Non-REMIC Certificates generally
will be 'real estate assets' for purposes of Section 856(c)(5)(A) of the Code
and 'loans. . . . secured by an interest in real property' within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and interest income on the Non-REMIC
Certificates generally will be 'interest on obligations secured by mortgages on
real property' within the meaning of Section 856(c)(3)(B) of the Code. However,
the Non-REMIC Certificates may not be qualifying assets under 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 Certificateholders. The Non-REMIC Certificates should not be
'residential loans made by the taxpayer' for purposes of the residential loan
requirement of Section 593(g)(4)(B) of the Code.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The federal
income tax treatment of the Non-REMIC Certificates will depend on whether they
are subject to the rules of section 1286 of the Code (the 'stripped bond
rules'). The Non-REMIC Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the 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 Loans. 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 Code Section
1286.
If interest retained for the Master Servicer's servicing fee or other
interest is treated as a 'stripped coupon,' the Non-REMIC Certificates will
either be subject to the original issue discount rules or the market discount
rules. A holder of a Non-REMIC Certificate will account for any discount on the
Non-REMIC Certificate (other than an interest treated as a 'stripped coupon') as
market discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Non-REMIC Certificate was treated as
zero under the original issue discount de minimis rule when the Non-REMIC
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off from the
Mortgage Loans. If neither of the above exceptions applies, the original issue
discount rules will apply to the Non-REMIC Certificates. See 'REMIC Regular
Interests--Current Income on REMIC Regular Interests-- Original Issue Discount'
and '--Market Discount' above.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Mortgage Loan underlying such Non-REMIC
Certificate) to such holder. Such yield would be computed at the rate that, if
used in discounting the holder's share of the payments on the Mortgage Loans,
would cause the present value of those payments to equal the price at which the
holder purchased the Non-REMIC Certificate. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles. If required to report
interest income on the Non-REMIC Certificates to the Internal Revenue Service
under the stripped bond rules, it is anticipated that the Trustee will calculate
the yield of the Non-REMIC Certificates based on a representative initial
offering price of the Non-REMIC Certificates and a reasonable assumed rate of
prepayment of the Mortgage Loans (although such yield may differ from the yield
to any particular holder that would be used in calculating the interest income
of such holder). The Prospectus Supplement for each series of Non-REMIC
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Certificates will describe the prepayment assumption that will be used for this
purpose, but no representation is made that the Mortgage Loans will prepay at
that rate or at any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Mortgage Loans allocable to the Non-REMIC Certificate,
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-REMIC Certificate acquired at a discount or
premium (that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Non-REMIC
Certificate and the portion of the adjusted basis of the Non-REMIC Certificate
(see 'Sales of Non-REMIC Certificates' below) that is allocable to the Mortgage
Loan.
Non-REMIC Certificates of certain series ('Variable Rate Non-REMIC
Certificates') may provide for a Pass-through Rate based on the weighted average
of the interest rates of the Mortgage Loans held by the Trust Fund, which
interest rates may be fixed or variable. In the case of a Variable Rate
Non-REMIC Certificate that is subject to the original issue discount rules, the
daily portions of original issue discount generally will be calculated in the
same manner as discussed above except the principles discussed in 'REMIC Regular
Certificates--Current Income on REMIC Regular Certificates--Original Issue
Discounts--Variable Rate REMIC Regular Certificates' will be applied.
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Non-REMIC Certificate, then the holder
will be required to include in income its share of the interest payments on the
Mortgage Loans in accordance with its tax accounting method. In addition, if the
holder purchased the Non-REMIC Certificate at a discount or premium, the holder
will be required to account for such discount or premium in the manner described
below, as if it had purchased the Mortgage Loans directly. The treatment of any
discount will depend on whether the discount with respect to the Mortgage Loans
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 Loans. 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 Certificates--Current Income on REMIC Regular Certificates--
Original Issue Discount--Variable Rate REMIC Regular Certificates.'
If discount on the Mortgage Loans 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 Loans will provide for monthly principal payments,
such discount may be required to be included in income at a rate that is not
significantly slower (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-REMIC Certificate to such
holder. In the absence of such an election, it may be necessary to accrue such
discount under a more rapid straight-line method. Under the de minimis rule,
market discount with respect to a Non-REMIC Certificate will be considered to be
zero if it is less than the product of (i) 0.25% of the principal amount of the
Mortgage Loans allocable to the Non-REMIC Certificate and (ii) the weighted
average life (determined using complete years) of the Mortgage Loans remaining
at the time of purchase of the Non-REMIC
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Certificate. See 'REMIC Regular Certificates--Current Income on REMIC Regular
Certificates--Market Discount.'
If a holder purchases a Non-REMIC Certificate 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 Loans or taking
account of a reasonable prepayment assumption.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Non-REMIC Certificate and the
portion of the adjusted basis of the Non-REMIC Certificate (see 'Sales of
Non-REMIC Certificates' below) that is allocable to the Mortgage Loan.
Sales of Non-REMIC Certificates. A holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see 'Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply' above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A holder of a Non-REMIC Certificate who is not a
'United States person' (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate will not be subject to United
States income or withholding tax in respect of payments of interest or original
issue discount on a Non-REMIC Certificate to the extent attributable to Mortgage
Loans that were originated after July 18, 1984, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such holder is not a
United States person and providing the name and address of such holder).
Proposed Treasury regulations, which would be effective with respect to payments
made after December 31, 1997 if adopted in their current form, would provide
alternative certification requirements and means by which a holder of Non-REMIC
Certificates could claim the exemption from federal income and withholding tax.
Interest or original issue discount on a Non-REMIC Certificate attributable to
Mortgage Loans that were originated prior to July 19, 1984 will be subject to a
30% withholding tax (unless such tax is reduced or eliminated by an applicable
tax treaty). For these purposes, the term 'United States person' means a citizen
or a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, and a trust for
which one or more United States fiduciaries have the authority to control all
substantial decisions and for which a court of the United States can exercise
primary supervision over the trust's administration. For years beginning before
January 1, 1997, the term 'United States person' shall include a trust whose
income is includible in gross income for United States federal income taxation
regardless of source, in lieu of trusts just described, unless the trust elects
to have its United States status determined under the criteria described in the
previous sentence for tax years ending after August 20, 1996.
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TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as 'taxable mortgage
pools' are subject to corporate level tax on their net income. A 'taxable
mortgage pool' is generally defined as an entity that meets the following
requirements: (i) the entity is not a REMIC (or, after September 1, 1997 a
FASIT, as defined in Section 860L of the Code), (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 Internal
Revenue Service to provide by regulations that equity interests may be treated
as debt for purposes of determining whether there are two or more maturities. If
a Series of Non-REMIC Certificates were treated as obligations of a taxable
mortgage pool, the Trust Fund would be ineligible to file consolidated returns
with any other corporation and could be liable for corporate tax. Treasury
regulations do not provide for the recharacterization of equity as debt for
purposes of determining whether an entity has issued debt with two maturities,
except in the case of transactions structured to avoid the taxable mortgage pool
rules.
ERISA CONSIDERATIONS
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
Certificates. 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 Certificates by or on behalf of such Plan
could be considered to give rise to a 'prohibited transaction' within the
meaning of ERISA and the Code unless an exemption is available. Furthermore, if
an investing Plan's assets were deemed to include the Mortgage Assets and not
merely an interest in the Certificates, transactions occurring in the management
of Mortgage Assets 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.
In DOL Regulation Section2510.3-101 (the 'Regulation'), 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 Certificates will qualify for any of the
exceptions under the Regulation. As a result, the Mortgage Assets may be
considered the assets of any Plan which acquires a Certificate, 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
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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
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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 Structured Rating Group, Moody's Investors
Service Inc., Duff & Phelps Credit Rating Co. or Fitch Investors Services, L.P.
('National Credit 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 Trust 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 National Credit 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.
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'). 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.
Any Plan fiduciary considering whether to purchase a Certificate on behalf
of a Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment.
Each Prospectus Supplement will contain information concerning
considerations relating to ERISA and the Code that are applicable to the related
Certificates.
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LEGAL INVESTMENT
SMMEA
Unless otherwise indicated in the related Prospectus Supplement and 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 Certificates 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 Certificates 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 Certificates.
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 Certificates
without limitation as to the percentage of their assets represented thereby,
federal credit unions may invest in Certificates, and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. Section 24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe. In this connection, federal credit unions
should review the National Credit Union Administration ('NCUA') Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which 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 Certificates
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 Certificates 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.
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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 Certificates, to purchase
Certificates representing more than a specified percentage of the investor's
assets, or to purchase certain types of Certificates, such as residual interests
or stripped mortgage-backed securities. Investors should consult their own legal
advisors in determining whether and to what extent the Certificates constitute
legal investments for such investors and comply with any other applicable
requirements.
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METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplements will be
offered in Series. The distribution of the Certificates 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 Certificates 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 Prospectus Supplement may also specify that the underwriters will not
be obligated to pay for any Certificates agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the Seller. In connection with the
sale of the Certificates, underwriters may receive compensation from the Seller
or from purchasers of the Certificates in the form of discounts, concessions or
commissions. The Prospectus Supplement will describe any such compensation paid
by the Seller.
Alternatively, the Prospectus Supplement may specify that the Certificates
will be distributed by Bear, Stearns acting as agent or in some cases as
principal with respect to Certificates that it has previously purchased or
agreed to purchase. If Bear, Stearns acts as agent in the sale of Certificates,
Bear, Stearns will receive a selling commission with respect to each Series of
Certificates, depending on market conditions, expressed as a percentage of the
aggregate principal balance of the Certificates sold hereunder as of the Cut-off
Date. The exact percentage for each Series of Certificates will be disclosed in
the related Prospectus Supplement. To the extent that Bear, Stearns elects to
purchase Certificates as principal, Bear, Stearns may realize losses or profits
based upon the difference between its purchase price and the sales price. The
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
Certificates 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
Certificates.
The Seller anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, 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 Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
The legality of the Certificates 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 Certificates
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 Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
85
<PAGE>
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped pass-through certificates 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.
86
<PAGE>
GLOSSARY
Unless the context indicates otherwise, the following terms shall have the
meanings set forth on the page indicated below:
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- -----
<S> <C>
Accounts................................................................................................. 29
Accrual Certificates..................................................................................... 31
Agency Securities........................................................................................ Cover
Agreement................................................................................................ 8
APR...................................................................................................... 6
ARM...................................................................................................... 78
Available Funds.......................................................................................... 30
Bankruptcy Bond.......................................................................................... 11
Basis Risk Shortfall..................................................................................... 62
Bear, Stearns............................................................................................ 85
Buydown Funds............................................................................................ 63
Buydown Loans............................................................................................ 5
Capitalized Interest Account............................................................................. 8
Cede..................................................................................................... 33
Certificate Account...................................................................................... 45
Certificate Register..................................................................................... 29
Certificateholders....................................................................................... Cover
Certificates............................................................................................. Cover
Charter Act.............................................................................................. 21
Cleanup Costs............................................................................................ 62
CMOs..................................................................................................... 7
Code..................................................................................................... 13
Collateral Value......................................................................................... 17
Commission............................................................................................... 2
Contracts................................................................................................ Cover
Cooperative Loans........................................................................................ Cover
Cooperatives............................................................................................. 4
Current Principal Amount................................................................................. 31
Cut-off Date............................................................................................. 9
Definitive Certificates.................................................................................. 34
Detailed Description..................................................................................... 15
Determination Date....................................................................................... 30
Distribution Date........................................................................................ 2
DTC...................................................................................................... 33
ERISA.................................................................................................... 14
Events of Default........................................................................................ 52
FDIC..................................................................................................... 27
FHA...................................................................................................... 4
FHA Insurance............................................................................................ 29
FHA Loans................................................................................................ 19
FHLMC.................................................................................................... Cover
FHLMC Act................................................................................................ 22
FHLMC Certificate group.................................................................................. 22
FHLMC Certificates....................................................................................... 6
FNMA..................................................................................................... Cover
FNMA Certificates........................................................................................ 6
FTC Rule................................................................................................. 59
Garn-St Germain Act...................................................................................... 60
GNMA..................................................................................................... Cover
</TABLE>
87
<PAGE>
<TABLE>
<S> <C>
GNMA Certificates........................................................................................ 6
GNMA Issuer.............................................................................................. 19
Guaranty Agreement....................................................................................... 19
Housing Act.............................................................................................. 19
HUD...................................................................................................... 24
Indirect Participant..................................................................................... 34
Insurance Proceeds....................................................................................... 45
Insured Expenses......................................................................................... 45
Lender................................................................................................... Cover
LIBOR.................................................................................................... 84
Liquidation Expenses..................................................................................... 45
Liquidation Proceeds..................................................................................... 45
Loan-to-Value Ratio...................................................................................... 17
Lower Tier REMIC......................................................................................... 71
Manufactured Homes....................................................................................... 19
Manufacturer's Invoice Price............................................................................. 17
Master Servicer.......................................................................................... Cover
Mortgage................................................................................................. 43
Mortgage Assets.......................................................................................... Cover
Mortgage Loans........................................................................................... 4
Mortgage Pool............................................................................................ 4
Mortgage Rate............................................................................................ 5
Mortgaged Properties..................................................................................... 15
Mortgagors............................................................................................... 30
Multifamily Loans........................................................................................ Cover
Multiple Variable Rate REMIC Regular Certificate......................................................... 68
National Credit Rating Agencies.......................................................................... 82
NCUA..................................................................................................... 83
Non-REMIC Certificates................................................................................... 14
OID Regulations.......................................................................................... 64
Participants............................................................................................. 33
Pass-Through Rate........................................................................................ 2
Percentage Interests..................................................................................... 52
Permitted Investments.................................................................................... 40
Plan..................................................................................................... 80
PMBS Agreement........................................................................................... 24
PMBS Issuer.............................................................................................. 7
PMBS Servicer............................................................................................ 7
PMBS Trustee............................................................................................. 7
Policy Statement......................................................................................... 83
Pool Insurance Policy.................................................................................... 11
Pool Insurer............................................................................................. 36
Pre-Funded Amount........................................................................................ 8
Pre-Funding Account...................................................................................... 8
Pre-Funding Period....................................................................................... 8
Prepayment Assumption.................................................................................... 65
Presumed Single Qualified Floating Rate.................................................................. 67
Presumed Single Variable Rate............................................................................ 67
Primary Insurance Policy................................................................................. 15
Primary Insurer.......................................................................................... 49
Principal Prepayments.................................................................................... 31
Private Mortgage-Backed Securities....................................................................... Cover
Protected Account........................................................................................ 44
PTCE 83-1................................................................................................ 80
</TABLE>
88
<PAGE>
<TABLE>
<S> <C>
PTE 90-30................................................................................................ 81
Purchase Price........................................................................................... 28
Rating Agency............................................................................................ 12
Record Date.............................................................................................. 29
Refinance Loan........................................................................................... 17
Regulation............................................................................................... 80
REIT..................................................................................................... 72
Relief Act............................................................................................... 61
REMIC.................................................................................................... Cover
REMIC Certificates....................................................................................... 62
REMIC Regular Certificates............................................................................... 13
REMIC Regulations........................................................................................ 63
REMIC Residual Certificates.............................................................................. 13
Reserve Account.......................................................................................... 2
Restricted Group......................................................................................... 82
Retained Interest........................................................................................ 29
RICs..................................................................................................... 72
Seller................................................................................................... Cover
Senior Certificates...................................................................................... 8
Single Family Loans...................................................................................... Cover
Single Variable Rate REMIC Regular Certificate........................................................... 67
SMMEA.................................................................................................... 13
Special Hazard Insurance Policy.......................................................................... 11
Special Hazard Insurer................................................................................... 37
Subordinated Certificates................................................................................ 8
Sub-Servicer............................................................................................. 12
Sub-Servicing Agreement.................................................................................. 45
Superlien................................................................................................ 62
Tiered REMICs............................................................................................ 63
Title V.................................................................................................. 60
Trust Fund............................................................................................... Cover
Trustee.................................................................................................. Cover
UCC...................................................................................................... 33
United States person..................................................................................... 75
VA....................................................................................................... 4
VA Guarantees............................................................................................ 29
VA Loans................................................................................................. 19
Variable Rate Non-REMIC Certificates..................................................................... 78
Variable Rate REMIC Regular Certificate.................................................................. 66
Yield Supplement Agreement............................................................................... 62
</TABLE>
89
<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 INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BSMSI 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 OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN
ANY STATE OR OTHER 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 INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
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 WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
Summary of Terms..................................... S-5
Description of the Mortgage Loans.................... S-35
The Master Servicers................................. S-35
Description of the Certificates...................... S-44
Yield and Prepayment Considerations.................. S-70
The Pooling and Servicing Agreement.................. S-89
Federal Income Tax Considerations.................... S-101
ERISA Considerations................................. S-102
Legal Investment..................................... S-103
Restrictions on Purchase and Transfer of the Residual
Certificates....................................... S-103
Method of Distribution............................... S-104
Legal Matters........................................ S-104
Rating............................................... S-104
Index of Principal Definitions....................... S-107
Annex A -- Certain Characteristics of the Mortgage
Loans.............................................. A-1
Annex B -- Planned Balances for the PAC
Certificates....................................... B-1
PROSPECTUS
Prospectus Supplement................................ 2
Available Information................................ 2
Incorporation of Certain Documents By Reference...... 2
Reports to Certificateholders........................ 3
Summary of Terms..................................... 4
The Trust Fund....................................... 15
Use of Proceeds...................................... 25
The Seller........................................... 25
Mortgage Loan Program................................ 26
Description of the Certificates...................... 28
Credit Enhancement................................... 35
Yield and Prepayment Considerations.................. 41
The Pooling and Servicing Agreement.................. 43
Certain Legal Aspects of the Mortgage Loans.......... 54
Certain Federal Income Tax Consequences.............. 62
ERISA Considerations................................. 80
Legal Investment..................................... 83
Method of Distribution............................... 85
Legal Matters........................................ 85
Financial Information................................ 85
Rating............................................... 86
Glossary............................................. 87
================================================================================
================================================================================
$776,145,899
(APPROXIMATE)
BEAR STEARNS
MORTGAGE SECURITIES INC.
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 1997-7
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
BEAR, STEARNS & CO. INC.
DECEMBER 26, 1997
================================================================================
