REGISTRATION NO. 333-51279
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM S-3
AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
(Depositor)
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3633241
(State of incorporation) (I.R.S. Employer Identification Number)
245 PARK AVENUE
NEW YORK, NEWYORK 10167
(212) 272-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
WILLIAM J. MONTGORIS
TREASURER AND SECRETARY
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copies to:
LOIS L. WEINROTH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
--------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
====================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PRICE PER OFFERING FEE(3)
REGISTERED (1) UNIT (2) PRICE (2)
- ----------------------------------------------------------------------------------------------------
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Mortgage-Backed $1,000,000 100% $1,000,000 $295.00
Certificates and Mortgage-
Backed Notes
====================================================================================================
(1) This Registration Statement and the registration fee pertain to the initial
offering of the securities registered hereunder by the Registrant, and in
addition cover offers and sales relating to market-making transactions by
Bear Stearns & Co., Inc., an affiliate of the Registrant. The amount of the
securities which may be initially offered hereunder and the registration
fee shall not be reduced by any offers and sales relating to any such
market-making transactions.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _____, 199_)
$_________
(APPROXIMATE)
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
SELLER
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST 199 -
ISSUER
[CORPORATION 1]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
The Mortgage Pass-Through Certificates, Series 199_-_ (collectively, the
"Certificates"), consist of all Classes identified in the chart below (the
"Offered Certificates") as well as certain additional Classes of Other
Certificates (as hereinafter defined) which are not being offered for sale
hereunder. The original principal amount of one or more Classes of Certificates
may be increased or decreased by up to __% prior to their issuance, depending on
tthe Mortgage Loans actually delivered to the Trustee named herein, and may be
adjusted as necessary to obtain the required ratings on the Offered
Certificates. It is a condition to their issuance that each Class of
Certificates receive the respective ratings (set forth under "Summary of
Terms--Rating") of _______________________ and ________________________.
(COVER CONTINUED ON NEXT PAGE)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR
INTERESTS IN SAMI, THE TRUSTEE, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, SAMI, THE MASTER SERVICER OR
ANY OF THEIR AFFILIATES, OR ANY OTHER PERSON. DISTRIBUTIONS ON THE CERTIFICATES
WILL BE PAYABLE SOLELY FROM THE ASSETS TRANSFERRED OR PLEDGED TO THE TRUST FOR
THE BENEFIT OF CERTIFICATEHOLDERS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
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$ __________ ____% Class A-I-1 Certificates $ __________ ____ Class A-I-11 Certificates
$ __________ ____% Class A-I-2 Certificates $ __________ ____ Class A-II Certificates
$ __________ ____% Class A-I-3 Certificates $ __________ (3) Class PO Certificates
$ __________ ____% Class A-I-4 Certificates $ (4) (4) Class X Certificates
$ __________ ____% Class A-I-5 Certificates $ __________ (5) Class B-1 Certificates
$ __________ ____% Class A-I-6 Certificates $ __________ (5) Class B-2 Certificates
$ __________ (1) Class A-I-7 Certificates $ __________ (5) Class B-3 Certificates
(2) (2) Class A-I-8 Certificates $ __________ ____ Class R-1 Certificates
$ __________ ____% Class A-I-9 Certificates $ __________ (6) Class R-2 Certificates
$ __________ ____% Class A-I-10 Certificates
- --------------------------
(1) The Class A-I-7 Certificates will bear interest at _____% per annum during
the first Interest Accrual Period (as defined herein). During each Interest
Accrual Period thereafter, the Class A-I-7 Certificates will bear interest,
subject to a maximum rate of _____% per annum and a minimum rate of _____%
per annum, at a rate per annum equal to _____% in excess of the London
interbank offered rate for one-month U.S. dollar deposits ("LIBOR"), as
more fully described herein.
(2) The Class A-I-8 Certificates will have a notional principal amount (the
"Class A-I-8 Notional Amount") equal to the Current Principal Amount of the
Class A-I-7 Certificates. The Class A-I-8 Certificates will bear interest
at _____% per annum during the first Interest Accrual Period. During each
Interest Accrual Period thereafter, the Class A-I-8 Certificates will bear
interest, subject to a maximum rate of _____% per annum and a minimum rate
of _____% per annum, at a rate per annum equal to _____% - LIBOR.
(3) The Class PO Certificates will be principal only Certificates and will not
bear interest.
(4) The Class X Certificates will have a notional principal amount (the "Class
X Notional Amount") equal to the aggregate Scheduled Principal Balances (as
defined herein) of all of the Mortgage Loans and will bear interest on the
Class X Notional Amount at a variable Pass-Through Rate equal to the excess
of (a) the weighted average of the Net Rates of all of the Mortgage Loans
over (b) the weighted average of the Pass-Through Rates of all of the
Certificates (other than the Class X Certificates). The Pass-Through Rate
for the Class X Certificates for the first Interest Accrual Period is
expected to be approximately _____% per annum.
(5) The right of the Class B Certificates to receive distributions of principal
and interest will be subordinate to the rights of the holders of the Senior
Certificates (as defined herein) to receive such distributions, and the
Class B Certificates will be allocated losses prior to the allocation of
losses to the Senior Certificates. Class B Certificates with higher
numerical designations will similarly be subordinated to those with lower
numerical designations. See "Description of the Certificates--Allocation of
Losses; Subordination" herein.
(6) The Class R-2 Certificates will bear interest on their Current Principal
Amount at a variable Pass-Through Rate equal to the weighted average of the
Net Rates of the Group I Mortgage Loans (as defined herein).
</TABLE>
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
OFFERED CERTIFICATES, SEE "RISK FACTORS" IN THE PROSPECTUS COMMENCING ON PAGE
__.
----------------------------
Each Class of Offered Certificates (other than the Class PO Certificates)
will be purchased by Bear, Stearns & Co. Inc. (the "Underwriter") from
Structured Asset Mortgage Investments Inc. (formerly, Bear Stearns Mortgage
Securities Inc. ("SAMI" or the "Seller") and will be offered by the Underwriter
from time to time in negotiated transactions at varying prices to be determined
at the time of sale. Proceeds to the Seller are expected to be approximately
_____% of the aggregate principal balance of such Offered Certificates plus
accrued interest thereon, but before deducting expenses payable by the Seller in
connection with the Offered Certificates, estimated to be $__________.
The Offered Certificates (other than the Class PO Certificates) are offered
by the Underwriter when, as and if issued, delivered to and accepted by the
Underwriter and subject to certain other conditions. It is expected that
delivery of the Class R-1 and Class R-2 Certificates will be made against
payment therefor at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167 and that delivery of the other Offered Certificates
will be made in book entry form only, through the Same Day Funds Settlement
System of The Depository Trust Company, in each case on or about _____________,
199_.
BEAR, STEARNS & CO. INC.
The date of this Prospectus Supplement is ____________, 199_
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
The Offered Certificates and the Other Certificates will represent, in the
aggregate, the entire beneficial ownership interest in a trust (the "Trust")
consisting primarily of two groups ("Mortgage Loan Group I" and "Mortgage Loan
Group II" and each, a "Mortgage Loan Group") of conventional one- to
four-family, fully amortizing, fixed rate, first lien residential mortgage loans
with original terms to maturity (based on the date of origination or any later
modification) of up to 30 years ("Group I Mortgage Loans" and "Group II Mortgage
Loans," respectively, and collectively, the "Mortgage Loans"). All Mortgage
Loans in Mortgage Loan Group I have Net Rates lower than or equal to _____% per
annum and all Mortgage Loans in Mortgage Loan Group II have Net Rates greater
than _____% per annum. The characteristics of the Mortgage Loans comprising each
Mortgage Loan Group are described herein under "Description of the Mortgage
Loans" and in Schedule A hereto. All the Mortgage Loans will be acquired by
Structured Asset Mortgage Investments Inc. (formerly, Bear Stearns Mortgage
Securities Inc.("SAMI" or the "Seller") on the date of issuance of the
Certificates from [CORPORATION 1].
Distributions of interest and principal on the Class A-I Certificates and
principal on the Class PO Certificates, on the one hand, and distributions of
interest and principal on the Class A-II Certificates, on the other, will be
equal to an amount based on interest and principal received or advanced with
respect to the Group I Mortgage Loans (the Group I Discount Loans in the case of
the Class PO Certificates) and the Group II Mortgage Loans, respectively, except
under the limited circumstances described herein. The right of the holders of
the Class X and Class B Certificates (as defined herein) to receive
distributions with respect to the Mortgage Loans will be based upon interest and
principal received or advanced with respect to both Mortgage Loan Groups. Such
right to receive distributions of principal and interest in the case of the
Class B Certificates will be subordinate to the rights of the holders of the
Senior Certificates (as defined herein) to receive such distributions, and the
Class B Certificates will be allocated losses prior to the allocation of losses
to the Senior Certificates. In addition, such rights of holders of each Class of
Class B Certificates will be subordinate to the rights of any Class of Class B
Certificates with a lower numerical designation.
Principal and interest on the Certificates are payable as described herein
on the ____ day of each month or, if such day is not a Business Day, then on the
next succeeding Business Day, beginning in ___________, 199_ (each, a
"Distribution Date"). Interest will accrue on the Certificates (other than the
Class PO Certificates) at the applicable Pass-Through Rates described above and
will be distributed in the amounts as described under "Description of the
Certificates--Distributions on the Certificates--Interest" herein. Distributions
of principal among the Certificates will be made as described under "Description
of the Certificates--Distributions on the Certificates--Principal" herein.
Realized Losses (as defined under "Description of the Certificates--Allocation
of Losses; Subordination") on the Mortgage Loans will be allocated to the
Certificates as described under "Description of the Certificates--Allocation of
Losses; Subordination" herein.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that one will develop. The Underwriter intends to
establish a market in the Offered Certificates being underwritten by it, but is
not obligated to do so. There is no assurance that any such market, if
established, will continue.
THE YIELD TO MATURITY OF EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS GENERALLY IN THE RELATED MORTGAGE
LOAN GROUP IN THE CASE OF THE CLASS A CERTIFICATES (AS DEFINED HEREIN), THE
GROUP I DISCOUNT MORTGAGE LOANS IN THE CASE OF THE CLASS PO CERTIFICATES, AND
THE MORTGAGE LOANS IN BOTH MORTGAGE LOAN GROUPS IN THE CASE OF THE CLASS X
CERTIFICATES AND THE CLASS B CERTIFICATES. THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO MATURITY OF
A CLASS OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE
SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED
CERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT
A DISCOUNT, AND INCLUDING THE CLASS PO CERTIFICATES IN THE CASE OF THE GROUP I
DISCOUNT MORTGAGE LOANS, THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS ON THE APPLICABLE MORTGAGE LOANS COULD RESULT IN AN ACTUAL
YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF ANY OFFERED
CERTIFICATES PURCHASED AT A PREMIUM, AND INCLUDING THE CLASS A-I-8 AND CLASS X
CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
ON THE APPLICABLE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN THE ANTICIPATED YIELD. HOLDERS OF THE CLASS A-I-8 AND CLASS X CERTIFICATES
SHOULD CAREFULLY CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON
THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH HOLDERS TO RECOVER FULLY
THEIR INITIAL INVESTMENTS. THE YIELD ON THE CLASS A-I-7 CERTIFICATES WILL BE
SENSITIVE, AND THE YIELD ON THE CLASS A-I-8 CERTIFICATES WILL BE HIGHLY
SENSITIVE, TO THE LEVEL OF LIBOR. THE YIELD TO INVESTORS IN THE OFFERED
CERTIFICATES (PARTICULARLY THE CLASS B-1, CLASS B-2 AND CLASS B-3 CERTIFICATES)
ALSO WILL BE ADVERSELY AFFECTED BY REALIZED LOSSES AND NET INTEREST SHORTFALLS
(EACH AS DEFINED HEREIN) ON ALL OF THE MORTGAGE LOANS. NO REPRESENTATION IS MADE
AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON ANY MORTGAGE LOANS, THE AMOUNT AND
TIMING OF REALIZED LOSSES OR INTEREST SHORTFALLS (AS DEFINED HEREIN) OR AS TO
THE RESULTING YIELD TO MATURITY OF ANY CLASS OF OFFERED CERTIFICATES. SEE
"SUMMARY OF TERMS--YIELD AND PREPAYMENT CONSIDERATIONS" AND "YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN.
As described herein, two separate real estate mortgage investment conduit
("REMIC") elections will be made in connection with the Trust for federal income
tax purposes. As described more fully herein and in the Prospectus, all of the
Certificates (other than the Class R-1, Class R-2 and Class X Certificates), as
well as each of the Separate Components (as defined herein) comprising the Class
X Certificates, will be designated as "regular interests" in a REMIC and the
Class R-1 and Class R-2 Certificates will represent the "residual interests" in
such REMICs. See "Federal Income Tax Consequences" herein and in the Prospectus.
The Class R-1 and Class R-2 Certificates will be subject to certain restrictions
on transfer and may have tax liabilities during the early years of the REMICs
that substantially exceed the principal and interest paid thereon during such
period. See "Restrictions on Purchase and Transfer of the Residual Certificates"
herein.
[CORPORATION 1] (the "Master Servicer") will act as master servicer of the
Mortgage Loans and will make certain limited representations and warranties
concerning the Mortgage Loans. The obligations of [CORPORATION 1] (and any
successor Master Servicer) to repurchase or substitute for a Mortgage Loan as to
which a breach has occurred and is continuing will constitute the sole remedies
available to Certificateholders with respect to a breach of any representations
or warranties concerning the Mortgage Loans. SAMII will not make any
representations or warranties for the benefit of the Certificateholders and will
not have any liability to the Certificateholders.
To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended. Actual results could differ materially from those contained in
such statements as a result of the matters set forth above, under "Summary of
Terms--Yield and Prepayment Considerations" and "Yield and Prepayment
Considerations" and elsewhere in this Prospectus Supplement.
The Offered Certificates offered by this Prospectus Supplement constitute a
portion of a separate series of Certificates being offered by the Seller
pursuant to its Prospectus dated ____________, 199_, which this Prospectus
Supplement is a part of and which accompanies this Prospectus Supplement. The
Prospectus contains important information regarding this offering which is not
contained herein and prospective investors are urged to read the Prospectus and
this Prospectus Supplement in full.
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS
SUMMARY SHALL HAVE THE MEANING ASSIGNED ELSEWHERE IN THE PROSPECTUS SUPPLEMENT.
SEE "INDEX OF PRINCIPAL DEFINITIONS" HEREIN.
Title of Series.................. Mortgage Pass-Through Certificates, Series
199_-_ (the "Certificates"). The Offered
Certificates and the Other Certificates will
represent in the aggregate the entire
beneficial ownership interest in a trust (the
"Trust") consisting primarily of Group I
Mortgage Loans and Group II Mortgage Loans
having aggregate principal balances as of the
Cut-off Date of approximately $___________
and $___________, respectively. The
Certificates will be issued pursuant to a
Pooling and Servicing Agreement to be dated
as of the Cut-off Date (the "Pooling and
Servicing Agreement") among Structured Asset
Mortgage Investments Inc., as seller (the
"Seller"), [CORPORATION 1], as master
servicer (the "Master Servicer"), and
____________________, as trustee (the
"Trustee").
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Offered Certificates............. Class A-I-1 _____% $ _________
Class A-I-2 _____% $ _________
Class A-I-3 _____% $ _________
Class A-I-4 _____% $ _________
Class A-I-5 _____% $ _________
Class A-I-6 _____% $ _________
Class A-I-7 (1) $ _________
Class A-1-8 (2) (2)
Class A-I-9 _____% $ _________
Class A-I-10 _____% $ _________
Class A-I-11 _____% $ _________
Class A-II _____% $ _________
Class PO (3) $ _________
Class X Variable $ (4)
Rate
Class B-1 _____% $ _________
Class B-2 _____% $ _________
Class B-3 _____% $ _________
Class R-1 _____% $ _________
Class R-2 Variable $ _________
Rate
</TABLE>
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(1) The Class A-I-7 Certificates will bear
interest at _____% per annum during the
first Interest Accrual Period (as
defined herein). During each Interest
Accrual Period thereafter, the Class
A-I-7 Certificates will bear interest,
subject to a maximum rate of _____% per
annum and a minimum rate of _____% per
annum, at a rate per annum equal to
_____% in excess of the London interbank
offered rate for one-month U.S. dollar
deposits ("LIBOR"), as more fully
described herein.
(2) The Class A-I-8 Certificates will have a
notional principal amount (the "Class
A-I-8 Notional Amount") equal to the
Current Principal Amount of the Class
A-I-7 Certificates. The Class A-I-8
Certificates will bear interest at
_____% per annum during the first
Interest Accrual Period. During each
Interest Accrual Period thereafter, the
Class A-I-8 Certificates will bear
interest, subject to a maximum rate of
_____% per annum and a minimum rate of
_____% per annum, at a rate per annum
equal to _____% - LIBOR.
(3) The Class PO Certificates are principal
only Certificates and will receive no
interest.
(4) The Class X Certificates will have a
Class X Notional Amount equal to the
aggregate Scheduled Principal Balances
of all of the Mortgage Loans. For
certain purposes as described herein,
the Class X Certificates are composed of
Separate Components which are not
separately transferable.
The original principal amount of one or more
Classes of Certificates may be increased or
decreased by the Seller by up to __%,
depending upon the Mortgage Loans actually
acquired by the Seller and delivered to the
Trustee. In addition, the original principal
amount of any Class of Certificates may be
adjusted, as necessary, to obtain the
required ratings on the Certificates from the
Rating Agencies. Accordingly, any investor's
commitments with respect to the Certificates
may be correspondingly decreased or
increased.
Other Certificates............... In addition to the Offered Certificates, the
Trust will issue Class B-4, Class B-5 and
Class B-6 Certificates (collectively, the
"Other Certificates") in aggregate original
principal amounts of approximately
$_________, $_________ and $_________,
respectively. Each of the Class B-4, Class
B-5 and Class B-6 Certificates will bear
interest at the rate of ____% per annum.
Any information contained herein with respect
to the Other Certificates is provided only to
permit a better understanding of the Offered
Certificates.
Designations
CERTIFICATES.................... Offered Certificates and Other Certificates.
OFFERED CERTIFICATES............ Class A-I-1, Class A-I-2, Class A-I-3, Class
A-I-4, Class A-I-5, Class A-I-6, Class A-I-7,
Class A-I-8, Class A-I-9, Class A-I-10, Class
A-I-11, Class A-II, Class PO, Class X, Class
B-1, Class B-2, Class B-3, Class R-1 and
Class R-2 Certificates.
OTHER CERTIFICATES.............. Class B-4, Class B-5 and Class B-6
Certificates (not offered hereby).
CLASS A CERTIFICATES............ Class A-I and Class A-II Certificates.
CLASS A-I CERTIFICATES.......... Class A-I-1, Class A-I-2, Class A-I-3, Class
A-I-4, Class A-I-5, Class A-I-6, Class A-I-7,
Class A-I-8, Class A-I-9, Class A-I-10 and A-
I-11 Certificates.
CLASS A-II CERTIFICATES......... Class A-II Certificates.
CLASS B CERTIFICATES............ Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates.
FLOATING RATE CERTIFICATES...... Class A-I-7 Certificates.
INVERSE FLOATING RATE
CERTIFICATES.................. Class A-I-8 Certificates.
SENIOR CERTIFICATES............. Class A, Class PO, Class X and Class R-1 and
Class R-2 Certificates.
SUBORDINATE CERTIFICATES........ Class B Certificates.
REGULAR CERTIFICATES............ All Classes of Certificates other than the
Class R-1 and Class R-2 Certificates.
RESIDUAL CERTIFICATES........... Class R-1 and Class R-2 Certificates.
PHYSICAL CERTIFICATES........... Class R-1 and Class R-2 Certificates.
BOOK-ENTRY CERTIFICATES......... All Offered Certificates other than the
Physical Certificates.
Denominations..................... Each Class of Book-Entry Certificates will be
registered as a single Certificate held by
Cede & Co., a nominee of The Depository Trust
Company ("DTC"), and beneficial interests
will be held by investors through the
book-entry facilities of DTC in the United
States, or Cedel Bank, societe anonyme
("Cedel"), or the Euroclear System
("Euroclear") in Europe, as described herein,
in minimum denominations of $25,000, except
for the Class A-I-8 and Class X Certificates
which shall be in minimum notional
denominations of $500,000 and $1,000,000,
respectively, and in each case increments of
$1 in excess thereof. One Certificate of each
Class of Book-Entry Certificates may be
issued in a different principal amount to
accommodate the remainder of the initial
principal amount of the Certificates of such
Class.
The Physical Certificates will be issued in
certificated fully-registered form. The Class
R-1 and Class R-2 Certificates will be issued
in a single certificate of $100 each.
Seller............................ Structured Asset Mortgage Investments Inc.
(the "Seller"). See "The Seller" in the
Prospectus.
Master Servicer................... [CORPORATION 1] will act as master servicer
with respect to the Mortgage Loans and is
sometimes referred to herein as the "Master
Servicer" or "[CORPORATION 1]." See
"Description of the Mortgage Loans--The
Master Servicer" herein.
Trustee........................... ________________.
Cut-off Date...................... ______________, 199_.
Closing Date...................... On or about ______________, 199_.
The Mortgage Loans................ The Mortgage Loans will consist of
conventional, one-to-four family, fully
amortizing, fixed rate Mortgage Loans secured
by first liens on residential real properties
(the "Mortgaged Properties") and having an
aggregate principal balance as of the Cut-off
Date of approximately $____________ (the
"Cut-off Date Scheduled Principal Balance").
The Mortgage Loans are divided into two
groups (Mortgage Loan Group I and Mortgage
Loan Group II) designated as the Group I
Mortgage Loans and the Group II Mortgage
Loans, having aggregate Cut-off Date
Scheduled Principal Balances of $___________
and $___________, respectively. All of the
Mortgage Loans in Mortgage Loan Group I have
Net Rates lower than or equal to _____% per
annum and all of the Mortgage Loans in
Mortgage Loan Group II have Net Rates greater
than _____% per annum. All of the Mortgage
Loans will be acquired by the Seller on the
date of issuance of the Certificates from the
Master Servicer.
GROUP I MORTGAGE LOANS. Approximately
$___________ aggregate principal balance of
the Group I Mortgage Loans have original
terms to stated maturity of up to __ years
and approximately $___________ aggregate
principal balance of the Group I Mortgage
Loans have original terms to stated maturity
of greater than __ but not more than __
years, in each case based on the date of
origination or any later modification. As of
the Cut-off Date, the weighted average
calculated remaining term to maturity of the
Group I Mortgage Loans was approximately
_____ months. The original principal balances
of the Group I Mortgage Loans ranged from
approximately $___________ to approximately
$___________ and the average principal
balance at origination was approximately
$___________. As of the Cut-off Date, the
outstanding principal balances of the Group I
Mortgage Loans ranged from approximately
$___________ to approximately $____________,
and the average outstanding principal balance
as of the Cut-off Date was approximately
$-----------.
The Mortgage Rates on the Group I Mortgage
Loans are fixed rates ranging from _____% per
annum to _____% per annum, with a weighted
average Mortgage Rate as of the Cut-off Date
of approximately _____% per annum. The
weighted average Net Rate on the Group I
Mortgage Loans as of the Cut-off Date is
approximately _____% per annum.
Approximately _____%, _____%, _____% and
_____% of the Group I Mortgage Loans
(measured by Cut-off Date Scheduled Principal
Balance) are secured by Mortgaged Properties
located in ___________, ___________,
___________ and ___________, respectively.
GROUP II MORTGAGE LOANS. Approximately
$___________ aggregate principal balance of
the Group II Mortgage Loans have original
terms to stated maturity of up to __ years
and approximately $___________ aggregate
principal balance of the Group II Mortgage
Loans have original terms to stated maturity
of greater than __ but not more than __
years, in each case based on the date of
origination or any later modification. As of
the Cut-off Date, the weighted average
calculated remaining term to maturity of the
Group II Mortgage Loans was approximately
_____ months. The original principal balances
of the Group II Mortgage Loans ranged from
approximately $___________ to approximately
$___________ and the average principal
balance at origination was approximately
$___________. As of the Cut-off Date, the
outstanding principal balances of the Group
II Mortgage Loans ranged from approximately
$___________ to approximately $___________,
and the average outstanding principal balance
as of the Cut-off Date was approximately
$-----------.
The Mortgage Rates on the Group II Mortgage
Loans are fixed rates ranging from _____% per
annum to _____% per annum, with a weighted
average Mortgage Rate as of the Cut-off Date
of approximately _____% per annum. The
weighted average Net Rate on the Group II
Mortgage Loans as of the Cut-off Date is
approximately _____% per annum.
Approximately _____%, _____%, _____% and
_____% of the Group II Mortgage Loans
(measured by Cut-off Date Scheduled Principal
Balance) are secured by Mortgaged Properties
located in ___________, ___________,
___________ and ___________, respectively.
For a further description of the Mortgage
Loans, see "Description of the Mortgage
Loans" herein and Schedule A which is
attached hereto and is a part of this
Prospectus Supplement.
Net Rate......................... The "Net Rate" for each Mortgage Loan is the
interest rate borne by such Mortgage Loan
(the "Mortgage Rate"), less the sum of the
Master Servicing Fee and the Trustee's Fee
attributable thereto (in each case expressed
as a per annum rate) (the "Aggregate Expense
Rate"). It is expected that with respect to
each Distribution Date, the Master Servicing
Fee (which includes the fee payable to any
sub-servicer ) for the Mortgage Loans will be
_____% per annum, and the Trustee's Fee will
be _____% per annum, of the Scheduled
Principal Balance of each Mortgage Loan as of
the Due Date in the month preceding the month
in which such Distribution Date occurs. For
any Distribution Date, the "Due Date" will be
the _______ day of the month in which such
Distribution Date occurs.
The "Scheduled Principal Balance" of a
Mortgage Loan with respect to a Distribution
Date is (i) the unpaid principal balance of
such Mortgage Loan as of the close of
business on the Due Date in the month
preceding the month of the Distribution Date
(i.e., taking account of the principal
payment to be made on such Due Date and
irrespective of any delinquency in its
payment), as specified in the amortization
schedule at the time relating thereto (before
any adjustment to such amortization schedule
by reason of any bankruptcy or similar
proceeding occurring after the Cut-off Date
(other than a Deficient Valuation, as defined
under "Description of the
Certificates--Allocation of Losses;
Subordination" herein) or any moratorium or
similar waiver or grace period) less (ii) any
Principal Prepayments and the principal
portion of any Net Liquidation Proceeds (as
defined herein) received during or prior to
the related Prepayment Period (as defined
herein); provided that the Scheduled
Principal Balance of any Liquidated Mortgage
Loan (as defined herein) is zero.
Distribution Dates............. The ____ day of each month, or if such day is
not a Business Day, then the next succeeding
Business Day, beginning in ________, 199_
(each, a "Distribution Date").
Record Date...................... The "Record Date" for each Distribution Date
will be the close of business on the last
business day of the month preceding the month
in which such Distribution Date occurs.
Due Period....................... With respect to each Distribution Date, the
period commencing on the second day of the
month preceding the month in which the
Distribution Date occurs and ending at the
close of business on the first day of the
month in which the Distribution Date occurs
(each, a "Due Period").
Prepayment Period................ With respect to each Distribution Date, the
period from the first day through the last
day of the month preceding the month of such
Distribution Date (each, a "Prepayment
Period").
Distributions on the
Certificates.................... GENERAL. On each Distribution Date, (i) the
Senior Certificates will be entitled to
receive all amounts distributable to them for
such Distribution Date before any
distributions are made to the Classes of
Subordinate Certificates on such date and
(ii) the Subordinate Certificates of each
Class will be entitled to receive all amounts
distributable to them for such Distribution
Date before any distributions are made on
such date on any Class of Subordinate
Certificates with a higher numerical Class
designation. In general, an amount equal to
the Group I Available Funds (as defined
herein) for such Distribution Date will be
allocated FIRST, to pay interest due the
holders of the Class A-I Certificates and the
Residual Certificates and Class X Component I
Accrued Certificate Interest (as defined
herein) and then to reduce the Current
Principal Amounts of the Senior Certificates
(other than the Class A-II Certificates);
SECOND, subject to the limitations described
herein, to pay the Class PO Deferred Amount
for such Distribution Date to the Class PO
Certificates; and THIRD, to pay interest on
and then principal of each Class of
Subordinate Certificates in the order of
their numerical Class designations. In
general, an amount equal to the Group II
Available Funds (as defined herein) for such
Distribution Date will be allocated FIRST, to
pay interest due on the Class A-II
Certificates and Class X Component II Accrued
Certificate Interest (as defined herein) and
then to reduce the Current Principal Amount
of the Class A-II Certificates; and SECOND,
to pay interest on and then principal of each
Class of Subordinate Certificates in the
order of their numerical Class designations.
The Group I Available Funds and the Group II
Available Funds in the aggregate (the
"Available Funds") will be allocated among
the Classes of Certificates in the manner set
forth in "Description of the
Certificates--Distributions on the
Certificates--Allocation of Available Funds"
herein. No distribution of interest or
principal from Group I Available Funds or
from Group II Available Funds will be made on
any Class of Subordinate Certificates on any
Distribution Date until all distributions of
interest and principal have been made on such
date on each Class of Certificates having a
higher priority with respect to the same
Available Funds.
INTEREST. Interest will accrue during the
preceding Interest Accrual Period for each
interest-bearing Class of Certificates at the
related rate described below (each, a
"Pass-Through Rate") on the Current Principal
Amount (as defined below), Class A-I-8
Notional Amount or Class X Notional Amount of
such Class immediately preceding such
Distribution Date. The Class PO Certificates
are principal only Certificates and will not
bear interest. With respect to each
Distribution Date, the "Interest Accrual
Period" for each Class of interest-bearing
Certificates (other than the Class A-I-7 and
Class A-I-8 Certificates) will be the
calendar month preceding the month in which
the Distribution Date occurs, commencing in
___________, 199_. The Interest Accrual
Period for the Class A-I-7 and Class A-I-8
Certificates for each Distribution Date will
commence on the _____ day of the calendar
month preceding the calendar month in which
such Distribution Date occurs and will end on
the _____ day of the calendar month in which
such Distribution Date occurs. Interest will
be calculated on the basis of a 360-day year
comprised of twelve 30-day months.
Each interest-bearing Class of Certificates
(other than the Floating Rate, Inverse
Floating Rate, Class X and Class R-2
Certificates) will bear interest at the fixed
Pass-Through Rates set forth on the cover
page hereof.
The Class A-I-7 Certificates will bear
interest at _____% per annum during the first
Interest Accrual Period. During each Interest
Accrual Period thereafter, the Class A-I-7
Certificates will bear interest subject to
maximum rate of _____% per annum and a
minimum rate of _____% per annum, at a rate
per annum equal to _____% in excess of LIBOR,
as more fully described herein.
The Class A-I-8 Certificates will bear
interest on the Class A-I-8 Notional Amount
at _____% per annum during the first Interest
Accrual Period. During each Interest Accrual
Period thereafter, the Class A-I-8
Certificates will bear interest on the Class
A-I-8 Notional Amount subject to a maximum
rate of _____% per annum and a minimum rate
of _____% per annum, at a rate equal to
_____% - LIBOR, as more fully described
herein.
The Class X Certificates will bear interest
on the Class X Notional Amount at a variable
Pass-Through Rate equal to the excess of (a)
the weighted average of the Net Rates of all
of the Mortgage Loans over (b) the weighted
average of the Pass-Through Rates of all of
the Certificates (other than the Class X
Certificates). The Pass-Through Rate for the
Class X Certificates for the first Interest
Accrual Period is expected to be
approximately _____% per annum.
In order to calculate the source of interest
due on the Class X Certificates and for REMIC
purposes, the Class X Certificates are deemed
to consist of separate components (each, a
"Separate Component"), certain of which
correspond to the Class A-I Certificates, the
Class R-1 Certificates and a principal amount
of the Class B Certificates which derives its
distributions from the Group I Mortgage Loans
(collectively, "Component I") and one which
corresponds to the Class A-II Certificates
and the principal amount of the Class B
Certificates which derives its distributions
from the Group II Mortgage Loans ("Component
II").
Since interest on the Class X Certificates is
based on amounts paid on both the Group I
Mortgage Loans and the Group II Mortgage
Loans, the Accrued Certificate Interest for
the Class X Certificates may also be
expressed as the sum of the Class X Component
I Accrued Certificate Interest and the Class
X Component II Accrued Certificate Interest
(each as defined herein.)
The Class R-2 Certificates will bear interest
on their Current Principal Amount at a
variable Pass-Through Rate equal to the
weighted average of the Net Rates of the
Group I Mortgage Loans.
On each Distribution Date, interest will be
distributable on each interest-bearing Class
of Certificates from the Group I Available
Funds and/or Group II Available Funds, as
described above, for such Distribution Date
in an aggregate amount equal to the Accrued
Certificate Interest for such Class on such
Distribution Date, plus any Accrued
Certificate Interest thereon remaining
undistributed from previous Distribution
Dates.
The "Accrued Certificate Interest" for any
interest-bearing Certificate for any
Distribution Date will equal the interest
accrued during the related Interest Accrual
Period at the applicable Pass-Through Rate on
the Current Principal Amount (or, in the case
of the Class A-I-8 Certificates, the Class
A-I-8 Notional Amount and in the case of the
Class X Certificates, the Class X Notional
Amount) of such Certificate immediately prior
to such Distribution Date less (i) in the
case of an interest-bearing Senior
Certificate, such Certificate's share of any
Net Interest Shortfall and the interest
portion of any Excess Losses (each as defined
herein) and, after the Distribution Date on
which the Current Principal Amounts of the
Subordinate Certificates are reduced to zero
(the "Cross-Over Date"), the interest portion
of any Realized Losses and (ii) in the case
of a Subordinate Certificate, such
Certificate's share of any Net Interest
Shortfall and the interest portion of any
Realized Losses.
Such shortfalls and losses will be allocated
among the Senior Certificates in proportion
to the amount of Accrued Certificate Interest
that would have been allocated thereto in the
absence of such shortfalls or losses. See
"Description of the Certificates--
Distributions on the Certificates--Interest"
and "--Allocation of Losses; Subordination"
herein.
Any Interest Shortfalls resulting from
prepayments from the first through the last
day of such month will be offset by the
Master Servicer to the extent such Interest
Shortfalls do not exceed the lesser of (i)
the Master Servicing Fee in connection with
such Distribution Date or (ii) 1/12 of _____%
of the Scheduled Principal Balances of the
Mortgage Loans with respect to such
Distribution Date (the amount of such fee so
used, a "Compensating Interest Payment"). No
assurance can be given that the servicing
compensation available to cover Interest
Shortfalls will be sufficient therefor. See
"The Pooling and Servicing
Agreement--Servicing Compensation and Payment
of Expenses" herein.
The "Current Principal Amount" of any
Certificate (other than a Class A-I-8
Certificate or a Class X Certificate) as of
any Distribution Date will equal such
Certificate's initial principal amount on the
Closing Date as reduced by (i) all amounts
distributed on previous Distribution Dates on
such Certificate on account of principal (and
the Class PO Cash Shortfall with respect to a
Class PO Certificate), (ii) the principal
portion of all Realized Losses previously
allocated to such Certificate and (iii) in
the case of a Subordinate Certificate, such
Certificate's share, if any, of the
Subordinate Certificate Writedown Amount and
the Class PO Deferred Payment Writedown
Amount (each, as defined herein) for previous
Distribution Dates.
The Class A-I-8 Certificates will have a
notional principal balance equal to the
Current Principal Amount of the Class A-I-7
Certificates.
The Class X Certificates will have a notional
principal balance equal to the aggregate
Scheduled Principal Balances of all of the
Mortgage Loans.
PRINCIPAL. Principal will be distributable
monthly on the Senior Certificates (other
than the Class A-I-8 and Class X
Certificates) on each Distribution Date in an
aggregate amount equal to the sum of the
Group I Senior Optimal Principal Amount, the
Class PO Principal Distribution Amount and
the Group II Senior Optimal Principal Amount
(each as defined herein) for such
Distribution Date to the extent of the Group
I Available Funds or Group II Available
Funds, as applicable, subject to certain
limited exceptions, for such Distribution
Date, remaining after distributions of
interest are made on the related
interest-bearing Senior Certificates on such
date. Subject to such limitation, the Group I
Senior Optimal Principal Amount, the Class PO
Principal Distribution Amount and the Group
II Senior Optimal Principal Amount will be
allocated among the Senior Certificates in
the manner described herein.
Principal will be distributed monthly on each
Class of Subordinate Certificates on each
Distribution Date in an aggregate amount
equal to such Class's Allocable Share (as
defined herein) for such Distribution Date to
the extent of the sum of the Group I
Available Funds and the Group II Available
Funds remaining after (i) distributions of
interest and principal have been made on each
Senior Certificate entitled thereto as
described herein, (ii) subject to the
limitations described herein, the Class PO
Deferred Amount for such Distribution Date
has been distributed in respect of the Class
PO Certificates, (iii) distributions of
interest and principal have been made on each
Class of Subordinate Certificates, if any,
with a lower numerical Class designation than
such Class and (iv) distributions of interest
have been made on such Class of Subordinate
Certificates.
Distributions of principal on a Class of
Certificates will be made on a PRO RATA basis
among all outstanding Certificates of such
Class. See "Description of the
Certificates--Distributions on the
Certificates" herein.
CLASS PO DEFERRED AMOUNT. On each
Distribution Date, the PO Percentage (as
defined herein) of the principal portion of
any Realized Loss in respect of a Group I
Discount Mortgage Loan (as defined herein)
will be allocated to the Class PO
Certificates. See "Description of the
Certificates--Allocation of Losses;
Subordination" herein. On each Distribution
Date through the Cross-Over Date, the Class
PO Certificates will be entitled to receive,
to the extent of Group I Available Funds
remaining after distributions of interest and
principal on the Senior Certificates (other
than the Class A-II Certificates and the
Class X Component II Accrued Certificate
Interest on the Class X Certificates) have
been made from such funds on such
Distribution Date, any Class PO Deferred
Amount for such Distribution Date; provided,
that distributions in respect of the Class PO
Deferred Amount on any Distribution Date will
not exceed the excess, if any, of (x) the
Available Funds (as defined herein) remaining
after giving effect to the distributions
pursuant to priorities (A) FIRST through
THIRD and (B) FIRST through THIRD under
"Description of the Certificates--
Distributions on the Certificates" herein
over (y) the amount of Accrued Certificate
Interest for such Distribution Date and
Accrued Certificate Interest remaining
undistributed from previous Distribution
Dates on all Classes of Subordinate
Certificates. Distributions in respect of the
Class PO Deferred Amount shall not reduce the
Current Principal Amount of the Class PO
Certificates. The "Class PO Deferred Amount"
means, as to each Distribution Date through
the Cross-Over Date, the aggregate of all
amounts allocable on such date to the Class
PO Certificates in respect of the principal
portion of Realized Losses (other than Excess
Losses) and Class PO Cash Shortfall and all
amounts previously allocated in respect of
such losses (other than Excess Losses) and
Class PO Cash Shortfall to the Class PO
Certificates and not distributed on prior
Distribution Dates.
Additional Rights of the
Residual Certificates........... In addition to distributions of principal and
interest, the holders of the Residual
Certificates will be entitled to receive (i)
the amount, if any, of Available Funds
remaining on any Distribution Date after
distributions of interest and principal are
made on the Certificates on such date and
(ii) the proceeds, if any, of the assets of
the Trust remaining after the Current
Principal Amount of each Class of
Certificates has been reduced to zero. It is
not anticipated that any material assets will
be remaining for such distributions at any
such time.
Credit Enhancement--
General......................... Credit enhancement for the Senior
Certificates will be provided by the
Subordinate Certificates. Credit enhancement
for each Class of Subordinate Certificates
will be provided by the Class or Classes of
Subordinate Certificates with higher
numerical Class designations.
Credit Enhancement--
Subordination................... The rights of the holders of each Class of
Subordinate Certificates to receive
distributions with respect to the Mortgage
Loans will be subordinated to such rights of
the holders of the related Senior
Certificates and of each Class of Subordinate
Certificates having a lower numerical Class
designation than such Class. The
subordination of the Subordinate Certificates
to Senior Certificates, and the further
subordination among the Subordinate
Certificates, are each intended to increase
the likelihood of timely receipt by the
holders of Certificates with higher relative
payment priority of the maximum amount to
which they are entitled on any Distribution
Date and to provide such holders protection
against losses resulting from defaults on
Mortgage Loans to the extent described
herein. The Subordinate Certificates also
provide protection to a lesser extent against
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses (each as defined herein) to
the extent described herein. However, in
certain circumstances, the amount of
available subordination (including the
limited subordination provided for certain
types of losses) may be exhausted and
shortfalls in distributions on the Offered
Certificates could result. Except with
respect to the Class PO Certificates as
described below, holders of Senior
Certificates will bear their PRO RATA share
of any Realized Losses with respect to
Mortgage Loans in both Mortgage Loan Groups
in excess of the available total
subordination amount. See "Description of the
Certificates--Distributions on the
Certificates," "--Allocation of Losses;
Subordination" and "--Subordination" herein.
Since the Subordinate Certificates will
absorb Realized Losses on Mortgage Loans in
both Mortgage Loan Groups, a disproportionate
amount of Realized Losses with respect to
Mortgage Loans in either Mortgage Loan Group
will adversely impact the availability of
subordination to the Certificates related to
the other Mortgage Loan Group.
As of the Closing Date, the aggregate Current
Principal Amounts of all classes of
Subordinate Certificates and of the Other
Certificates will equal approximately _____%
and _____%, respectively, of the aggregate
Current Principal Amounts of all Classes of
Certificates.
In addition, to extend the period during
which the Subordinate Certificates remain
available as credit enhancement for the
Senior Certificates, the entire amount of any
prepayments and certain other unscheduled
recoveries of principal with respect to the
Mortgage Loans will be allocated to the
related Senior Certificates to the extent
described herein during the first five years
after the Cut-off Date (with such allocation
being subject to reduction thereafter as
described herein). This allocation has the
effect of accelerating the amortization of
the related Senior Certificates as a whole
while, in the absence of losses in respect of
the Mortgage Loans, increasing the percentage
interest in the principal balance of the
Mortgage Loans in both Mortgage Loan Groups
evidenced by the Subordinate Certificates.
See "Description of the
Certificates--Distributions on the
Certificates" and "--Subordination" herein.
In certain other instances as described in
paragraph (D) under "Description of the
Certificates--Distributions on the
Certificates--Allocation of Available Funds,"
Principal Prepayments otherwise distributable
to the Class B Certificates will in lieu
thereof be distributed to Senior
Certificates.
Monthly Advances................. The Master Servicer will be obligated to
advance delinquent scheduled payments of
principal and interest on the Mortgage Loans
under certain circumstances (each such
advance, a "Monthly Advance"). See "The
Pooling and Servicing Agreement--Monthly
Advances" herein.
Allocation of Losses............. Subject to the limitations set forth below,
Realized Losses on the Mortgage Loans will be
allocated as follows: first, among the
Subordinate Certificates in the inverse order
of their numerical Class designations
beginning with the Class B-6 Certificates and
second, PRO RATA to the Classes of Senior
Certificates as described herein, until, in
each case, the Current Principal Amount of
each such Class of Certificates is reduced to
zero. The aggregate amounts of Realized
Losses which may be allocated by means of
Subordination to cover Special Hazard Losses,
Fraud Losses and Bankruptcy Losses are
initially limited to $___________,
$___________ and $___________, respectively.
All of the foregoing amounts are subject to
periodic reduction as described herein.
Any Special Hazard Losses, Fraud Losses and
Bankruptcy Losses in excess of the respective
amounts of coverage therefor ("Excess Special
Hazard Losses," "Excess Fraud Losses" and
"Excess Bankruptcy Losses," respectively, and
collectively, "Excess Losses") on
Non-Discount Mortgage Loans in Mortgage Loan
Group I will be allocated on a PRO RATA basis
among the Senior Certificates (other than the
Class PO Certificates) and Subordinate
Certificates (any such Realized Losses so
allocated to such Senior Certificates will be
allocated PRO RATA without priority among the
various Classes thereof). The principal
portion of such losses on Group I Discount
Mortgage Loans will be allocated to the Class
PO Certificates in an amount equal to the
related PO Percentage thereof, and the
remainder of such losses on Discount Mortgage
Loans will be allocated among the remaining
Senior Certificates on a PRO RATA basis as
described above. After the Cross-Over Date,
all Realized Losses (including, without
limitation, all Special Hazard Losses, Fraud
Losses and Bankruptcy Losses) on Group I
Mortgage Loans will be allocated among the
Senior Certificates as described above. The
amount of any Realized Loss (other than an
Excess Loss) allocated to the Class PO
Certificates on or prior to the Cross- Over
Date will be treated as Class PO Deferred
Amount. Prior to the Cross-Over Date, Excess
Losses on Group II Mortgage Loans, and after
the Cross-Over Date, all Realized Losses on
Group II Mortgage Loans will be allocated on
a PRO RATA basis among the Senior
Certificates (other than the Class PO
Certificates). See "Description of the
Certificates--Allocation of Losses;
Subordination" herein.
Neither the Offered Certificates nor the
Mortgage Loans are insured or guaranteed by
any governmental agency or instrumentality or
by the Seller, the Trustee, the Master
Servicer or any affiliate thereof or any
other person.
Yield and Prepayment
Considerations.................. GENERAL CONSIDERATIONS. The yield to maturity
of each Class of Offered Certificates will be
affected by the amount and timing of
principal payments on the related Mortgage
Loans, the allocation of Group I Available
Funds and/or Group II Available Funds, as
applicable, to such Class of Certificates,
the applicable Pass- Through Rate for such
Class of Certificates and the purchase price
paid for such Certificates. In addition, the
yields to investors in the Certificates will
be adversely affected by Realized Losses and
Net Interest Shortfalls allocated thereto.
Furthermore, the yield to investors in the
Floating Rate Certificates and Inverse
Floating Rate Certificates will be affected
by the future levels of LIBOR. The
interaction of the foregoing factors may have
different effects on the various Classes of
Certificates and the effects on any Class may
vary at different times during the life of
such Class. No representation is made as to
the anticipated rate of prepayments on any
Mortgage Loans, the amount or timing of
Realized Losses or Net Interest Shortfalls,
future levels of LIBOR or the anticipated
yield to maturity of any Certificates.
Prospective investors are urged to consider
their own estimates as to the anticipated
rate of future prepayments on the Mortgage
Loans and the suitability of the Certificates
to their investment objectives. In addition
to the discussion below, prospective
investors should review the discussion under
"Yield and Prepayment Considerations" herein
and in the Prospectus.
MORTGAGE LOAN PAYMENTS. If prevailing
mortgage rates fall significantly below the
Mortgage Rates on the Mortgage Loans, the
Mortgage Loans are likely to be subject to
higher prepayment rates than if prevailing
rates remain at or above the Mortgage Rates
on the Mortgage Loans. Other factors
affecting prepayments of Mortgage Loans
include changes in Mortgagors' housing needs,
job transfers, unemployment, net equity in
the Mortgaged Properties and servicing
decisions. Amounts received by virtue of
liquidations of Mortgage Loans, repurchases
of Mortgage Loans upon breach of
representations or warranties and optional
termination of the Trust also affect the
receipt of principal on the Mortgage Loans.
In general, the Mortgage Loans may be prepaid
at any time without penalty. In addition, the
rate of prepayments will be affected by the
rate and timing of the sale of the Mortgaged
Properties because all of the Mortgage Loans
contain due-on-sale clauses.
TIMING OF PAYMENTS AND Distributions. Unlike
certain corporate bonds, the timing and
amount of principal payments on the
Certificates are not fixed because they are
generally determined by the timing and amount
of principal payments on the applicable
Mortgage Loans. The timing of payments on the
applicable Mortgage Loans may significantly
affect an investor's yield. In general, the
earlier a prepayment of principal on the
applicable Mortgage Loans, the greater will
be the effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal prepayments
occurring at a rate higher (or lower) than
the rate anticipated by the investor during
the period immediately following the issuance
of the Certificates will not be offset by a
subsequent like reduction (or increase) in
the rate of principal prepayments.
Furthermore, the effective yield to holders
of interest-bearing Certificates (other than
the Class A-I-7 and Class A-I-8 Certificates)
will be slightly lower than the yield
otherwise produced by the applicable
Pass-Through Rate and purchase price because,
while interest generally will accrue on each
such Certificate from the first day of the
month, the distribution of such interest will
not be made earlier than the 25th day of the
month following the month of accrual.
Moreover, to the extent any Net Interest
Shortfall or the interest portion of any
Realized Loss is allocated to a Class of
Certificates the yield to investors in such
Class will be reduced.
DISCOUNTS AND PREMIUMS. In the case of any
Class PO Certificates or any other
Certificates purchased at a discount, a
slower than anticipated rate of principal
payments on the applicable Mortgage Loans
could result in an actual yield that is lower
than the anticipated yield. In the case of
any Class A-I-8 or Class X Certificates or
any other Certificates purchased at a
premium, a faster than anticipated rate of
principal payments on the applicable Mortgage
Loans could result in an actual yield that is
lower than the anticipated yield. Under
certain circumstances, investors in the Class
A-I-8 and Class X Certificates could fail to
recover fully their initial investments. A
discount or premium would be determined in
relation to the price at which a Certificate
will yield its Pass-Through Rate, after
giving effect to any payment delay.
REINVESTMENT RISK. Because the Mortgage Loans
may be prepaid at any time, it is not
possible to predict the rate at which
distributions on the Certificates will be
received. Since prevailing interest rates are
subject to fluctuation, there can be no
assurance that investors in the Certificates
will be able to reinvest the distributions
thereon at yields equaling or exceeding the
yields on the Certificates. Yields on any
such reinvestments may be lower, and may even
be significantly lower, than yields on the
Certificates. Generally, when prevailing
interest rates increase, prepayment rates on
mortgage loans tend to decrease, resulting in
a reduced rate of return of principal to
investors at a time when reinvestment at such
higher prevailing rates would be desirable.
Conversely, when prevailing interest rates
decline, prepayment rates on mortgage loans
tend to increase, resulting in a greater rate
of return of principal to investors at a time
when reinvestment at comparable yields may
not be possible. Prospective investors in the
Certificates should consider carefully the
related reinvestment risks in light of other
investments that may be available to such
investors.
SUBORDINATION OF CERTAIN CLASSES OF
CERTIFICATES. The rights of the holders of
the Subordinate Certificates to receive
distributions with respect to each Mortgage
Loan will be subordinated to such rights of
the holders of the applicable Senior
Certificates, and to the rights of the
holders of the Subordinate Certificates
having a lower numerical Class designation,
in each case, to the extent described herein.
The level of subordination available as
support to the Senior Certificates will be
directly affected by the rate and timing of
prepayments and the occurrence of Realized
Losses.
Between Senior Certificates, on the one hand,
and Subordinate Certificates, on the other,
prepayments on each Mortgage Loan will be
allocated solely to the related Senior
Certificates during at least the first five
years after the Closing Date, and then such
allocation will decrease subject to meeting
certain loss and delinquency tests during the
next four years until Senior Certificates and
Subordinate Certificates share PRO RATA in
such allocations. Consequently, during not
less than the first nine years after the
Closing Date, prepayments will have the
effect of accelerating the amortization of
the applicable Senior Certificates while
increasing the percentage interest in the
related Mortgage Loans evidenced by
Subordinate Certificates.
To the extent that Realized Losses are
incurred, the allocation of such Realized
Losses to the Subordinate Certificates will
have the effect of increasing the percentage
interest in the Mortgage Loans, evidenced by
the Senior Certificates in the aggregate. See
"Description of the
Certificates--Distributions on the
Certificates" and "--Allocation of Losses;
Subordination" herein.
SEQUENTIAL PAY SENIOR CERTIFICATES. The Class
A-I Certificates (other than the Class A-I-8
Certificates) are subject to various
priorities for payment of principal as
described herein. Distributions on Classes
currently entitled to receive principal
payments will be immediately affected by the
prepayment rate of the related Mortgage Loans
at such time. Distributions on Classes with a
later priority of payment will not be
directly affected by the prepayment rate
until such time as principal is distributable
on such Classes. However, the timing of
commencement of principal distributions and
the weighted average lives of such Classes
will be affected by the prepayment rate on
the related Mortgage Loans experienced both
before and after the commencement of
principal distributions on such Classes. In
addition, because principal distributions are
paid to certain Classes of Class A-I
Certificates (other than the Class A-I-8
Certificates) before other Classes of Class
A-I Certificates, holders of Class A-I
Certificates that receive principal later
bear a greater risk of being allocated
Realized Losses than holders of such Classes
that receive principal earlier.
CLASS PO CERTIFICATES. The amounts payable
with respect to the Class PO Certificates
generally will be equal only to the amount of
certain principal payments on the Group I
Discount Mortgage Loans. As a result, the
yield on the Class PO Certificates will be
adversely affected by slower than expected
payments of principal (including prepayments,
defaults and liquidations) on the Group I
Discount Mortgage Loans. Because the Group I
Discount Mortgage Loans have lower Net Rates
than the Non-Discount Mortgage Loans in
Mortgage Loan Group I, and because the
Mortgage Loans with lower Net Rates are
likely to have lower Mortgage Rates, the
Group I Discount Mortgage Loans are generally
likely to prepay at a slower rate than the
Non-Discount Mortgage Loans. See "Yield and
Prepayment Considerations," especially
"--Yield on Class PO Certificates" herein.
CLASS X CERTIFICATES. Because the Notional
Amount of the Class X Certificates will equal
the aggregate Scheduled Principal Balances of
all of the Mortgage Loans, the yield on the
Class X Certificates will be sensitive to the
rate and timing of principal prepayments on
all of the Mortgage Loans. A rapid rate of
principal prepayments on the Mortgage Loans
will have a materially negative effect on the
yield to investors in the Class X
Certificates Investors should fully consider
the associated risks, including the risk that
a rapid rate of principal prepayments could
result in the failure of investors in the
Class X Certificates to recover fully their
initial investments. See "Yield and
Prepayment Considerations--Yield on Class X
Certificates" herein.
Since the Pass-Through Rate applicable to the
Class X Certificates will be based upon the
weighted average of the Net Rates of the
Mortgage Loans, disproportionate prepayments
of Mortgage Loans with higher Net Rates will
adversely affect the yield on the Class X
Certificates.
CLASS A-I-8 CERTIFICATES. The yield to
investors in the Class A-I-8 Certificates
will be highly sensitive to the level of
LIBOR. A high rate of principal payments
(including prepayments) on the Mortgage Loans
and/or a high level of LIBOR will have a
materially negative effect on the yield to
investors in the Class A- I-8 Certificates.
Investors should fully consider the
associated risks, including the risk that,
under certain circumstances, investors in the
Class A-I-8 Certificates could fail to
recover fully their initial investments. See
"Yield and Prepayment Considerations--Yield
on Class A-I-8 Certificates" herein.
RESIDUAL CERTIFICATES. Holders of the
Residual Certificates are entitled to receive
distributions of principal and interest as
described herein. However, holders of such
Certificates may have tax liabilities with
respect to their Certificates during the
early years of the related REMIC that
substantially exceed the principal and
interest payable thereon during such periods.
[In addition to the disclosure with respect
to the Classes described in this illustrative
form of Prospectus Supplement, the following
discussion sets forth examples of disclosure
for other types of Classes:]
[TARGETED AMORTIZATION CLASSES ("TACs"). The
Certificates have been structured to provide
for relatively stable distributions of
principal on the Class [I-1], Class [I-2] and
Class [I-3] Certificates (in accordance with
their respective "Targeted Principal
Percentages" as set forth on page S-__ )
assuming that prepayments on the Mortgage
Loans occur at a constant level of ___% SPA.
To the extent that prepayments on the
Mortgage Loans occur at a constant level
lower than ___% SPA, the Available Funds
allocable as payments of principal on the
Class [I-1], Class [I-2], Class [I-3], Class
[I-4], Class [I-5], Class [I-6] and Class
[I-7] Certificates (collectively, the "First
Tier Certificates") on each Distribution Date
may be insufficient to make distributions of
principal on the Class [I-1], Class [I-2] and
Class [I-3] Certificates in amounts
sufficient to reduce their principal balances
in accordance with their respective Targeted
Principal Percentages for such Distribution
Date, and, as a result, the weighted average
lives of such Certificates may be extended.
To the extent that prepayments occur at a
constant level higher than __% SPA, the
weighted average lives of the Class [I-1],
Class [I-2] and Class [I-3] Certificates may
be reduced. The ability to pay amounts
sufficient to reduce the principal balances
of the Class [I-1], Class [I-2] and Class
[I-3] Certificates in accordance with their
respective Targeted Principal Percentages for
a Distribution Date will not be enhanced by
the averaging of high and low principal
prepayments because any excess over such
amounts will be distributed on each
Distribution Date. In addition, because of
the diverse remaining terms to maturity of
the Mortgage Loans (which will include
recently originated Mortgage Loans), the
Class [I-1], Class [I-2] and Class [I-3]
Certificates may not be reduced to their
Targeted Principal [Balances], even if
prepayments occur at a constant level of __%
SPA.]
[COMPANION CLASSES TO TACS. Distributions of
principal on the Class [I-4], Class [I-5],
Class [I-6] and [I-7] Certificates will be
very sensitive to the rate of prepayments of
the Mortgage Loans because their monthly
principal distributions will be limited to
the excess, if any, of the Available Funds
allocable as payments of principal on the
First Tier Certificates over the sum of the
principal payments distributed to the Class
[I-1], Class [1-2] and Class
[I-3]Certificates. In particular, to the
extent that prepayments result in Available
Funds allocable as payments of principal on
the First Tier Certificates equal to or less
than the sum of the amounts sufficient to
reduce the principal balances of the Class
[I-1], Class [I-2] and Class [I-3]
Certificates to their Targeted Principal
Percentages specified for any Distribution
Date, the Class [I-4], Class [I-5], Class
[I-6] and [I-7] Certificates will receive no
principal distribution on such Distribution
Date. To the extent that prepayments result
in Available Funds allocable as payments of
principal on the First Tier Certificates in
excess of such sum on any Distribution Date,
such excess will be applied to the Class
[I-4], Class [I-5], Class [I-6] and Class
[I-7] Certificates as described herein.]
[FLOATING AND INVERSE FLOATING RATE
CERTIFICATES. Interest on the Class [I]
Certificates fluctuates in response to
changes in [an Index], and, accordingly, the
yield on the Class [I] Certificates will be
sensitive to the level of the Index. Interest
on the Class [II] Certificates fluctuates
inversely as a multiple of the Index, and,
accordingly, the yield on the Class [II]
Certificates will be very sensitive to the
level of the Index. A high level of the Index
will have a material negative effect on the
yields to investors in the Class [II]
Certificates. The timing of changes in the
level of the Index may significantly affect
the actual yield to investors in the Class
[I] and Class [II] Certificates, even if the
average level of the Index is consistent with
the expectations of investors. In general,
the earlier the change in the level of the
Index, the greater the effect on an
investor's yield. As a result, the effect on
an investor's yield of the Index occurring at
a level higher (or lower) than the level
anticipated by the investor during the period
immediately following the issuance of the
Certificates will not be offset by a
subsequent like reduction (or increase) in
the level of the Index. Changes in the Index
may not correlate with changes in prevailing
mortgage interest rates. Lower prevailing
mortgage interest rates, which might be
expected to result in faster prepayments,
could occur concurrently with an increased
level of the Index.]
[WEIGHTED-AVERAGE PASS-THROUGH RATE
CERTIFICATES. Interest on the Class [III]
Certificates is based on the weighted average
of the Net Rates on the Mortgage Loans.
Interest on such Certificates may be paid in
the future at a rate lower than the initial
interest rate to the extent that Mortgage
Loans bearing higher rates of interest are
prepaid more quickly than Mortgage Loans
bearing lower rates of interest.]
[INTEREST-WEIGHTED CERTIFICATES. The yield to
investors in the Class [IV] Certificates,
which will be offered at substantial premiums
over their stated principal amounts, will be
extremely sensitive to the rate and timing of
principal payments of the [________] Mortgage
Loans. A rapid rate of principal payments on
such Mortgage Loans will have a materially
negative effect on the yield to investors in
the Class [IV] Certificates. Investors should
fully consider the associated risks,
including the risk that a rapid rate of
principal payments could result in the
failure of investors in the Class [IV]
Certificates to recover fully their initial
investments.]
[PLANNED AMORTIZATION CLASSES. The
Certificates have been structured to provide
for relatively stable distributions of
principal on the Class [VI-1], Class [VI-2]
and Class [VI-3] Certificates (in accordance
with their respective PAC Principal
Percentages) assuming that prepayments on the
Mortgage Loans occur at a constant level of
___% to ___% SPA. To the extent that
prepayments on the Mortgage Loans occur at a
constant level lower than [lower percentage
of range]% SPA, the Available Funds allocable
as payments of principal on the First Tier
Certificates on each Distribution Date may be
insufficient to make distributions of
principal on the Class [VI-1], Class [VI-2]
and Class [VI-3] Certificates in amounts
sufficient to reduce their principal balances
in accordance with their respective PAC
Principal Percentages for such Distribution
Date, and, as a result, the weighted average
lives of such Certificates may be extended.
To the extent that prepayments occur at a
constant higher level than [higher percentage
of range]% SPA, the weighted average lives of
the Class [VI-1], Class [VI-2] and Class
[VI-3] Certificates may be reduced. The
amounts available for principal payments may
be insufficient to reduce the Class [VI-1],
Class [VI-2] and Class [VI-3] Certificates to
their respective PAC Principal Percentages
for the related Distribution Date, or
conversely, the weighted average lives of the
Class [VI-1], Class [VI-2] and Class [VI-3]
Certificates may be reduced, if prepayments
on the Mortgage Loans do not occur at a
constant rate, even if such prepayments
remain within the range of ___% to ___% SPA.
For example, the PAC Principal Percentages
may not be attained if payments of principal
initially occur at a relatively fast rate
within the range and subsequently occur at a
significantly slower rate within the range.]
[COMPANION CLASSES TO PACS. Distributions of
principal on the Class [VI-4], Class [VI-5],
Class [VI-6] and Class [VI-7] Certificates
will be very sensitive to the rate of
prepayments of the Mortgage Loans because
their monthly principal distributions will be
limited to the excess, if any, of the
Available Funds allocable as payments of
principal on the First Tier Certificates over
the sum of the principal payments distributed
to the Class [VI-1], Class [VI-2] and Class
[VI-3] Certificates. In particular, to the
extent that prepayments result in Available
Funds allocable as payments of principal on
the First Tier Certificates equal to or less
than the sum of the amounts sufficient to
reduce the principal balances of the Class
[VI-1], Class [VI-2] and Class [VI-3]
Certificates to their PAC Principal
Percentages specified for any Distribution
Date, the Class [VI-4], Class [VI-5], Class
[VI-6] and Class [VI- 7] Certificates will
receive no principal distribution on such
Distribution Date. To the extent that
prepayments result in Available Funds
allocable as payments of principal on the
First Tier Certificates in excess of such sum
on any Distribution Date, such excess will be
applied to the Class [VI-4], Class [VI-5],
Class [VI-6] and Class [VI-7] Certificates as
described herein.]
Liquidity........................ There is currently no secondary market for
the Certificates, and there can be no
assurance that one will develop. The
Underwriter intends to establish a market in
the Classes of Offered Certificates, but it
is not obligated to do so. There is no
assurance that any such market, if
established, will continue. Each
Certificateholder will receive monthly
reports pertaining to the Certificates as
described under "The Pooling and Servicing
Agreement--Reports to Certificateholders" in
the Prospectus. There are a limited number of
sources which provide certain information
about mortgage pass-through certificates in
the secondary market, and there can be no
assurance that any of these sources will
provide information about the Certificates.
Investors should consider the effect of
limited information on the liquidity of the
Certificates.
Assumed Final Distribution Date....The "Assumed Final Distribution Date" for
distributions on the Certificates is
___________, 20__. It is likely that the
actual final Distribution Date will occur
earlier as a result of prepayments or the
exercise by the Master Servicer or its
designee of the optional termination rights
described below. See "Yield and Prepayment
Considerations--Assumed Final Distribution
Date" herein.
Optional Termination............. On any Distribution Date on which the
aggregate unpaid principal balance of the
Mortgage Loans is less than 10% of the
aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Cut-off Date, the
Master Servicer or its designee may
repurchase from the Trust all Mortgage Loans
remaining outstanding and any REO Property
remaining in the Trust at the purchase price
set forth in the Pooling and Servicing
Agreement. The Trust may also be terminated
and the Certificates retired on any
Distribution Date upon the Master Servicer's
determination, based upon an opinion of
counsel, that the REMIC status of REMIC I or
REMIC II (as defined below) has been lost or
that a substantial risk exists that such
status will be lost for the then current
taxable year. Upon termination, the holders
of Certificates (other than the Class A-I-8
and Class X Certificates) will receive the
Current Principal Amount of their
Certificates and any accrued but unpaid
interest and the holders of the Class A-I-8
and Class X Certificates will receive accrued
but unpaid interest on their Certificates.
See "The Pooling and Servicing Agreement--
Termination" herein.
Federal Income
Tax Consequences................ An election will be made to treat the
Mortgage Loans, the Certificate Account and
certain other assets owned by the Trust as a
real estate mortgage investment conduit
("REMIC II") for federal income tax purposes.
REMIC II will issue "regular interests" and
one "residual interest." An election will be
made to treat the "regular interests" in
REMIC II and certain other assets owned by
the Trust as a REMIC ("REMIC I"). The
Certificates (other than the Class R-1, Class
R-2 and Class X Certificates), as well as
each of the Separate Components comprising
the Class X Certificates, will be designated
as regular interests in REMIC I. The
Certificates (other than the Class R-1 and
Class R-2 Certificates) and, where the
context so requires, each of the separate
components of the Class X Certificates (in
lieu of the Class X Certificates) are herein
referred to as the "Regular Certificates" or
the "REMIC Regular Certificates." The Class
R-2 Certificates will be designated as the
residual interest in REMIC II, and the Class
R-1 Certificates will be designated as the
residual interest in REMIC I (collectively,
the "Residual Certificates" or the "REMIC
Residual Certificates"). See "Federal Income
Tax Consequences" herein and in the
Prospectus and "Restrictions on Purchase and
Transfer of the Residual Certificates"
herein.]
[ERISA Considerations............ Fiduciaries of employee benefit plans subject
to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
should consider the ERISA fiduciary
investment standards before authorizing an
investment by a plan in the Certificates. In
addition, fiduciaries of employee benefit
plans or other retirement arrangements (such
as individual retirement accounts or certain
Keogh plans) which are subject to Title I of
ERISA, and/or Section 4975 of the Internal
Revenue Code of 1986, as amended (the
"Code"), as well as any entity, including an
insurance company general account, whose
underlying assets include plan assets by
reason of a plan or account investing in such
entity (collectively, "Plan(s)"), should
consult with their legal counsel to determine
whether an investment in the Certificates
will cause the assets of the Trust ("Trust
Assets") to be considered plan assets
pursuant to the plan asset regulations set
forth in 29 C.F.R. ' 2510.3-101, thereby
subjecting the Plan to the prohibited
transaction rules with respect to the Trust
Assets and the Trustee or the Master Servicer
to the fiduciary investment standards of
ERISA, or cause the excise tax provisions of
Section 4975 of the Code to apply to the
Trust Assets, unless some exemption granted
by the Department of Labor applies to the
acquisition, holding or transfer of the
Certificates.
Subject to the considerations set forth under
"ERISA Considerations" herein and in the
Prospectus, the purchase or holding of the
Senior Certificates (other than the Class PO
Certificates) by, on behalf of, or with plan
assets of, a Plan may qualify for exemptive
relief under Prohibited Transaction Exemption
90-30 (the "Exemption").
The Class PO and Class B Certificates
generally may be purchased by, on behalf of,
or with plan assets of, a Plan, if the
proposed transferee provides the Trustee with
a satisfactory "Benefit Plan Opinion" to the
effect that a prohibited transaction class
exemption based on the identity of the
fiduciary making the decision to acquire such
Certificates on behalf of the Plan is
applicable to the acquisition, holding and
transfer of the Class PO and Class B
Certificates as further described in "ERISA
Considerations" herein.
Restrictions on Purchase and
Transfer of the Residual
Certificates.................... The Residual Certificates are not offered for
sale to certain tax exempt organizations that
are "disqualified organizations" as defined
in "Federal Income Tax
Consequences--Transfers of REMIC Residual
Securities--Tax on Disposition of REMIC
Residual Securities" and "--Restrictions on
Transfer; Holding by Pass-Through Entities"
in the Prospectus. Such "disqualified
organizations" are prohibited from acquiring
or holding any beneficial interest in the
Residual Certificates. Further, neither the
Residual Certificates nor any beneficial
interest therein may be sold or otherwise
transferred without the express written
consent of _______________, acting as the
"Tax Matters Person" (as defined in the
Code), which may be withheld to avoid a risk
of REMIC disqualification or REMIC-level tax.
See "Federal Income Tax
Consequences--Transfers of REMIC Residual
Securities--Tax on Disposition of REMIC
Residual Securities" and "--Restrictions on
Transfer; Holding by Pass-Through Entities"
in the Prospectus and "Restrictions on
Purchase and Transfer of the Residual
Certificates" herein. Finally, unless the Tax
Matters Person consents in writing (which
consent may be withheld in the Tax Matters
Person's sole discretion), the Residual
Certificates (including a beneficial interest
therein) may not be purchased by or
transferred to any person who is not a
"United States person," as such term is
defined in Section 7701(a)(30) of the Code.
For certain additional tax-related
restrictions on the transfer of Residual
Certificates, see "Federal Income Tax
Consequences--Transfers of REMIC Residual
Certificates" and "Federal Income Tax
Consequences--Foreign Investors--REMIC
Residual Certificates" in the Prospectus.
Rating........................... It is a condition to their issuance that each
Class of Offered Certificates receives the
ratings set forth below from ______________
("____") and ______________ ("____")
(collectively, the "Rating Agencies").
RATING
CLASS
------ ____ _____
Class A-I-1 ___ ___
Class A-I-2 ___ ___
Class A-I-3 ___ ___
Class A-I-4 ___ ___
Class A-I-5 ___ ___
Class A-I-6 ___ ___
Class A-I-7 ___ ___
Class A-I-8 ___ ___
Class A-I-9 ___ ___
Class A-I-10 ___ ___
Class A-I-11 ___ ___
Class A-II ___ ___
Class PO ___ ___
Class X ___ ___
Class B-1 ___ ___
Class B-2 ___ ___
Class B-3 ___ ___
Class R-1 ___ ___
Class R-2 ___ ___
The ratings of the Offered Certificates of
any Class should be evaluated independently
from similar ratings on other types of
securities. A rating is not a recommendation
to buy, sell or hold securities and may be
subject to revision or withdrawal at any time
by the Rating Agencies. See "Ratings" herein.
The Seller has not requested a rating of the
Offered Certificates by any rating agency
other than the Rating Agencies. However,
there can be no assurance as to whether any
other rating agency will rate the Offered
Certificates or, if it does, what rating
would be assigned by such other rating
agency. The rating assigned by such other
rating agency to the Offered Certificates
could be lower than the respective ratings
assigned by the Rating Agencies.
Legal Investment................. The Senior Certificates and the Class B-1
Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") for so long as they are rated
in one of the two highest rating categories
by at least one nationally recognized
statistical rating organization, and, as
such, will be legal investments for certain
entities to the extent provided in SMMEA,
subject to state laws overriding SMMEA.
Certain states have enacted legislation
overriding the legal investment provisions of
SMMEA. The remaining Classes of Certificates
will NOT constitute "mortgage related
securities" under SMMEA (the "Non-SMMEA
Certificates"). The appropriate
characterization of the Non- SMMEA
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase Non-SMMEA Certificates, may be
subject to significant interpretive
uncertainties.
All investors whose investment activities are
subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Certificates. Any such institution should
consult its own legal advisors in determining
whether and to what extent there may be
restrictions on its ability to invest in the
Certificates. See "Legal Investment" herein
and in the Prospectus.
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All of the Mortgage Loans are conventional (neither insured by the Federal
Housing Administration ("FHA") nor guaranteed by the Veterans' Administration
("VA")) fully amortizing, fixed-rate Mortgage Loans secured by first liens on
one- to four-family residential Mortgaged Properties. The aggregate principal
balance of the Mortgage Loans as of the Cut-off Date is referred to as the
"Cut-off Date Scheduled Principal Balance." The Cut-off Date Scheduled Principal
Balance set forth below is subject to a permitted variance of up to ___%. The
following paragraphs and tables contained in Schedule A set forth certain
additional information with respect to the Mortgage Loans.*
- ------------------------
* The description herein of the Mortgage Loans is based upon estimates of
the composition of the Mortgage Loans as of the Cut-off Date, as adjusted
for all scheduled principal payments due on or before the Cut-off Date.
Prior to the issuance of the Certificates, Mortgage Loans may be removed as
a result of (i) Principal Prepayments thereof in full prior to
_____________, 199__, (ii) requirements of the Rating Agencies or (iii)
delinquencies or otherwise. In any such event, other mortgage loans may be
included in the Trust. The characteristics of the Mortgage Pool at the time
the Certificates are issued will not, however, be materially different from
the estimated information set forth herein with respect to the Mortgage
Pool as presently constituted, although certain characteristics of the
Mortgage Loans may vary.
All of the Mortgage Loans will have been sold to the Seller by
[CORPORATION1] ("[CORPORATION 1]") or the "Master Servicer"), pursuant to a
mortgage loan purchase agreement among the Seller, as purchaser, CORPORATION 1,
as seller[, and CORPORATION 1's parent, ________________________, as guarantor].
The Mortgage Loans will have been acquired by CORPORATION 1 in accordance with
the underwriting criteria described herein. All of the Mortgage Loans have
monthly payments due on the first day of each month. Each Mortgage Rate will be
fixed for the life of the related Mortgage Loan.
[CORPORATION 1], a _____________ corporation, is a mortgage banking conduit
that acquires conventional one- to four-family residential mortgage loans
nationwide. [CORPORATION 1] is a subsidiary of ________________, a
___________________. [CORPORATION 1] primarily acquires mortgage loans from
approved correspondents. At ___________, 199_, [CORPORATION 1] had approximately
___ employees. [CORPORATION 1]'s executive offices are located at
__________________, and its telephone number is (___) ___-____.
The Cut-off Date Scheduled Principal Balance of all of the Mortgage Loans
is approximately $___________. The Mortgage Loans are divided into Mortgage Loan
Group I and Mortgage Loan Group II, with the Group I Mortgage Loans and Group II
Mortgage Loans having Cut-off Date Scheduled Principal Balances of $___________
and $___________, respectively. All of the Group I Mortgage Loans have Net Rates
lower than or equal to _____% per annum and all of the Group II Mortgage Loans
have Net Rates greater than _____% per annum. Group I Mortgage Loans with
Cut-off Date Scheduled Principal Balances of approximately $___________ and
$___________ have original terms to stated maturity of up to ___ years, or
greater than ___ but not more than ___ years, respectively, and Group II
Mortgage Loans with Cut-off Date Scheduled Principal Balances of approximately
$___________ and $___________ have original terms to stated maturity of up to
___ years, or greater than ___ but not more than ___ years, respectively, in
each case based upon the date of origination or any later modification.
Each Mortgage Loan with a Loan-to-Value Ratio at origination in excess of
___% (except for _____ Group I Mortgage Loans with a Cut-off Date Scheduled
Principal Balance of approximately $___________ and _____ Group II Mortgage
Loans with a Cut-off Date Scheduled Principal Balance of approximately
$___________) is insured by a primary mortgage insurance policy ("Primary
Insurance Policy"). Each such Primary Insurance Policy provides coverage in an
amount equal at least to the excess of the original principal balance of the
Mortgage Loan covered thereby, plus accrued interest thereon and related
foreclosure expenses over ____% of the value of the related Mortgaged Property
as determined at the time of origination of the related Mortgage Loan. For these
purposes Loan-to-Value Ratio means the ratio, expressed as a percentage, of the
principal balance of the Mortgage Loan at origination to the original value of
the Mortgaged Property (i.e., the value at origination based upon an appraisal
or the selling price, whichever is less, or in the case of certain refinancings,
the value set forth in an appraisal). There can be no assurance that the
Loan-to-Value Ratio of any Mortgage Loan determined at any time after
origination is less than or equal to its original Loan-to-Value Ratio.
As of the Cut-off Date, it is expected that two of the Mortgage Loans
representing approximately ____% of the aggregate Cut-off Date Scheduled
Principal Balances of all of the Mortgage Loans are Buydown Loans . "Buydown
Loans" are subject to temporary buydown plans pursuant to which the monthly
payments made by the mortgagor in the early years of a Buydown Loan will be less
than the scheduled monthly payments thereon after the expiration of the buydown
period, the resulting difference to be made-up from an amount contributed by the
mortgagor, the seller of the related Mortgaged Property, a lender or another
party and placed in a custodial account.
None of the Mortgage Loans will be assumable. None of the Mortgage Loans
will be 30 or more days delinquent in payment as of the Closing Date, or will
have been 30 or more days delinquent more than once during the 12 months
preceding the Closing Date.
Pursuant to its terms, each Mortgage Loan is required to be covered by a
standard hazard insurance policy in an amount equal to the lower of the original
principal loan amount or the replacement value of the improvements on the
Mortgaged Property. See "Administration--Hazard Insurance" in the Prospectus.
No assurance can be given that the values of the Mortgaged Properties have
remained or will remain at the levels in effect on the date of origination of
the related Mortgage Loan. Approximately _____% and _____% of the Group I
Mortgage Loans and Group II Mortgage Loans, respectively, (by Cut-off Date
Scheduled Principal Balance) are secured by Mortgaged Properties located in the
State of California. Property values of residential real estate in California
have declined in recent years. If the California residential real estate market
should continue to experience an overall decline in property values after the
dates of origination of the Mortgage Loans, the rates of delinquencies,
foreclosures, bankruptcies and losses on the Mortgage Loans may be expected to
increase substantially.
CHARACTERISTICS OF THE MORTGAGE LOANS
Certain additional expected characteristics (as of the Cut-off Date) of the
Mortgage Loans by Mortgage Loan Group are set forth in the tables appearing as
Schedule A to this Prospectus Supplement.
UNDERWRITING STANDARDS
All of the Mortgage Loans were acquired by [CORPORATION 1] and
substantially all were underwritten pursuant to, or in accordance with, the
standards of [CORPORATION 1]'s __________ Series Program, which is described
below.
GENERAL. The underwriting guidelines utilized in the ____________ Series
Program, as developed by [CORPORATION 1], are intended to assess the borrower's
ability and willingness to repay the mortgage loan obligation and to assess the
adequacy of the mortgaged property as collateral for the mortgage loan. The
_______________ Series Program is designed to meet the needs of borrowers with
excellent credit, as well as those whose credit has been adversely affected. The
_______________ Series Program consists of six mortgage loan programs. Each
program has different credit criteria, reserve requirements, qualifying ratios
and Loan-to-Value Ratio restrictions. Series 1 is designed for credit history
and income requirements typical of "A" credit borrowers. In the event a borrower
does not fit the Series I criteria, the borrower's mortgage loan is placed into
either Series II, III, III+, IV or V, depending on which series' mortgage loan
parameters meets the borrower's unique credit profile. Series II, III, III+, IV
and V allow for less restrictive standards because of certain compensating or
offsetting factors such as a lower Loan-to-Value Ratio, verified liquid assets,
job stability, pride of ownership and, in the case of refinance mortgage loans,
length of time owning the mortgaged property. The philosophy of the
_______________ Series Program is that no single borrower characteristic should
automatically determine whether an application for a mortgage loan should be
approved or disapproved. Lending decisions are based on a risk analysis
assessment after the review of the entire mortgage loan file. Each mortgage loan
is individually underwritten with emphasis placed on the overall quality of the
mortgage loan. The _______________ Series I Program utilizes an average annual
salary to calculate the debt service-to-income ratio. Salaried borrowers are
evaluated based on a ___ month salary history, and self-employed and commission
borrowers are evaluated on a ___ month basis. The debt service-to- income ratio
for Series I borrowers is required to be within the range of ___% to ___%. The
________________ Series II, III, III+, IV and V Program borrowers are required
to have debt service-to-income ratios within the range of _____% to _____%
calculated on the basis of monthly income and depending on the Loan-to-Value
Ratio of the Mortgage Loan.
Under the _______________ Series Program, [CORPORATION1] underwrites one-
to four-family mortgage loans with Loan-to-Value Ratios at origination of up to
_____%, depending on, among other things, a borrower's credit history, repayment
ability and debt service-to-income ratio, as well as the type and use of the
mortgaged property. Second lien financing of the mortgaged properties may be
provided by lenders other than [CORPORATION1] at origination; however, the
combined Loan-to-Value Ratio ("CLTV") generally may not exceed ___% for mortgage
loan amounts up to $__________ and _____% for mortgage loan amounts above
$__________. In certain circumstances, [CORPORATION 1] may allow second lien
financing with CLTVs of up to _____%. The mortgage loans in the ______________
Series Program generally bear rates of interest that are greater than those
which are originated in accordance with Freddie Mac and Fannie Mae standards. In
general, the maximum amount for mortgage loans originated under the
______________ Series Program is $________; however, [CORPORATION 1] may approve
mortgage loans in excess of such amount on a case-by-case basis.
All of the mortgage loans originated under the ______________ Series I
Program are underwritten either by employees of [CORPORATION 1] or by contracted
mortgage insurance companies or delegated conduit sellers. All mortgage loans
originated under the Series II and III Programs are underwritten by employees of
[Corporation 1] and/or ___________________. Substantially all of the mortgage
loans originated under the Series III+, IV and V Programs are underwritten by
employees of [CORPORATION 1]. Substantially all of the Series I Program mortgage
loans and all of the Series II and III Program mortgage loans with Loan-to-Value
Ratios at origination in excess of ___% are insured by a Primary Insurance
Policy. None of the Series III+ Program Mortgage Loans with Loan-to- Value
Ratios at origination in excess of ___% will be insured by a Primary Insurance
Policy. In general, all Series IV and Series V Program Mortgage Loans have
Loan-to-Value Ratios at origination which are less than or equal to ___% and do
not require a Primary Insurance Policy. [CORPORATION 1] receives verbal
verification from [CORPORATION 1]'s conduit seller of employment prior to
funding or acquiring each ______________ Series Program mortgage loan.
FULL/ALTERNATIVE DOCUMENTATION AND REDUCED DOCUMENTATION ______________
SERIES PROGRAMS. Each prospective borrower completes a mortgage loan application
which includes information with respect to the applicant's liabilities, income,
credit history, employment history and personal information. [CORPORATION 1]
requires a credit report on each applicant from a credit reporting company. The
report typically contains information relating to credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions or judgments.
The ______________ Series Program allows for approval of an application
pursuant to the (a) Full/Alternative Documentation Program, or (b) the Limited
Documentation Program, the Lite Documentation Program, the "No Ratio" Program or
the "No Income, No Assets" Program (any of the foregoing, a "Reduced
Documentation Program"). The Full/Alternative Documentation Program requires the
following documents: (i) Uniform Residential Loan Application (Fannie Mae Form
1003 or Freddie Mac Form 65), (ii) Statement of Assets and Liabilities (Fannie
Mae Form 1003A or Freddie Mac 65A), (iii) Residential Mortgage Credit Report
with records obtained from at least two separate repositories, (iv) Verification
of Employment Form providing a complete two year employment history, (v)
Verification of Deposit Form for all liquid assets, verifying minimum cash
reserves as required based upon the Loan-to-Value Ratio and borrower's income,
and (vi) a Uniform Residential Appraisal Report (Fannie Mae Form 1004 or Freddie
Mac Form 70). The Full/Alternative Documentation Program allows for the use of
certain alternative documents in lieu of the Verification of Deposit Form and
Verification of Employment Form. These include W-2 Statements, tax returns and
one pay check from the most recent full month for verification of income and the
most recent _______ months personal bank statements for verification of liquid
assets. In addition, self-employed borrowers must provide federal tax returns
for the previous __________ years, including K-1's, federal business tax returns
for ________ years, year-to-date financial statements, a business credit report
(for corporations) and a signed IRS Form 4506 (Request for Copy of Tax Returns).
Under the Limited Documentation Program, which is available to borrowers in
every ___________ Series Program, [CORPORATION 1] obtains from prospective
borrowers either a verification of deposits or bank statements for the most
recent two-month period preceding the mortgage loan application. In addition,
the Lite Documentation Program is available to Series III+, Series IV and Series
V self-employed borrowers where the previous 12 months bank statements are
utilized in lieu of tax returns. Under these programs the borrower provides
income information on the mortgage loan application, and the debt
service-to-income ratio is calculated. However, income is not verified.
Permitted maximum Loan-to-Value Ratios (including secondary financing) under the
Limited Documentation Program and Lite Documentation Program generally are
limited.
The _____________ Series Program also allows for approval of applications
pursuant to the "No Ratio" Program and "No Income, No Assets" Program. The "No
Ratio" Program, available to borrowers in the Series I and Series II Programs,
is designed for a mortgage loan which requires a minimum _____% down payment
from the borrower with employment information, but no income information, stated
on the application (and, therefore, the debt service-to-income ratio is not
calculated). The verification of assets is confirmed by written verification of
deposits and supported by bank statements. With respect to the "No Ratio"
Program, a mortgage loan with a Loan- to-Value Ratio at origination in excess of
_____% is not eligible.
The "No Income, No Assets" Program, available to borrowers in the Series I
Program, requires a much larger down payment than under the "No Ratio" Program.
Under this program, the borrower provides no income information, but provides
employment and unverified asset information on the mortgage loan application.
With respect to the "No Income, No Assets" Program, a mortgage loan with a
Loan-to-Value Ratio at origination in excess of _____% is generally not
eligible.
Under all _______________ Series Programs, [CORPORATION 1]'s conduit seller
verbally verifies the borrower's employment prior to closing. Credit history,
collateral quality and the amount of the down payment are important factors in
evaluating a mortgage loan submitted under one of the Reduced Documentation
Programs. In addition, in order to qualify for a Reduced Documentation Program,
a mortgage loan must conform to certain criteria regarding maximum loan amount,
property type and occupancy status. Mortgage loans having a Loan-to- Value Ratio
at origination in excess of _____% for Series I, II and III and mortgage loans
on mortgaged property used as a second or vacation home by the prospective
borrowers are not eligible for a Reduced Documentation Program. In general, the
maximum loan amount for mortgage loans underwritten in accordance with Series I,
II and III Reduced Documentation Program is $____________ for purchase
transactions and rate-term transactions and a maximum loan amount of $__________
for cash out refinance transactions. The maximum loan amount for mortgage loans
underwritten in accordance with Series III+, IV and V Reduced Documentation
Program is $_________. Secondary financing is allowed in the origination of the
Limited Documentation Program but must meet the CLTV requirements described
above and certain other requirements for subordinate financing. Secondary
financing is not allowed in the case of the "No Ratio" or the "No Income, No
Assets" Programs. In all cases, liquid assets must support the level of income
of the borrower as stated in proportion to the type of employment of the
borrower. Full Documentation is requested by the underwriter if it is the
judgment of the underwriter that the compensating factors are insufficient for
loan approval.
CREDIT HISTORY. The ________________ Series Program defines an acceptable
credit history in each of the Series I, II and III Programs. The Series I
Program defines an acceptable credit history as a borrower who has "A" credit,
meaning a minimum of _______ trade accounts, with ___ months credit history, no
___-day delinquent mortgage payments in the last ___ months, and a maximum of
_______ ___-day delinquent payments on any installment credit account within the
past ___ months. No bankruptcies or foreclosures are allowed in the past ____
months. No judgments, suits, liens, collections or charge-offs are allowed
within the past ___ months.
With respect to the Series II Program, a borrower must have a minimum of
_______trade accounts with no late mortgage payments for the past ___ months and
may have one ___-day delinquent mortgage payment within the past _____through
_____months. A borrower may not have more than _____ ___-day delinquent payments
on any revolving credit account and a maximum of _______ ___-day delinquent
payments within the past ___months on any installment credit account. All
bankruptcies must be at least ___ months old, fully discharged and the borrower
must have re-established a satisfactory credit history. Foreclosures are not
allowed in the past ___ months.
With respect to the Series III Program, a borrower may not have more than
_____ ___-day delinquent mortgage payments within the past ___ months. The
borrower may not have more than _____ ___-day delinquent payments and ______
__-day delinquent payment on revolving debt in the last ___ months and may not
have more than _______ __-day delinquent and _____ __-day delinquent payment on
any installment credit account in the past ___ months. Any open judgment, suit,
lien, collection or charge-off must be paid prior to closing. Bankruptcies must
be at least ___ months old, fully discharged and the borrower must have
re-established a satisfactory credit history. No late mortgage payments are
permitted on equity take-out refinances under the Limited Documentation Program
offered under the _________________ Series Program.
With respect to the Series III+ Program, a borrower may not have more than
_____ ___-day delinquent mortgage payments within the past ___ months. The
borrower may not have more than _____ ___-day delinquent payments and _____
__-day delinquent payment on revolving debt in the last ___ months and may not
have more than _____ __-day delinquent payments and ____ ___-day delinquent
payment on any installment credit account in the past ___ months. Any open
judgments, suits, liens, collections, charge-offs not to exceed $_______ must be
paid in full at closing. Bankruptcies must be at least ___ months old, fully
discharged and the borrower must have re-established a satisfactory credit
history. Foreclosures are not allowed in the past ___ months.
With respect to the Series IV Program, a borrower may not have more than
_______ ___-day delinquent mortgage payments or ______ ___-day delinquent
mortgage payments and _____ ___-day delinquent mortgage payment within the past
___ months. The borrower may not have more than _____ __-day delinquent payments
or _____ ___-day delinquent payments or _____ ___-day delinquent payment on
revolving debt in the last ___ months and may not have more than ______ ___-day
delinquent payments or _____ ___-day delinquent payments or ______ ___-day
delinquent payment on any installment credit account in the past ___ months. Any
open judgments, suits, liens, collections, charge-offs not to exceed $_________
must be paid in full at closing. Bankruptcies must be at least ____ months old,
fully discharged and the borrower must have re-established a satisfactory credit
history. Foreclosures are not allowed in the past ___ months.
With respect to the Series V Program, a borrower may not have more than
_____ __-day delinquent mortgage payments or _____ ___-day delinquent mortgage
payments and _____ ___-day delinquent mortgage payment within the past ___
months. The borrower may not have more than _____ __-day delinquent payments or
_____ ___-day delinquent payments or _____ __-day delinquent payments on
revolving debt in the last ___ months and may not have more than _____ __-day
delinquent payments or _____ ___-day delinquent payments or _____ ___-day
delinquent payments on any installment credit account in the past ___ months.
Any open judgments, suits, liens, collections or charge-offs not to exceed
$________ must be paid in full at closing. Bankruptcies must be at least ___
months old, fully discharged and the borrower must have re-established a
satisfactory credit history. Foreclosures are not allowed in the past ___
months.
QUALITY CONTROL. [CORPORATION 1] generally performs a pre-funding audit on
each ________________ Series Program mortgage loan. This audit includes a review
for compliance with ______________ Program parameters and accuracy of the legal
documents. [CORPORATION 1] performs a quality control review on a minimum of
___% of the mortgage loans originated or acquired under the ________________
Series Program for complete re-verification of employment, income and liquid
assets used to qualify for such mortgage loan. Such review also includes
procedures intended to detect evidence of fraudulent documentation and/or
imprudent activity during the processing, funding, servicing or selling of the
mortgage loan. Verification of occupancy and applicable information is made by
regular mail.
APPRAISALS. One- to four-family residential properties that are to secure
_______________ Series Program mortgage loans are appraised by qualified
independent appraisers who are approved by [CORPORATION 1]'s correspondents.
Such appraisers inspect and appraise the subject property and verify that such
property is in acceptable condition. Following each appraisal, the appraiser
prepares a report which includes a market value analysis based on recent sales
of comparable homes in the area and, when deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home. All
appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal
Foundation and must be on forms acceptable to Fannie Mae and Freddie Mac. As
part of [CORPORATION 1]'s quality control procedures, either field or desk
appraisal reviews are obtained on ____% of all mortgage loans originated under
the Progressive Series Program. Selected mortgage loans will also be reviewed
for compliance and document accuracy. Desk and/or field appraisal reviews are
required on all mortgage loans originated under the Progressive Series Program
with Loan-to-Value Ratios in excess of ___% on mortgaged properties located in
the State of California, Loan-to-Value Ratios in excess of ___% on any
properties in all other states, loan amounts in excess of $___________,
non-owner occupied properties, second home properties, cash-out refinance
mortgage loans and whenever in the underwriter's judgment it is necessary to
reverify the appraised value of the property.
VARIATIONS. [CORPORATION 1] uses the foregoing parameters as guidelines
only. On a case-by-case basis, [CORPORATION 1] may determine that the
prospective mortgagor warrants an exception outside the standard
_________________ Series Program guidelines. An exception may be allowed if the
loan application reflects certain compensating factors, including (i) the
prospective mortgagor has demonstrated an ability to save and devote a greater
portion of income to basic housing needs; (ii) the prospective mortgagor may
have a potential for increased earnings and advancement because of education or
special job training, even if the prospective mortgagor has just entered the job
market; (iii) the prospective mortgagor has demonstrated an ability to maintain
a debt free position; (iv) the prospective mortgagor may have short term income
that is verifiable but could not be counted as stable income because it does not
meet the remaining term requirements; and (v) the prospective mortgagor's net
worth is substantial enough to suggest that repayment of the loan is within the
prospective mortgagor's ability.
[CORPORATION 1] commenced acquiring mortgage loans underwritten pursuant to
the ____________ Series Program in ___________, 19__ . Accordingly, [CORPORATION
1] does not have any historical delinquency or default experience that may be
referred to for purposes of estimating the future delinquency and loss
experience of the Mortgage Loans underwritten pursuant to the _______________
Series Program. There can be no assurance that the delinquency experience of the
servicing portfolio of [CORPORATION 1] as described herein will correspond to
the delinquency experience of the Mortgage Loans underwritten pursuant to the
______________ Series Program. It is contemplated that all of the ______________
Series Program mortgage loans acquired by [CORPORATION 1] will also be
underwritten with a view toward the resale thereof in the secondary mortgage
market.
<PAGE>
THE MASTER SERVICER
[CORPORATION 1] (in its capacity as master servicer, the "Master Servicer")
will act as master servicer for the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
The following table sets forth certain delinquency experience including
pending foreclosures on residential mortgage loans included in [CORPORATION 1]'s
servicing portfolio at the dates indicated. As of _____________, 199_, 199_ ,
199_ and ______, 199_, the total principal balance of loans being serviced by
[CORPORATION 1] was (in millions) $___________, $________, $________, $________
and $________, respectively.
<TABLE>
<CAPTION>
AT
--------------,---------------------------------
199- 199- 199- AT_________31, 199-
_____________________ _____________________ _____________________ ____________________
PERCENT PERCENT PERCENT
NUMBER OF NUMBER OF NUMBER OF NUMBER PERCENT
OF SERVICING OF SERVICING OF SERVICING OF OF
LOANS PORTFOLIO LOANS PORTFOLIO LOANS PORTFOLIO LOANS SERVICING
______ ____________ _______ __________ _______ ___________ ________ _________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % % %
======== ======== ======== ======== ======== ======== ======== ========
Period of
Delinquency:
....30-59 days....... % % % %
60-89 days........... % % % %2
90 days or more...... % % % %
-------- -------- -------- ------- --------- --------- -------- --------
Total
Delinquencies
(excluding % % 2 %2
Foreclosures).......... ======== ========= ======== ========= ========== =========% ======== =========
Foreclosures Pending % % % N/A
N/A
</TABLE>
- --------------------
There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans will correspond to the delinquency and foreclosure
experience of the servicing portfolio of [CORPORATION 1] set forth in the
foregoing table. The statistics shown above represent the respective delinquency
and foreclosure experiences only at the dates presented, whereas the aggregate
delinquency and foreclosure experience on the Mortgage Loans will depend on the
results obtained over the life of the Trust. The servicing portfolio includes
mortgage loans with a variety of payment and other characteristics (including
geographic location) which are not necessarily representative of the payment and
other characteristics of the Mortgage Loans. The servicing portfolio includes
mortgage loans underwritten pursuant to guidelines not necessarily
representative of those applicable to the Mortgage Loans. It should be noted
that if the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by [CORPORATION 1]. In addition,
adverse economic conditions may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies and foreclosures with respect to
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Prospectus and the provisions of the Pooling and
Servicing Agreement relating to the Certificates offered hereby.
GENERAL
The Mortgage Pass-Through Certificates, Series 1996-9 (the "Certificates"),
will consist of the classes of Certificates offered hereby (the "Offered
Certificates") in addition to the Class B-4, Class B-5 and Class B-6
Certificates (the "Other Certificates"), which are not being offered hereby.
The Certificates will evidence in the aggregate the entire beneficial
ownership interest in the Trust. The Trust will consist of (i) the Mortgage
Loans, (ii) such assets as from time to time are identified as deposited in
respect of the Mortgage Loans in the account (the "Protected Account")
established by the Master Servicer for the collection of payments on the
Mortgage Loans and in the Certificate Account and belonging to the Trust, (iii)
property acquired by foreclosure of such Mortgage Loans or by deed in lieu of
foreclosure; (iv) any applicable Primary Insurance Policies and standard hazard
insurance policies; and (v) all proceeds of the foregoing.
Each Class of Book-Entry Certificates will be represented initially by one
or more certificates which equal in the aggregate the initial Current Principal
Amount of such Class registered in the name of Cede & Co. as the nominee of The
Depository Trust Company ("DTC"), and beneficial interests will be held by
investors through the book-entry facilities of DTC in the United States or Cedel
Bank, societe anonyme ("Cedel"), or the Euroclear System ("Euroclear") in
Europe, in minimum denominations of $25,000 (except $500,000 and $1,000,000 for
the Class A-I-8 and Class X Certificates, respectively) and in each case
increments of $1 in excess thereof. One Certificate of each such Class may be
issued in a different principal amount to accommodate the remainder of the
initial principal amount of the Certificates of such Class.
The Class R-1 and Class R-2 Certificates will be issued in certificated
fully-registered form in a single certificate in a denomination of $100 each.
Distributions of principal and interest as set forth below initially will
be made by the Trustee to Cede & Co., as the registered holder of the Book-Entry
Certificates, and to the holders of the Physical Certificates. Upon the issuance
of Definitive Certificates (as defined in "Description of the
Securities--Book-Entry Registration" in the Prospectus) to persons other than
Cede & Co., distributions will be made by the Trustee to the persons in whose
names such Certificates are registered at the close of business on each Record
Date, which will be the last Business Day (as defined below) of the month
preceding the month in which the related Distribution Date occurs. Such
distributions will be made (i) by check mailed to each Certificateholder
entitled thereto at the address appearing in the Certificate Register to be
maintained in accordance with the provisions of the Pooling and Servicing
Agreement or (ii) upon timely receipt by the Trustee of written instructions
from a Certificateholder holding Certificates representing an initial aggregate
Current Principal Amount or Notional Amount of not less than $_________, by wire
transfer to a United States dollar account maintained by the payee at any United
States depository institution with appropriate facilities for receiving such a
wire transfer, PROVIDED, HOWEVER, that the final payment in respect of each
Class of Certificates will be made only upon presentation and surrender of such
respective Certificates at the office or agency of the Trustee specified in the
notice to Certificateholders of such final payment.
A "Business Day" is generally any day other than a Saturday, a Sunday or a
day on which the New York Stock Exchange is closed or on which banking
institutions in New York City or California are authorized or obligated by law
or executive order to be closed.
The Certificates will not be listed on any securities exchange or quoted in
the automated quotation system of any registered securities association. As a
result, investors in the Certificates may experience limited liquidity. See
"Risk Factors--Limited Liquidity" in the Prospectus.
BOOK-ENTRY REGISTRATION
The Book-Entry Certificates will be issued in one or more certificates
which equal the initial Current Principal Amount of the Certificates (other than
the Physical Certificates) and will initially be registered in the name of Cede
& Co. Cedel and Euroclear will hold omnibus positions on behalf of their
Participants through customers' securities accounts in Cedel's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Investors may hold beneficial interests in the Book-Entry
Certificates in minimum denominations representing Certificate Principal
Balances of $25,000 (except $500,000 and $1,000,000 for the Class A-I-8 and
Class X Certificates, respectively) and in each case in increments of $1 in
excess thereof.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book- Entry Certificates will be Cede & Co.
Beneficial owners of the Book-Entry Certificates will not be Certificateholders,
as that term is used in the Pooling and Servicing Agreement. Beneficial owners
are only permitted to exercise the rights of Certificateholders indirectly
through Participants. Monthly and annual reports to the Trust provided to Cede &
Co., as nominee of DTC, may be made available to beneficial owners upon request,
in accordance with the rules, regulations and procedures creating and affecting
DTC and to Participants to whose DTC accounts the Book-Entry Certificates are
credited. For a description of the features of the book-entry registration
system, see "Description of the Securities--Book-Entry Registration" in the
Prospectus.
Physical Certificates and Definitive Certificates will be transferable and
exchangeable on a "Certificate Register" to be maintained by the Trustee at the
office or agency of the Trustee maintained for that purpose in ___________.
Physical Certificates and Definitive Certificates surrendered to the Trustee for
registration or transfer or exchange must be accompanied by a written instrument
or transfer in form satisfactory to the Trustee. No service charge may be made
for any registration of transfer or exchange of Physical Certificates and
Definitive Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency of the Trustee
is currently located at ________________. Certain representations regarding
________________ will be required in connection with the transfer of REMIC
Residual Certificates. See "Restrictions on Purchase and Transfer of the
Residual Certificates."
AVAILABLE FUNDS
Available funds for any Distribution Date will be determined separately
with respect to each Mortgage Loan Group ("Group I Available Funds" and "Group
II Available Funds," respectively,) and in each case will be an amount equal to
the aggregate of the following with respect to the related Mortgage Loans: (a)
all previously undistributed payments on account of principal (including the
principal portion of Monthly Payments, Principal Prepayments and the principal
amount of Liquidation Proceeds) and all previously undistributed payments on
account of interest received after the Cut-off Date and on or prior to the
related Determination Date, (b) any Monthly Advances (including Certificate
Account Advances, as defined under "The Pooling and Servicing Agreement--Monthly
Advances" herein) and Compensating Interest Payments (as defined under "The
Pooling and Servicing Agreement--Servicing Compensation and Payment of Expenses"
herein) by the Master Servicer and (c) any amount reimbursed by the Master
Servicer in connection with losses on certain eligible investments, except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all Principal Prepayments and Liquidation Proceeds received after the
applicable Prepayment Period and all related payments of interest;
(iii) all payments, other than Principal Prepayments, that represent early
receipt of scheduled payments due on a date or dates subsequent to the Due
Date in the month in which such Distribution Date occurs;
(iv) amounts received on particular Mortgage Loans as late payments of
principal or interest and respecting which, and to the extent that, there are
any unreimbursed Monthly Advances or Certificate Account Advances;
(v) amounts of Monthly Advances or Certificate Account Advances determined
to be nonrecoverable;
(vi) amounts of Trustee's Fees for such Distribution Date; and
(vii) amounts permitted to be withdrawn from the Certificate Account
pursuant to clauses (i) through (xi) described under the caption "The Pooling
and Servicing Agreement--Certificate Account" herein.
"Available Funds" for any Distribution Date will equal the sum of the Group I
Available Funds and the Group II Available Funds.
DISTRIBUTIONS ON THE CERTIFICATES
ALLOCATION OF AVAILABLE FUNDS. Interest and principal on the Certificates
will be distributed monthly on each Distribution Date, commencing in
____________, 199_, in an aggregate amount equal to the Available Funds for such
Distribution Date.
(A) On each Distribution Date on or prior to the Distribution Date on which
the Current Principal Amounts of the Subordinate Certificates are reduced to
zero (the "Cross-Over Date"), an amount equal to the Group I Available Funds
will be distributed in the following order of priority among the Certificates:
FIRST, to the interest-bearing Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates, the Accrued
Certificate Interest on each such Class and the Class X Component I Accrued
Certificate Interest on such Component for such Distribution Date;
SECOND, to the interest-bearing Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates, any Accrued
Certificate Interest and Class X Component I Accrued Certificate Interest
thereon remaining undistributed from previous Distribution Dates, to the
extent of remaining Group I Available Funds, any shortfall in available
amounts being allocated among such Classes and Component in proportion to the
amount of such Accrued Certificate Interest and Class X Component I Accrued
Certificate Interest remaining undistributed for each such Class or Component
for such Distribution Date;
THIRD, to the Class A-I Certificates (other than the Class A-I-8
Certificates), the Residual Certificates and the Class PO Certificates in
reduction of the Current Principal Amounts thereof:
(a) the Group I Senior Optimal Principal Amount (as defined herein), in the
following order of priority:
(i) to the Class A-I-11 Certificates, up to the Class A-I-11 Optimal
Principal Amount (as defined herein) for such Distribution Date, until the
Current Principal Amount thereof has been reduced to zero;
(ii) concurrently, to the Class R-1 and Class R-2 Certificates, PRO
RATA, based upon their Current Principal Amounts, until the respective
Current Principal Amounts thereof have been reduced to zero;
(iii) ______%, ______% and ______% concurrently to the Class A-I-1
Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-1 Certificates has been
reduced to zero;
(iv) ______%, ______% and ______% concurrently to the Class A-I-3
Certificates, the Class A-I-7 Certificates and Class A-I-2 Certificates,
until the Current Principal Amount of the Class A-I-3 Certificates has been
reduced to zero;
(v) ______%, ______% and ______% concurrently to the Class A-I-4
Certificates, the Class A-I-7 Certificates and the Class A-I-2 Certificates,
until the respective Current Principal Amounts of the Class A-I-4
Certificates and the Class A-I-2 Certificates have been reduced to zero;
(vi) ______% and ______% concurrently to the Class A-I-5 Certificates
and the Class A-I-7 Certificates, until the Current Principal Amount of the
Class A-I-5 Certificates has been reduced to zero;
(vii) ______% and ______% concurrently to the Class A-I-6 Certificates
and Class A-I-7 Certificates, until the Current Principal Amount of the Class
A-I-6 Certificates has been reduced to zero;
(viii) concurrently to the Class A-I-9 Certificates and the Class
A-I-7 Certificates, PRO RATA, based on their Current Principal Amounts, until
the Current Principal Amounts thereof have been reduced to zero;
(ix) to the Class A-I-10 Certificates, until the Current
Principal Amount thereof has been reduced to zero; and
(B) the Class PO Principal Distribution Amount (as defined herein) for such
Distribution Date, to the Class PO Certificates, until the Current Principal
Amount thereof has been reduced to zero; and
FOURTH, the Class PO Deferred Amount for such Distribution Date to the
Class PO Certificates; provided, that (i) on any Distribution Date,
distributions pursuant to this priority (A) FOURTH, shall not exceed the
excess, if any, of (x) the Available Funds remaining after giving effect to
distributions pursuant to priorities (A) FIRST through THIRD above and (B)
FIRST through THIRD below over (y) the amount of Accrued Certificate Interest
for such Distribution Date and Accrued Certificate Interest remaining
undistributed from previous Distribution Dates on all Classes of Subordinate
Certificates then outstanding, (ii) such distributions shall not reduce the
Current Principal Amount of the Class PO Certificates and (iii) no
distribution will be made in respect of the Class PO Deferred Amount after
the Cross-Over Date.
The "Class A-I-11 Optimal Principal Amount" for any Distribution Date
occurring prior to the Distribution Date in ________, 200__ will equal zero. The
Class A-I-11 Optimal Principal Amount for any Distribution Date occurring after
the first five years following the Closing Date will be as follows: for any
Distribution Date during the sixth year after the Closing Date, _____% of the
Class A-I-11 Pro Rata Optimal Principal Amount (as defined below) for such
Distribution Date; for any Distribution Date during the seventh year after the
Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount for
such Distribution Date; for any Distribution Date during the eighth year after
the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal Amount
for such Distribution Date; for any Distribution Date during the ninth year
after the Closing Date, _____% of the Class A-I-11 Pro Rata Optimal Principal
Amount for such Distribution Date; and for any Distribution Date during and
after the tenth year after the Closing Date, _____% of the Class A-I-11 Pro Rata
Optimal Principal Amount. Notwithstanding the foregoing, if on any Distribution
Date the Current Principal Amount of each Class of Class A-I Certificates (other
than the Class A-I-8 and Class A-I-11 Certificates) has been reduced to zero,
the Class A-I-11 Optimal Principal Amount shall equal the Group I Senior Optimal
Principal Amount to the extent not distributed on such Distribution Date to
other Classes of Class A-I Certificates or Residual Certificates.
For any Distribution Date, the "Class A-I-11 Pro Rata Optimal Principal
Amount" shall be an amount equal to the product of (x) the Group I Senior
Optimal Principal Amount for such Distribution Date multiplied by (y) a
fraction, the numerator of which is the Current Principal Amount of the Class
A-I-11 Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate Current Principal Amounts of all Classes
of Class A-I Certificates and Residual Certificates immediately prior to such
Distribution Date.
"Pro rata" distributions among Classes of Certificates will be made in
proportion to the then Current Principal Amounts of such Classes.
If, after distributions have been made pursuant to priorities (A) FIRST and
SECOND above on any Distribution Date, remaining Group I Available Funds are
less than the sum of the Group I Senior Optimal Principal Amount and the Class
PO Principal Distribution Amount for such Distribution Date, such amounts shall
be proportionately reduced, and such remaining Group I Available Funds will be
distributed on the Class A-I Certificates (other than the Class A-I-8
Certificates), Residual Certificates and Class PO Certificates in accordance
with clauses (a) and (b) of priority (A) THIRD above on the basis of such
reduced amounts. Notwithstanding any reduction in principal distributable to the
Class PO Certificates pursuant to this paragraph, the principal balance of the
Class PO Certificates shall be reduced not only by principal so distributed but
also by the difference between (i) principal distributable to the Class PO
Certificates in accordance with clause (b) of priority (A) THIRD above and (ii)
principal actually distributed to the Class PO Certificates after giving effect
to this paragraph (the "Class PO Cash Shortfall"). The Class PO Cash Shortfall
with respect to any Distribution Date will be added to the Class PO Deferred
Amount.
(B) On each Distribution Date on or prior to the Cross-Over Date, an
amount equal to the Group II Available Funds will be distributed in the
following order of priority among the Certificates:
FIRST, to the Class A-II Certificates and Component II of the Class X
Certificates, the Accrued Certificate Interest on such Class and Class X
Component II Accrued Certificate Interest on such Component for such
Distribution Date;
SECOND, to the Class A-II Certificates and Component II of the Class X
Certificates, any Accrued Certificate Interest and Class X Component II
Accrued Certificate Interest thereon remaining undistributed from previous
Distribution Dates, to the extent of the remaining Group II Available
Funds, any shortfall in available amounts being allocated between such
Class and Component in proportion to the amount of such Accrued Certificate
Interest and Class X Component II Accrued Certificate Interest remaining
undistributed for such Class or Component for such Distribution Date; and
THIRD, the Group II Senior Optimal Principal Amount to the Class A-II
Certificates until their Current Principal Amount has been reduced to zero.
(C) On each Distribution Date on or prior to the Cross-Over Date, an
amount equal to any remaining Group I Available Funds and Group II Available
Funds following the distributions in (A) and (B) above will be distributed
sequentially, in the following order, to the Class B-1, Class B-2, Class B-3,
Class B-4, Class B-5 and Class B-6 Certificates, in each case up to an amount
equal to and in the following order: (a) the Accrued Certificate Interest
thereon for such Distribution Date, (b) any Accrued Certificate Interest thereon
remaining undistributed from previous Distribution Dates and (c) such Class's
Allocable Share (as defined herein) for such Distribution Date.
(D) On each Distribution Date prior to the occurrence of the
Cross-Over Date but after the reduction of the Current Principal Amounts of the
Class A-I Certificates (other than the Class A-I-8 Certificates) or Class A-II
Certificates to zero, the remaining Class or Classes of Class A Certificates
(other than the Class A-I-8 Certificates) will be entitled to receive, in
addition to any Principal Prepayments related to such Class A Certificates'
respective Mortgage Loan Group, 100% of the Principal Prepayments on the
Mortgage Loans in the other Mortgage Loan Group (in the case of Mortgage Loan
Group I in accordance with the priorities set forth in priority (A) THIRD above,
and in reduction of the Current Principal Amounts). In addition, if on any
Distribution Date on which the aggregate Current Principal Amount of the Class
A-I Certificates (other than the Class A-I-8 Certificates) or Class A-II
Certificates would be greater than the aggregate Scheduled Principal Balance of
the Mortgage Loans in the related Mortgage Loan Group (other than the related PO
Percentage (as defined herein) of the Group I Discount Mortgage Loans in
Mortgage Loan Group I) and Class B Certificates are still outstanding, in each
case after giving effect to distributions to be made on such Distribution Date,
100% of the Principal Prepayments otherwise allocable to the Class B
Certificates on the Mortgage Loans in the other Mortgage Loan Group will be
distributed to such Class or Classes of Class A Certificates (other than the
Class A-I-8 Certificates) (in the case of the Class A-I Certificates, in
accordance with the priorities set forth in priority (A) THIRD above) in
reduction of the Current Principal Amounts thereof, until the aggregate Current
Principal Amount of the Class A-I Certificates (other than the Class A-I-8
Certificates) or Class A-II Certificates, as applicable, is an amount equal to
the aggregate Scheduled Principal Balance of the Mortgage Loans in the related
Mortgage Loan Group (other than the related PO Percentage of the Group I
Discount Mortgage Loans in Mortgage Loan Group I).
(E) On each Distribution Date after the Cross-Over Date, distributions
of principal on the outstanding Class A-I Certificates (other than the Class
A-I-8 Certificates) and Residual Certificates will be made PRO RATA among all
such Certificates, regardless of the allocation, or sequential nature, of
principal payments described in priority (A) THIRD above, based upon the then
Current Principal Amounts of such Certificates, and interest will be distributed
as described above with respect to Distribution Dates on or prior to the
Cross-Over Date.
(F) On each Distribution Date, any Group I Available Funds and Group
II Available Funds remaining after payment of interest and principal as
described above will be distributed to the Class R-1 and Class R-2 Certificates;
provided that if on any Distribution Date there are any Group I Available Funds
remaining after payment of interest and principal as described in the preceding
paragraphs, such Group I Available Funds will be distributed to the Class A-II
Certificates in accordance with the priorities in paragraph (B) above until all
amounts due to such Certificates have been paid in full before any amounts are
distributed to the Residual Certificates. Similarly, if on any Distribution Date
there are any Group II Available Funds remaining after payment of interest and
principal as described in the preceding paragraphs, such Group II Available
Funds will be distributed to the Senior Certificates (other than the Class A-II
Certificates and Component II of the Class X Certificates) in accordance with
the priorities in priority (A) THIRD above or paragraph (E) above, as
applicable, until all amounts due to such Senior Certificates have been paid in
full before any amounts are distributed to the Residual Certificates. It is not
anticipated that there will be any significant amounts remaining for such
distribution.
INTEREST. Interest will accrue during the preceding Interest Accrual Period
for each interest-bearing Class of Certificates at its Pass-Through Rate on the
Current Principal Amount or Notional Amount of such Class immediately preceding
such Distribution Date. The effective yield to the holders of Certificates
(other than the Class A-I-7 and Class A- I-8 Certificates) will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and purchase
price, because interest will not be distributed to such Certificateholders until
the _____ day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on the
Mortgage Loans. See "Yield and Prepayment Considerations" herein.
All interest-bearing Offered Certificates (other than the Class A-I-7,
Class A-I-8, Class X and Class R-2 Certificates) will bear interest at the fixed
Pass-Through Rates set forth on the cover page hereof.
The Class A-I-7 Certificates will bear interest at _____% per annum during
the first Interest Accrual Period. During each Interest Accrual Period
thereafter, the Class A-I-7 Certificates will bear interest subject to a maximum
rate of _____% per annum and a minimum rate of _____% per annum, at a rate per
annum equal to _____% in excess of LIBOR, as more fully described below.
The Class A-I-8 Certificates will bear interest on the Class A-I-8 Notional
Amount at _____% per annum during the first Interest Accrual Period. During each
Interest Accrual Period thereafter, the Class A-I-8 Certificates will bear
interest on the Class A-I-8 Notional Amount subject to a maximum rate of _____%
per annum and a minimum rate of __% per annum, at a rate equal to _____% -
LIBOR, as more fully described below.
The Class X Certificates will bear interest on the Class X Notional Amount
at a variable Pass-Through Rate equal to the excess of (a) the weighted average
of the Net Rates of all of the Mortgage Loans over (b) the weighted average of
the Pass-Through Rates of all the Certificates (other than the Class X
Certificates). The Pass-Through Rate for the Class X Certificates for the first
Interest Accrual Period is expected to be approximately _____% per annum.
In order to calculate the source of interest due on the Class X
Certificates and for REMIC purposes, the Class X Certificates are deemed to
consist of separate components (each, a "Separate Component"), certain of which
correspond to the Class A-I Certificates, the Class R-1 Certificates and a
principal amount of the Class B Certificates which derives its distributions
from the Group I Mortgage Loans (collectively, "Component I") and one which
corresponds to the Class A-II Certificates and the principal amount of the Class
B Certificates which derives its distributions from the Group II Mortgage Loans
("Component II").
Since interest on the Class X Certificates is based on amounts paid on both
the Group I Mortgage Loans and the Group II Mortgage Loans, the Accrued
Certificate Interest for the Class X Certificates may also be expressed as the
sum of the Class X Component I Accrued Certificate Interest and the Class X
Component II Accrued Certificate Interest (each as defined below.)
"Class X Component I Accrued Certificate Interest" for any Distribution
Date is equal to the excess of the interest accrued on the Group I Mortgage
Loans at the weighted average of the Net Rates of such Mortgage Loans for such
Distribution Date over the sum of (x) all Accrued Certificate Interest on the
Class A-I Certificates and the Residual Certificates for such Distribution Date,
(y) the portion of the Accrued Certificate Interest on the Class B Certificates
for such Distribution Date that the Class B Group I Current Principal Amount as
of such Distribution Date bears to the aggregate Current Principal Amounts of
the Class B Certificates as of such Distribution Date, and (z) the portion of
(i) any Net Interest Shortfall and (ii) the interest portion of any Excess
Losses, and after the Cross-Over Date, (iii) the interest portion of any
Realized Losses, allocated to the Class X Certificates that the Class X
Component I Accrued Certificate Interest (determined without regard to this
clause (z)) bears to the total Accrued Certificate Interest on the Class X
Certificates (determined without regard to such Net Interest Shortfall, or the
interest portion of Excess Losses or Realized Losses, as applicable). For this
purpose, the "Class B Group I Current Principal Amount" as of any Distribution
Date equals the aggregate Current Principal Amounts of the Class B Certificates
as of such Distribution Date less the Class B Group II Current Principal Amount
(as defined below) as of such Distribution Date. However, if on any Distribution
Date, the interest on the Group II Mortgage Loans at their Net Rates is less
than the Accrued Certificate Interest on the Class A-II Certificates, the Class
X Component I Accrued Certificate Interest for such Distribution Date shall
equal the Accrued Certificate Interest for the Class X Certificates.
"Class X Component II Accrued Certificate Interest" for any Distribution
Date is equal to the excess of the interest accrued on the Group II Mortgage
Loans at the weighted average of the Net Rates of such Mortgage Loans for such
Distribution Date over the sum of (x) all Accrued Certificate Interest on the
Class A-II Certificates for such Distribution Date, (y) the portion of the
Accrued Certificate Interest on the Class B Certificates for such Distribution
Date that the Class B Group II Current Principal Amount as of such Distribution
Date bears to the aggregate Current Principal Amounts of the Class B
Certificates as of such Distribution Date, and (z) the portion of (i) any Net
Interest Shortfall and (ii) the interest portion of any Excess Losses, and after
the Cross-Over Date, (iii) the interest portion of any Realized Losses,
allocated to the Class X Certificates that the Class X Component II Accrued
Certificate Interest (determined without regard to this clause (z)) bears to the
total Accrued Certificate Interest on the Class X Certificates (determined
without regard to such Net Interest Shortfall, or the interest portion of Excess
Losses or Realized Losses, as applicable). For this purpose, the "Class B Group
II Current Principal Amount" as of any Distribution Date equals the sum of the
Scheduled Principal Balances of the Group II Mortgage Loans as of such
Distribution Date less the Current Principal Amount of the Class A-II
Certificates as of such Distribution Date. However, if on any Distribution Date,
the interest on the Group I Mortgage Loans at their Net Rates is less than the
Accrued Certificate Interest on the Class A-I Certificates, the Class X
Component II Accrued Certificate Interest for such Distribution Date shall equal
the Accrued Certificate Interest for the Class X Certificates.
The Class R-2 Certificates will bear interest on their Current Principal
Amount at a variable Pass-Through Rate equal to the weighted average of the Net
Rates of the Group I Mortgage Loans. The Pass-Through Rate for the Class R-2
Certificates for the first Interest Accrual Period is expected to be
approximately _____% per annum.
The "Accrued Certificate Interest" for any interest-bearing Certificate for
any Distribution Date will equal the interest accrued during the related
Interest Accrual Period at the applicable Pass-Through Rate on the Current
Principal Amount (or, in the case of the Class A-I-8 Certificates, the Class
A-I-8 Notional Amount, and in the case of a Class X Certificate, the Class X
Notional Amount) of such Certificate immediately prior to such Distribution Date
less (i) in the case of an interest-bearing Senior Certificate, such
Certificate's share of any Net Interest Shortfall (as defined herein) and the
interest portion of any Excess Losses and, after the Cross-Over Date, the
interest portion of any Realized Losses and (ii) in the case of a Subordinate
Certificate, such Certificate's share of any Net Interest Shortfall and the
interest portion of any Realized Losses. Such shortfalls and losses will be
allocated among the Senior Certificates in proportion to the amount of Accrued
Certificate Interest that would have been allocated thereto in the absence of
such shortfalls and losses. Accrued Certificate Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months. No Accrued
Certificate Interest will be payable with respect to any Class of Certificates
after the Distribution Date on which the outstanding principal balance (or Class
A-I-8 Notional Amount or Class X Notional Amount) of such Certificate has been
reduced to zero.
The "Current Principal Amount" of any Certificate (other than a Class A-I-8
or Class X Certificate) as of any Distribution Date will equal such
Certificate's initial principal amount on the Closing Date as reduced by (i) all
amounts distributed on previous Distribution Dates on such Certificate on
account of principal (and the Class PO Cash Shortfall with respect to a Class PO
Certificate), (ii) the principal portion of all Realized Losses previously
allocated to such Certificate and (iii) in the case of a Subordinate
Certificate, such Certificate's share, if any, of the Subordinate Certificate
Writedown Amount and the Class PO Deferred Payment Writedown Amount for previous
Distribution Dates. With respect to any Class of Certificates (other than the
Class A-I-8 or Class X Certificates), the Current Principal Amount thereof will
equal the sum of the Current Principal Amounts of all Certificates in such
Class.
As of any Distribution Date, the "Subordinate Certificate Writedown Amount"
will equal the amount by which (a) the sum of the Current Principal Amounts of
all of the Certificates (after giving effect to the distribution of principal
and the allocation of Realized Losses and the Class PO Deferred Payment
Writedown Amount in reduction of the Current Principal Amounts of the
Certificates on such Distribution Date) exceeds (b) the sum of the Scheduled
Principal Balances of the Mortgage Loans on the first day of the month of such
Distribution Date less any Deficient Valuation occurring on or prior to the
Bankruptcy Coverage Termination Date (as defined herein). For any Distribution
Date, the "Class PO Deferred Payment Writedown Amount" will equal the amount, if
any, distributed on such date in respect of the Class PO Deferred Amount
pursuant to priority (A) FOURTH under "--Allocation of Available Funds" above.
The Subordinate Certificate Writedown Amount and the Class PO Deferred Payment
Writedown Amount will be allocated to the Classes of Subordinate Certificates in
inverse order of their numerical Class designations, until the Current Principal
Amount of each such Class has been reduced to zero and, from and after the
Cross-Over Date, the Subordinate Certificate Writedown Amount will be allocated
PRO RATA among the Classes of Senior Certificates (other than the Class A-I-8,
Class X and Class PO Certificates) based on their then-outstanding Current
Principal Amounts.
The Class A-I-8 Certificates will have a notional principal balance equal
to the Current Principal Amount of the Class A-I-7 Certificates.
The Class X Certificates will have a notional principal balance equal to
the aggregate Scheduled Principal Balances of all of the Mortgage Loans.
With respect to any Distribution Date, the "Interest Shortfall" is equal to
the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Rates) resulting from (a) prepayments in full received during the
related Prepayment Period, (b) partial prepayments received during the related
Prepayment Period to the extent applied prior to the Due Date in the month of
the Distribution Date and (c) interest payments on certain of the Mortgage Loans
being limited pursuant to the provisions of the Soldiers' and Sailors' Civil
Relief Act of 1940 (the "Relief Act"). Interest Shortfalls will result because
(i) Mortgagors are obligated to pay interest on prepayments in full only to the
date of prepayment by the Mortgagor, (ii) (a) partial prepayments are generally
not required to be accompanied by interest on the amount of such partial
prepayment and (b) partial prepayments applied prior to the Due Date in the
month of the Distribution Date will result in a reduction of the Scheduled
Principal Balance of the related Mortgage Loan without a corresponding reduction
of the Current Principal Amount of any Certificate and (iii) the Relief Act
limits, in certain circumstances, the interest rate required to be paid by a
Mortgagor in the military service, to 6% per annum. Interest Shortfalls
resulting from prepayments in full or in part in any calendar month will be
offset by the Master Servicer on the Distribution Date in the following calendar
month to the extent that such Interest Shortfalls do not exceed the lesser of
(i) the Master Servicing Fee in connection with such Distribution Date or (ii)
_______ of the Scheduled Principal Balances of the Mortgage Loans with respect
to such Distribution Date. The amount of the Master Servicing Fee used to offset
such Interest Shortfalls is referred to herein as a "Compensating Interest
Payment." Interest Shortfalls net of Compensating Interest Payments are referred
to herein as "Net Interest Shortfalls."
If on any Distribution Date the Group I Available Funds are less than the
Accrued Certificate Interest on the Class A-I and Residual Certificates and the
Class X Component I Accrued Certificate Interest on Component I of the Class X
Certificates or if the Group II Available Funds are less than the Accrued
Certificate Interest on the Class A-II Certificates and the Class X Component II
Accrued Certificate Interest on Component II of the Class X Certificates, in
each case for such Distribution Date and prior to reduction for Net Interest
Shortfall and the interest portion of Realized Losses, the shortfall will be
allocated among the holders of each such respective Class or Component in
proportion to the respective amounts of Accrued Certificate Interest and Class X
Component I Accrued Certificate Interest or Class X Component II Accrued
Certificate Interest, as applicable, that would have been allocated thereto in
the absence of such Net Interest Shortfall and/or Realized Losses for such
Distribution Date on each such Class or Component. In addition, the amount of
any interest shortfalls with respect to the related Mortgage Loan Group that are
covered by subordination will constitute unpaid Accrued Certificate Interest or
unpaid Class X Component I Accrued Certificate Interest or unpaid Class X
Component II Accrued Certificate Interest and will be distributable to holders
of the Certificates of the related Classes or Component entitled to such amounts
on subsequent Distribution Dates, to the extent of Group I Available Funds or
Group II Available Funds, as applicable, after interest distributions as
required herein. Any such amounts so carried forward will not bear interest.
Shortfalls in interest payments will not be offset by a reduction in the
servicing compensation of the Master Servicer or otherwise, except to the
limited extent described above.
Commencing on ___________, 199_ and monthly thereafter on the second
Business Day prior to the first day of the related Interest Accrual Period for
the Class A-I-7 and Class A-I-8 Certificates (each, a "LIBOR Determination
Date"), until the Current Principal Amount of the Class A-I-7 Certificates and
the Class A-I-8 Notional Amount have been reduced to zero, the Trustee will
request each of the designated reference banks meeting the criteria set forth
herein (the "Reference Banks") to inform the Trustee of the quotation offered by
its principal London office for making one-month United States dollar deposits
in leading banks in the London interbank market, as of 11:00 a.m. (London time)
on such LIBOR Determination Date. For purposes of calculating LIBOR, "Business
Day" means a day on which banks are open for dealing in foreign currency and
exchange in London and New York City. In lieu of making a request of the
Reference Banks, the Trustee may rely on the quotations for those Reference
Banks that appear at such time on the page, whatever its designation, on which
LIBOR is for the time being displayed on the Reuters Monitor Money Rates Service
or the appropriate Associated Press-Dow Jones Telerate Service.
LIBOR will be established by the Trustee on each LIBOR Determination Date
as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Seller are quoting, on the relevant LIBOR Determination
Date, to the principal London offices of at least two of the Reference
Banks to which such quotations are, in the opinion of the Trustee, being so
made, or (ii) in the event that the Trustee can determine no such
arithmetic mean, the lowest one-month United States dollar lending rate
which New York City banks selected by the Seller are quoting on such LIBOR
Determination Date to leading European banks.
(c) If on any LIBOR Determination Date, the Trustee is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR shall be _____%.
Each Reference Bank shall (i) be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) not control,
be controlled by, or be under common control with the Seller, and (iii) have an
established place of business in London. If any such Reference Bank should be
unwilling or unable to act as such or if the Seller should terminate the
appointment of any such Reference Bank, the Seller will promptly appoint another
leading bank meeting the criteria specified above.
The establishment of LIBOR on each LIBOR Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the Class
A-I-7 and A-I-8 Certificates for the related Interest Accrual Period shall (in
the absence of manifest error) be final and binding. Each such rate of interest
may be obtained by telephoning the Trustee at (___) ____ - ________________.
PRINCIPAL. An amount equal to all amounts payable in respect of principal
of the Group I Mortgage Loans will be allocated between (i) the Senior
Certificates (other than the Class A-I-8, Class A-II, Class PO and Class X
Certificates) and the Subordinate Certificates, on the one hand, and (ii) the
Class PO Certificates, on the other, in each case based on the applicable Non-PO
Percentage and the applicable PO Percentage, respectively, of such amounts.
The "Non-PO Percentage" with respect to any Mortgage Loan with a Net Rate
less than _____% per annum (each such Mortgage Loan, a "Group I Discount
Mortgage Loan") will be equal to the Net Rate thereof divided by _____%. The
"Non-PO Percentage" with respect to any Mortgage Loan with a Net Rate equal to
or greater than 8.00% (each such Mortgage Loan, a "Non-Discount Mortgage Loan")
will be _____%. The "PO Percentage" with respect to any Discount Mortgage Loan
will be the fraction, expressed as a percentage, equal to _____% minus the Net
Rate thereof divided by _____%. The "PO Percentage" with respect to any
Non-Discount Mortgage Loan will be _____%.
Distributions in reduction of the Current Principal Amount of each Class of
Senior Certificates (other than the Class A-I-8, Class A-II and Class X
Certificates) will be made on each Distribution Date pursuant to priority (A)
THIRD above, the fourth paragraph following priority (A) FOURTH and paragraphs
(D), (E) and (F) above under "--Allocation of Available Funds." In accordance
with priority (A) THIRD, the Group I Available Funds remaining after
distribution of interest on the Class A-I Certificates, the Residual
Certificates and Component I of the Class X Certificates on such Distribution
Date will be allocated to the Class A-I and the Residual Certificates, and the
Class PO Certificates in an aggregate amount not to exceed the sum of the Group
I Senior Optimal Principal Amount and the Class PO Principal Distribution Amount
for such Distribution Date.
Distributions in reduction of the Current Principal Amount of the Class
A-II Certificates will be made on each Distribution Date pursuant to priority
(B) THIRD and paragraphs (D) and (F) under "--Allocation of Available Funds"
above.
Distributions in reduction of the Current Principal Amounts of the
Subordinate Certificates will be made pursuant to paragraph (C) under
"--Allocation of Available Funds" above. The sum of the Group I Available Funds
and the Group II Available Funds, if any, remaining after distributions of
principal and interest on the Senior Certificates and payments in respect of the
Class PO Deferred Amount on such Distribution Date will be allocated to the
Subordinate Certificates in an amount equal to each such Class's Allocable Share
for such Distribution Date, provided that no distribution of principal will be
made on any such Class until any Class ranking prior thereto has received
distributions of interest and principal, and such Class has received
distributions of interest, on such Distribution Date.
The amount to which the Senior Certificates (other than the Class A-I-8,
Class PO and Class X Certificates) are entitled as principal on any Distribution
Date will be determined separately for the Class A-I Certificates and the
Residual Certificates (the "Group I Senior Optimal Principal Amount") and for
the Class A-II Certificates (the "Group II Senior Optimal Principal Amount") and
in each case will be an amount equal to the sum of:
(i) the applicable Senior Percentage (as defined below) of the applicable
Non-PO Percentage of all scheduled payments of principal due on each Mortgage
Loan in the related Mortgage Loan Group on the first day of the month in
which the Distribution Date occurs, as specified in the amortization schedule
at the time applicable thereto (after adjustment for previous principal
prepayments and the principal portion of Debt Service Reductions after the
Bankruptcy Coverage Termination Date, but before any adjustment to such
amortization schedule by reason of any other bankruptcy or similar proceeding
or any moratorium or similar waiver or grace period);
(ii) the applicable Senior Prepayment Percentage (as defined below) of
the applicable Non-PO Percentage of the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which was the subject of a
prepayment in full received by the Master Servicer during the applicable
Prepayment Period (as defined below);
(iii) the applicable Senior Prepayment Percentage of the applicable Non-PO
Percentage of all partial prepayments of principal received on each Mortgage
Loan in the related Mortgage Loan Group during the applicable Prepayment
Period;
(iv) the lesser of (a) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of the sum of (w) the net liquidation proceeds
allocable to principal on each Mortgage Loan in the related Mortgage Loan
Group which became a Liquidated Mortgage Loan during the related Prepayment
Period (other than Mortgage Loans described in clause (x)) and (x) the
Scheduled Principal Balance of each Mortgage Loan in the related Mortgage
Loan Group that was purchased by a private mortgage insurer during the
related Prepayment Period as an alternative to paying a claim under the
related insurance policy, and (b) the applicable Senior Percentage of the
applicable Non-PO Percentage of the sum of (w) the Scheduled Principal
Balance of each Mortgage Loan in the related Mortgage Loan Group which became
a Liquidated Mortgage Loan during the related Prepayment Period (other than
Mortgage Loans described in clause (x)) and (x) the Scheduled Principal
Balance of each Mortgage Loan in the related Mortgage Loan Group that was
purchased by a private mortgage insurer during the related Prepayment Period
as an alternative to paying a claim under the related insurance policy less
(y) in the case of clause (b), the applicable Senior Percentage of the
applicable Non-PO Percentage of the principal portion of Excess Losses (other
than Debt Service Reductions) on each Mortgage Loan in the related Mortgage
Loan Group incurred during the related Prepayment Period; and
(v) the applicable Senior Prepayment Percentage of the applicable Non-PO
Percentage of the sum of (a) the Scheduled Principal Balance of each Mortgage
Loan in the related Mortgage Loan Group which was repurchased by the Master
Servicer in connection with such Distribution Date and (b) the difference, if
any, between the Scheduled Principal Balance of a Mortgage Loan in the
related Mortgage Loan Group that has been replaced by the Master Servicer
with a substitute Mortgage Loan pursuant to the Pooling and Servicing
Agreement in connection with such Distribution Date and the Scheduled
Principal Balance of such substitute Mortgage Loan.
With respect to any Mortgage Loan and any Distribution Date, the
"Prepayment Period" is the period from the first day through the last day of the
month preceding the month of such Distribution Date.
The "Class A-I Senior Percentage" and the "Class A-II Senior Percentage"
(each, a "Senior Percentage") will each initially equal approximately _____%.
Each Senior Percentage will be recalculated with respect to each Distribution
Date to equal the lesser of (i) _____% and (ii) the percentage (carried to six
places rounded up) obtained by dividing the aggregate Current Principal Amounts
of all of the Class A-I Certificates and the Residual Certificates in the case
of the Class A-I Senior Percentage and the Class A-II Certificates in the case
of the Class A-II Senior Percentage immediately preceding such Distribution Date
by the aggregate Scheduled Principal Balance of all the Mortgage Loans in the
related Mortgage Loan Group (other than the PO Percentage of the Group I
Discount Mortgage Loans in the case of Mortgage Loan Group I) immediately
preceding such Distribution Date. The initial Class A-I Senior Percentage is
greater than the initial percentage interest in Mortgage Loan Group I evidenced
by the related Classes of Class A-I Certificates and Residual Certificates in
the aggregate, because such percentage is calculated without regard to the PO
Percentage of the Scheduled Principal Balance of each Group I Discount Mortgage
Loan.
The "Senior Prepayment Percentage" with respect to each Mortgage Loan Group
on any Distribution Date occurring during the periods set forth below will be as
follows:
PERIOD (DATES INCLUSIVE)
SENIOR PREPAYMENT PERCENTAGE
__________, 199_ to __________, 20__................ _____%
__________, 20__ to __________, 20__................ applicable Senior
Percentage plus
_____% of the
Subordinate
Percentage
__________, 20__ to __________, 20__................ applicable Senior
Percentage plus
_____% of the
Subordinate
Percentage
__________, 20__ to __________, 20__................ applicable Senior
Percentage plus
_____% of the
Subordinate
Percentage
__________, 20__ to __________, 20__................applicable Senior
Percentage plus
_____% of the
Subordinate
Percentage
__________, 20__ and thereafter......................applicable Senior
Percentage
Notwithstanding the foregoing, if on any Distribution Date the applicable
Senior Percentage exceeds the applicable Senior Percentage as of the Cut-off
Date, the related Senior Prepayment Percentage for such Distribution Date will
equal 100%. Upon reduction of the Current Principal Amounts of the Class A-I
Certificates and the Residual Certificates or the Class A-II Certificates, as
applicable, to zero, the related Senior Prepayment Percentage will equal _____%;
provided that in the circumstances described in paragraph (D) above under
"--Allocation of Available Funds," prepayments resulting from Mortgage Loans in
one Mortgage Loan Group and otherwise distributable to the Subordinate
Certificates will be distributed to the Senior Certificates related to the other
Mortgage Loan Group (other than the Class PO and Class X Certificates in the
case of the Group I Mortgage Loans).
In addition, no reduction of a Senior Prepayment Percentage shall occur on
any Distribution Date (such limitation being the "Senior Prepayment Percentage
Stepdown Limitation") unless, as of the last day of the month preceding such
Distribution Date, either (a)(i)(X) the aggregate outstanding principal balance
of Mortgage Loans in both Mortgage Loan Groups delinquent _____ days or more
(including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans
with respect to which the related Mortgaged Property has been acquired by the
Trust), averaged over the last six months, as a percentage of the aggregate
Current Principal Amount of the Subordinate Certificates averaged over the last
six months, does not exceed _____% or (Y) the aggregate outstanding principal
balance of the Mortgage Loans in both Mortgage Loan Groups delinquent 60 days or
more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last six
months, does not exceed _____% and (ii) cumulative Realized Losses on the
Mortgage Loans in both Mortgage Loan Groups do not exceed (a) _____% of the
aggregate Current Principal Amounts of the Subordinate Certificates as of the
Cut-off Date (the "Original Subordinate Principal Balance") if such Distribution
Date occurs between and including ___________ 20__ and _________ 20__, (b)
_____% of the related Original Subordinate Principal Balance if such
Distribution Date occurs between and including __________ 20__ and __________
20__, (c)_____% of the related Original Subordinate Principal Balance if such
Distribution Date occurs between and including _________ 20__ and ________ 20__,
(d) _____% of the related Original Subordinate Principal Balance if such
Distribution Date occurs between and including ________, 20__ and ________,
20__, and (e) _____% of the related Original Subordinate Principal Balance if
such Distribution Date occurs during or after ________, 20__ or (b)(i) the
outstanding principal balance of the Mortgage Loans in both Mortgage Loan Groups
delinquent ______ days or more averaged over the last ______ months, as a
percentage of the aggregate outstanding principal balance of all Mortgage Loans
averaged over the last ______ months, does not exceed _____% and (ii) Realized
Losses on the Mortgage Loans in both Mortgage Loan Groups to date for such
Distribution Date are less than _____% of the Original Subordinate Principal
Balance.
The "Class PO Principal Distribution Amount" with respect to each
Distribution Date will be an amount equal to the sum of:
(i) the applicable PO Percentage of all scheduled payments of principal due
on each Group I Discount Mortgage Loan on the first day of the month in
which the Distribution Date occurs, as specified in the amortization
schedule at the time applicable thereto (after adjustment for previous
principal prepayments and the principal portion of Debt Service Reductions
after the Bankruptcy Coverage Termination Date, but before any adjustment
to such amortization schedule by reason of any other bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period);
(ii) the applicable PO Percentage of the Scheduled Principal Balance of
each Group I Discount Mortgage Loan which was the subject of a prepayment
in full received by the Master Servicer during the applicable Prepayment
Period;
(iii) the applicable PO Percentage of all partial prepayments of principal
on Group I Mortgage Loans received during the applicable Prepayment Period;
(iv) the lesser of (a) the applicable PO Percentage of the sum of (w) the
net liquidation proceeds allocable to principal on each Group I Discount
Mortgage Loan which became a Liquidated Mortgage Loan during the related
Prepayment Period (other than Group I Discount Mortgage Loans described in
clause (x)) and (x) the Scheduled Principal Balance of each Group I
Discount Mortgage Loan that was purchased by a private mortgage insurer
during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy, and (b) the applicable PO Percentage of
the sum of (w) the Scheduled Principal Balance of each Group I Discount
Mortgage Loan which became a Liquidated Mortgage Loan during the related
Prepayment Period (other than Group I Discount Mortgage Loans described in
clause (x)) and (x) the Scheduled Principal Balance of each Group I
Discount Mortgage Loan that was purchased by a private mortgage insurer
during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy less (y) in the case of clause (b), the
applicable PO Percentage of the principal portion of Excess Losses (other
than Debt Service Reductions) with respect to Group I Mortgage Loans
incurred during the related Prepayment Period; and
(v) the applicable PO Percentage of the sum of (a) the Scheduled Principal
Balance of each Group I Discount Mortgage Loan which was repurchased by the
Master Servicer in connection with such Distribution Date and (b) the
difference, if any, between the Scheduled Principal Balance of a Group I
Discount Mortgage Loan that has been replaced by the Master Servicer with a
substitute Group I Discount Mortgage Loan pursuant to the Pooling and
Servicing Agreement in connection with such Distribution Date and the
Scheduled Principal Balance of such substitute Group I Discount Mortgage
Loan.
The "Subordinate Percentage" with respect to each Mortgage Loan Group,
which will initially equal approximately _____% with respect to each of Mortgage
Loan Group I and Mortgage Loan Group II, will be recalculated for each
Distribution Date to equal _____% minus the related Senior Percentage for such
Distribution Date. The "Subordinate Prepayment Percentage" with respect to each
Mortgage Loan Group on any Distribution Date will equal _____% minus the related
Senior Prepayment Percentage, except that on any Distribution Date after the
Current Principal Amounts of the related Senior Certificates (other than the
Class PO Certificates in the case of Mortgage Loan Group I) have each been
reduced to zero, the applicable Subordinate Prepayment Percentage will equal
_____%.
The "Subordinate Optimal Principal Amount" with respect to each
Distribution Date will be an amount equal to the sum of the following (but in no
event greater than the aggregate Current Principal Amounts of the Subordinate
Certificates immediately prior to such Distribution Date):
(i) the applicable Subordinate Percentage of the applicable Non-PO
Percentage of all scheduled payments of principal due on each Mortgage Loan
in the related Mortgage Loan Group on the _____ day of the month in which
the Distribution Date occurs, as specified in the amortization schedule at
the time applicable thereto (after adjustment for previous principal
prepayments and the principal portion of Debt Service Reductions after the
Bankruptcy Coverage Termination Date, but before any adjustment to such
amortization schedule by reason of any other bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period);
(ii) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of the Scheduled Principal Balance of each Mortgage Loan
in the related Mortgage Loan Group which was the subject of a prepayment in
full received by the Master Servicer during the applicable Prepayment
Period;
(iii) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of all partial prepayments of principal received on
Mortgage Loans in the Related Mortgage Loan Group during the applicable
Prepayment Period (plus, on the Distribution Date on which the Current
Principal Amounts of the related Senior Certificates (other than the Class
PO Certificates in the case of Mortgage Loan Group I) have all been reduced
to zero, 100% of any applicable Senior Optimal Principal Amount remaining
undistributed on such date);
(iv) the excess, if any, of the applicable Non-PO Percentage of the sum of
(a) the net liquidation proceeds allocable to principal received during the
related Prepayment Period in respect of each Liquidated Mortgage Loan in
the related Mortgage Loan Group (other than Mortgage Loans described in
clause (b)) and (b) the principal balance of each Mortgage Loan in the
related Mortgage Loan Group that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to paying a
claim under the related insurance policy over (c) the sum of the amounts
distributable to the related Senior Certificateholders pursuant to clause
(iv) of each of the definitions of Group I Senior Optimal Principal Amount,
Group II Senior Optimal Principal Amount and Class PO Principal
Distribution Amount on such Distribution Date; and
(v) the applicable Subordinate Prepayment Percentage of the applicable
Non-PO Percentage of the sum of (a) the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which was repurchased by
the Master Servicer in connection with such Distribution Date and (b) the
difference, if any, between the Scheduled Principal Balance of a Mortgage
Loan in the related Mortgage Loan Group that has been replaced by the
Master Servicer with a substitute Mortgage Loan pursuant to the Pooling and
Servicing Agreement in connection with such Distribution Date and the
Scheduled Principal Balance of such substitute Mortgage Loan.
The "Allocable Share" with respect to any Class of Subordinate Certificates
on any Distribution Date will generally equal such Class's PRO RATA share (based
on the Current Principal Amount of each Class entitled thereto) of each of the
components of the definition of the Subordinate Optimal Principal Amount;
provided, that, except as described in the second succeeding sentence, no Class
of Subordinate Certificates shall be entitled on any Distribution Date to
receive distributions pursuant to clauses (ii), (iii) and (v) of the definition
of the Subordinate Optimal Principal Amount unless the Class Prepayment
Distribution Trigger for the related Class is satisfied for such Distribution
Date. The "Class Prepayment Distribution Trigger" for a Class of Subordinate
Certificates for any Distribution Date is satisfied if the fraction (expressed
as a percentage), the numerator of which is the aggregate Current Principal
Amount of such Class and each Class subordinate thereto, if any, and the
denominator of which is the Scheduled Principal Balances of all of the Mortgage
Loans as of the Due Date in the month next preceding such Distribution Date,
equals or exceeds such percentage calculated as of the Closing Date. If on any
Distribution Date the Current Principal Amount of any Class of Subordinate
Certificates for which the related Class Prepayment Distribution Trigger was
satisfied on such Distribution Date is reduced to zero, any amounts
distributable to such Class pursuant to clauses (ii), (iii) and (v) of the
definition of "Subordinate Optimal Principal Amount," to the extent of such
Class's remaining Allocable Share, shall be distributed to the remaining Classes
of Subordinate Certificates in reduction of their respective Current Principal
Amounts in the order of their numerical Class designations. If the Class
Prepayment Distribution Trigger is not satisfied for any Class of Subordinate
Certificates on any Distribution Date, this may have the effect of accelerating
the amortization of more senior Classes of Subordinate Certificates. On any
Distribution Date, any reduction in funds available for distribution to the
Classes of Subordinate Certificates resulting from a distribution of the Class
PO Deferred Amount will be allocated to the Classes of Subordinate Certificates,
in reduction of the Allocable Shares thereof, in inverse order of their
numerical Class designations.
"Determination Date" means the 18th day of the month of the Distribution
Date, or if such day is not a Business Day, the following Business Day (but in
no event less than two Business Days prior to the related Distribution Date).
"Insurance Proceeds" are amounts paid by an insurer under any Primary
Insurance Policy, standard hazard insurance policy, flood insurance policy or
title insurance policy covering any Mortgage Loan or Mortgaged Property other
than amounts required to be paid over to the Mortgagor pursuant to law or the
related Mortgage Note and other than amounts used to repair or restore the
Mortgaged Property or to reimburse certain expenses.
"Repurchase Proceeds" are proceeds of any Mortgage Loan repurchased by
[Corporation 1] and any cash deposit in connection with the substitution of a
Mortgage Loan pursuant to the provisions described under "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans" and "--Representations and
Warranties" herein.
"Principal Prepayment" is any payment or other recovery of principal on a
Mortgage Loan which is received in advance of its scheduled Due Date to the
extent that it is not accompanied by an amount as to interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment, including Insurance Proceeds and Repurchase Proceeds,
but excluding Liquidation Proceeds received at the time a Mortgage Loan becomes
a Liquidated Mortgage Loan.
"Monthly Payment" with respect to any Mortgage Loan and any month is the
scheduled payment or payments of principal and interest due during such month on
such Mortgage Loan which either is payable by a Mortgagor in such month under
the related Mortgage Note, or in the case of any Mortgaged Property acquired
through foreclosure or deed-in-lieu of foreclosure (each such Mortgaged
Property, an "REO Property"), would otherwise have been payable under the
related Mortgage Note.
ALLOCATION OF LOSSES; SUBORDINATION
A "Realized Loss" with respect to a Mortgage Loan is (i) a Bankruptcy Loss
(as defined below) or (ii) as to any Liquidated Mortgage Loan, the unpaid
principal balance thereof plus accrued and unpaid interest thereon at the
Mortgage Rate through the last day of the month of liquidation less the Net
Liquidation Proceeds with respect to such Mortgage Loan and the related
Mortgaged Property. A "Liquidated Mortgage Loan" is any defaulted Mortgage Loan
as to which the Master Servicer has determined that all amounts which it expects
to recover from or on account of such Mortgage Loan have been recovered.
"Liquidation Proceeds" are amounts received by the Master Servicer in
connection with the liquidation of a defaulted Mortgage Loan whether through
trustee's sale, foreclosure sale, proceeds of insurance policies, condemnation
proceeds or otherwise.
"Net Liquidation Proceeds" with respect to a Mortgage Loan are Liquidation
Proceeds net of expenses incurred by the Master Servicer in connection with the
liquidation of such Mortgage Loan and the related Mortgaged Property.
In the event of a personal bankruptcy of a Mortgagor, the bankruptcy court
may establish the value of the Mortgaged Property at an amount less than the
then Outstanding Principal Balance of the Mortgage Loan secured by such
Mortgaged Property and could reduce the secured debt to such value. In such
case, the holder of such Mortgage Loan would become an unsecured creditor to the
extent of the difference between the Outstanding Principal Balance of such
Mortgage Loan and such reduced secured debt (such difference, a "Deficient
Valuation"). In addition, certain other modifications of the terms of a Mortgage
Loan can result from a bankruptcy proceeding, including the reduction of the
amount of the monthly payment on the related Mortgage Loan (a "Debt Service
Reduction").
A "Bankruptcy Loss" with respect to any Mortgage Loan is a Deficient
Valuation or Debt Service Reduction.
A "Fraud Loss" is any Realized Loss attributable to fraud in the
origination of the related Mortgage Loan.
A "Special Hazard Loss" is a Realized Loss attributable to damage or a
direct physical loss suffered by a Mortgaged Property (including any Realized
Loss due to the presence or suspected presence of hazardous wastes or substances
on a Mortgaged Property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such
Mortgaged Property under the Pooling and Servicing Agreement or any loss due to
normal wear and tear or certain other causes.
The applicable Non-PO Percentage of the principal portion of any Realized
Loss (other than Excess Losses) on a Mortgage Loan in either Mortgage Loan Group
for any Distribution Date will not be allocated to any Senior Certificates until
the Cross-Over Date. Prior to the Cross-Over Date (and on such date under
certain circumstances), the applicable Non-PO Percentage of any such Realized
Loss will be allocated among the outstanding Classes of Subordinate
Certificates, in inverse order of priority, until the Current Principal Amount
of each such Class has been reduced to zero (i.e., such Realized Losses will be
allocated first to the Class B-6 Certificates while such Certificates are
outstanding, second to the Class B-5 Certificates, and so on). The applicable
Non-PO Percentage of the principal portion of any Excess Bankruptcy Loss (other
than a Debt Service Reduction), Excess Fraud Loss or Excess Special Hazard Loss
for any Distribution Date will be allocated PRO RATA among all outstanding
Classes of Certificates (other than the Class PO and Class X Certificates) based
on their Current Principal Amounts. An "Excess Bankruptcy Loss," "Excess Fraud
Loss" or "Excess Special Hazard Loss" is any Bankruptcy Loss, Fraud Loss or
Special Hazard Loss, respectively, occurring after the Bankruptcy Coverage
Termination Date, Fraud Coverage Termination Date and Special Hazard Termination
Date, respectively, as described more fully below. Commencing on the Cross-Over
Date, the applicable Non-PO Percentage of the principal portion of any Realized
Loss (other than a Debt Service Reduction) on a Mortgage Loan will be allocated
among the outstanding Classes of Senior Certificates (other than the Class
A-I-8, Class PO and Class X Certificates) PRO RATA based upon their Current
Principal Amounts.
Since the Subordinate Certificates will absorb Realized Losses on Mortgage
Loans in both Mortgage Loan Groups, a disproportionate amount of Realized Losses
with respect to Mortgage Loans in either Mortgage Loan Group will adversely
impact the availability of subordination to the Certificates related to the
other Mortgage Loan Group.
On each Distribution Date, the applicable PO Percentage of the principal
portion of any Realized Loss on a Group I Discount Mortgage Loan and Class PO
Cash Shortfall will be allocated to the Class PO Certificates until the Current
Principal Amount thereof is reduced to zero. With respect to any Distribution
Date through the Cross-Over Date, the aggregate of all amounts so allocable to
the Class PO Certificates on such date in respect of Realized Losses (other than
Excess Losses) and Class PO Cash Shortfall and all amounts previously allocated
in respect of such losses or Class PO Cash Shortfall to the Class PO
Certificates and not distributed on prior Distribution Dates will be the "Class
PO Deferred Amount." To the extent Group I Available Funds are available
therefor on any Distribution Date through the Cross-Over Date, distributions in
respect of the Class PO Deferred Amount will be made on the Class PO
Certificates in accordance with priority (A) FOURTH under "--Allocation of
Available Funds" above. Any distribution of Group I Available Funds in respect
of the Class PO Deferred Amount will not reduce the Class PO Current Principal
Amount. No interest will accrue on the Class PO Deferred Amount. On each
Distribution Date through the Cross-Over Date, the Current Principal Amount of
the lowest ranking Class of Subordinate Certificates then outstanding having the
highest numerical Class designation will be reduced by the amount of any
distributions in respect of the Class PO Deferred Amount on such Distribution
Date, through the operation of the Class PO Deferred Payment Writedown Amount.
After the Cross-Over Date, no more distributions will be made in respect of, and
Realized Losses and Class PO Cash Shortfalls allocated to the Class PO
Certificates will not be added to, the Class PO Deferred Amount.
No reduction of the Current Principal Amount of any Class shall be made on
any Distribution Date on account of Realized Losses to the extent that such
reduction would have the effect of reducing the aggregate Current Principal
Amount of all of the Certificates as of such Distribution Date to an amount less
than the Scheduled Principal Balances of all of the Mortgage Loans as of the
_____ day of the month of such Distribution Date, less any Deficient Valuations
occurring on or prior to the Bankruptcy Coverage Termination Date (such
limitation being the "Loss Allocation Limitation").
The principal portion of Debt Service Reductions will not be allocated in
reduction of the Current Principal Amount of any Certificate. However, after the
Bankruptcy Coverage Termination Date, the amounts distributable under clause (i)
of each of the definitions of Group I Senior Optimal Principal Amount or Group
II Senior Optimal Principal Amount, Class PO Principal Distribution Amount and
Subordinate Optimal Principal Amount will be reduced by the amount of any Debt
Service Reductions. Regardless of when they occur, Debt Service Reductions may
reduce the amount of Available Funds otherwise available for distribution on a
Distribution Date. As a result of the subordination of the Subordinate
Certificates in right of distribution, any Debt Service Reductions prior to the
Bankruptcy Coverage Termination Date will be borne by the Subordinate
Certificates (to the extent then outstanding) in inverse order of priority.
All allocations of Realized Losses will be accomplished on a Distribution
Date by reducing the Current Principal Amount of the applicable Classes by their
appropriate shares of any such losses occurring during the month preceding the
month of such Distribution Date and, accordingly, will be taken into account in
determining the distributions of principal and interest on the Certificates
commencing on the following Distribution Date, except that the aggregate amount
of the principal portion of any Realized Losses to be allocated to the Class PO
Certificates on any Distribution Date through the Cross-Over Date will also be
taken into account in determining distributions in respect of the Class PO
Deferred Amount for such Distribution Date.
The interest portion of all Realized Losses will be allocated among the
outstanding Classes of Certificates offered hereby to the extent described under
"Distributions on the Certificates---Interest" above.
Any Deficient Valuation will on each Distribution Date be allocated solely
to the outstanding Subordinate Certificates until the Bankruptcy Coverage
Termination Date. The "Bankruptcy Coverage Termination Date" is the Distribution
Date upon which the Bankruptcy Loss Amount has been reduced to zero or a
negative number (or the Cross- Over Date, if earlier). On each Distribution
Date, the "Bankruptcy Loss Amount" will equal approximately $___________
(approximately ____% of the aggregate Scheduled Principal Balances of the
Mortgage Loans as of the Cut-off Date), subject to reduction as described in the
Pooling and Servicing Agreement, minus the aggregate amount of previous
Bankruptcy Losses. The Bankruptcy Loss Amount and the related coverage levels
described above may be reduced or modified upon written confirmation from each
of the Rating Agencies that such reduction or modification will not adversely
affect the then current ratings of the Senior Certificates by each of the Rating
Agencies. Such reduction may adversely affect the coverage provided by
subordination with respect to Bankruptcy Losses.
Any Fraud Loss will on each Distribution Date be allocated solely to the
outstanding Subordinate Certificates until the Fraud Coverage Termination Date.
The "Fraud Coverage Termination Date" is the Distribution Date upon which the
Fraud Loss Amount has been reduced to zero or a negative number (or the
Cross-Over Date, if earlier). Upon the initial issuance of the Certificates, the
"Fraud Loss Amount" will equal approximately _____% (approximately
$____________) of the aggregate Scheduled Principal Balances of the Mortgage
Loans as of the Cut-off Date. As of any Distribution Date prior to the first
anniversary of the Cut-off Date, the Fraud Loss Amount will equal approximately
$___________, minus the aggregate amount of Fraud Losses that would have been
allocated to the Subordinate Certificates in the absence of the Loss Allocation
Limitation since the Cut-off Date. As of any Distribution Date from the ______
through the _____ anniversaries of the Cut-off Date, the Fraud Loss Amount will
equal (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the Cut-off Date and (b) _____% of the aggregate outstanding
principal balance of all of the Mortgage Loans as of the most recent anniversary
of the Cut-off Date minus (2) the Fraud Losses that would have been allocated to
the Subordinate Certificates in the absence of the Loss Allocation Limitation
since the most recent anniversary of the Cut-off Date. After the ______
anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero.
Any Special Hazard Loss will on each Distribution Date be allocated solely
to the outstanding Subordinate Certificates until the Special Hazard Termination
Date. The "Special Hazard Termination Date" is the Distribution Date upon which
the Special Hazard Loss Amount has been reduced to zero or a negative number (or
the Cross-Over Date, if earlier). Upon the initial issuance of the Certificates,
the "Special Hazard Loss Amount" will equal approximately _____% (approximately
$__________) of the aggregate Scheduled Principal Balances of the Mortgage Loans
as of the Cut-off Date. As of any Distribution Date, the Special Hazard Loss
Amount will equal approximately $___________, minus the sum of (i) the aggregate
amount of Special Hazard Losses that would have been previously allocated to the
Subordinate Certificates in the absence of the Loss Allocation Limitation and
(ii) the Adjustment Amount. For each anniversary of the Cut-off Date, the
"Adjustment Amount" shall be equal to the amount, if any, by which the Special
Hazard Loss Amount (without giving effect to the deduction of the Adjustment
Amount for such anniversary) exceeds the lesser of (A) an amount calculated by
_____________ and approved by each of the Rating Agencies, which amount shall
not be less than $________, and (B) the greater of (x) _____% (or if greater
than _____%, the highest percentage of Mortgage Loans by principal balance
secured by Mortgaged Properties in any California zip code) of the outstanding
principal balance of all the Mortgage Loans on the Distribution Date immediately
preceding such anniversary and (y) twice the outstanding principal balance of
the Mortgage Loan which has the largest outstanding principal balance on the
Distribution Date immediately preceding such anniversary.
SUBORDINATION
PRIORITY OF SENIOR CERTIFICATES. As of the Closing Date, the aggregate
Current Principal Amounts of all classes of Subordinate Certificates and the
Other Certificates will equal approximately _____% and _____%, respectively, of
the aggregate Current Principal Amounts of all Classes of Certificates. The
rights of the holders of each Class of Subordinate Certificates to receive
distributions with respect to the Group I Mortgage Loans and Group II Mortgage
Loans will be subordinated to such rights of the holders of the related Senior
Certificates and of each Class of Subordinate Certificates having a lower
numerical Class designation than such Class, to the extent described above. The
subordination of the Subordinate Certificates to the Senior Certificates, and
the further subordination among the Subordinate Certificates, are each intended
to increase the likelihood of timely receipt by the holders of the Certificates
with higher relative payment priorities of the maximum amount to which they are
entitled on any Distribution Date and to provide such holders protection against
losses resulting from defaults on the applicable Mortgage Loans to the extent
described above.
However, in certain circumstances, the amount of available subordination
(including the limited subordination provided for Excess Losses) may be
exhausted and shortfalls in distributions on the Offered Certificates could
result. Holders of Senior Certificates will bear their proportionate share of
Realized Losses in excess of the total subordination amount. The allocation of
the principal portion of the Non-PO Percentage of any Realized Loss, and of the
Class PO Deferred Payment Writedown Amount, to the Subordinate Certificates on
any Distribution Date will decrease the protection provided to the Senior
Certificates then outstanding on future Distribution Dates by reducing the
aggregate Current Principal Amount of the Subordinate Certificates then
outstanding.
In addition, in order to extend the period during which the Subordinate
Certificates remain available as credit enhancement for the Senior Certificates,
the entire amount of any prepayment or other unscheduled recovery of principal
with respect to a Mortgage Loan will be allocated to the applicable Senior
Certificates to the extent described herein during the first _______ years after
the Closing Date (with such allocation being subject to reduction thereafter as
described herein). This allocation has the effect of accelerating the
amortization of the applicable Senior Certificates while, in the absence of
losses in respect of the related Mortgage Loans, increasing the percentage
interest in the principal balance of the related Mortgage Loans evidenced by the
Subordinate Certificates.
In certain other circumstances as described in paragraph (D) under
"--Distributions on the Certificates--Allocation of Available Funds," Principal
Prepayments otherwise distributable to the Subordinate Certificates will in lieu
thereof be distributed to Senior Certificates.
After the payment of amounts distributable in respect of the Senior
Certificates on each Distribution Date, the Subordinate Certificates will be
entitled on such date to the remaining portion, if any, of the Group I Available
Funds and Group II Available Funds in an aggregate amount equal to the Accrued
Certificate Interest on the Subordinate Certificates for such date, any
remaining undistributed Accrued Certificate Interest thereon from previous
Distribution Dates and the sum of the Allocable Shares of the Subordinate
Certificates. Amounts so distributed to Subordinate Certificateholders will not
be available to cover any delinquencies or any Realized Losses on Mortgage Loans
in respect of subsequent Distribution Dates.
PRIORITY AMONG SUBORDINATE CERTIFICATES. On each Distribution Date, the
holders of any particular Class of Subordinate Certificates will have a
preferential right to receive the amounts due them on such Distribution Date out
of Available Funds, prior to any distribution being made on such date on each
Class of Certificates subordinated to such Class. In addition, except as
described herein, the Non-PO Percentage of the principal portion of any Realized
Loss with respect to a Mortgage Loan and any Class PO Deferred Payment Writedown
Amount will be allocated, to the extent set forth herein, in reduction of the
Current Principal Amounts of the related Classes of Subordinate Certificates in
the inverse order of their numerical Class designation. The effect of the
allocation of such Realized Losses and of any Class PO Deferred Payment
Writedown Amount to a Class of Subordinate Certificates will be to reduce future
distributions allocable to such Class and increase the relative portion of
distributions allocable to more senior Classes of Subordinate Certificates.
In order to maintain the relative levels of subordination among the related
Classes of Subordinate Certificates, the applicable Non-PO Percentage of
prepayments and certain other unscheduled recoveries of principal in respect of
the Mortgage Loans (which generally will not be distributable to such
Certificates for at least the first _______ years) will not be distributable to
the holders of any Class of Subordinate Certificates on any Distribution Date
for which the related Class Prepayment Distribution Trigger is not satisfied,
except as described above. See "Description of the Certificates-- Distributions
on the Certificates--Principal." If the Class Prepayment Distribution Trigger is
not satisfied with respect to any Class of Subordinate Certificates, the
amortization of more senior Classes of Subordinate Certificates may occur more
rapidly than would otherwise have been the case and, in the absence of losses in
respect of the Mortgage Loans, the percentage interest in the principal balance
of the Mortgage Loans evidenced by such Subordinate Certificates may increase.
As a result of the subordination of any Class of Subordinate Certificates,
such Class of Certificates will be more sensitive than more senior Classes of
Certificates to the rate of delinquencies and defaults on the Mortgage Loans,
and under certain circumstances investors in such Certificates may not recover
their initial investment.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the Certificates will
be affected by the amount and timing of principal payments on the Mortgage Loans
and the allocation of Available Funds to various Classes of Certificates.
Investors should carefully consider the associated risks discussed under the
headings "Yield and Prepayment Considerations" and "Legal Investment" in the
"Summary of Terms" herein and under the headings "Yield and Prepayment
Considerations" and "Legal Investment" in the Prospectus.
ASSUMED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" for distributions on the Certificates
is ___________, 20__. The Assumed Final Distribution Date is the first
anniversary of the Distribution Date immediately following the latest scheduled
maturity date of any Mortgage Loan. Since the rate of payment (including
prepayments) of principal on the Mortgage Loans can be expected to exceed the
scheduled rate of payments, and could exceed the scheduled rate by a substantial
amount, the disposition of the last remaining Mortgage Loan may be earlier, and
could be substantially earlier, than the Assumed Final Distribution Date. In
addition, the Master Servicer or its designee may, at its option, repurchase all
the Mortgage Loans from the Trust on or after any Distribution Date on which the
aggregate unpaid principal balance of the Mortgage Loans is less than _____% of
the aggregate Scheduled Principal Balance of the Mortgage Loans as of the
Cut-off Date. See "The Pooling and Servicing Agreement--Termination" herein.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Certificate is determined by (a) multiplying the amount of the
reduction, if any, of the principal balance of such Certificate from one
Distribution Date to the next Distribution Date by the number of years from the
date of issuance to the second such Distribution Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in the
principal balance of such Certificate referred to in clause (a). The weighted
average lives of the Certificates will be influenced by, among other factors,
the rate at which principal is paid on Mortgage Loans in the applicable Mortgage
Loan Group. Principal payments of such Mortgage Loans may be in the form of
scheduled amortization or prepayments including as a result of foreclosure
proceedings or by virtue of the purchase of a Mortgage Loan in advance of its
stated maturity as required or permitted by the Pooling and Servicing Agreement.
In general, the Mortgage Loans may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The actual weighted average
life and term to maturity of each Class of Certificates, in general, will be
shortened if the level of such prepayments of principal on the applicable
Mortgage Loan Group increases.
The prepayment model used in this Prospectus Supplement (the "Prepayment
Assumption") represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of a pool of mortgage loans. A 100%
Prepayment Assumption assumes a Constant Prepayment Rate ("CPR") of 4.0% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the life of the mortgage loans and an additional amount of
approximately 1.090909% (precisely 12/11%) per annum in each month thereafter
until the twelfth month. Beginning in the twelfth month and in each month
thereafter during the life of the mortgage loans, a 100% Prepayment Assumption
assumes a CPR of 16% per annum each month. As used in the table below, a 50%
Prepayment Assumption assumes prepayment rates equal to 50% of the Prepayment
Assumption. Correspondingly, a 150% Prepayment Assumption assumes prepayment
rates equal to 150% of the Prepayment Assumption, and so forth. The Prepayment
Assumption does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans.
PRICING ASSUMPTION
The Certificates were structured assuming, among other things, a _____%
Prepayment Assumption with respect to the Certificates. The prepayment
assumptions to be used for pricing purposes for the respective Classes may vary
as determined at the time of sale. The actual rate of prepayment may vary
considerably from the rate used for any prepayment assumption.
DECREMENT TABLES
The following tables entitled "Percent of Initial Principal Amount
Outstanding" indicate the percentages of the initial principal amount (or
Notional Amount) of each Class of Offered Certificates that would be outstanding
after each of the dates shown at various constant percentages of the Prepayment
Assumption and the corresponding weighted average lives of such Classes of
Offered Certificates.
The following tables have been prepared based on the assumptions that: (i)
the Group I Mortgage Loans consist of four Mortgage Loans with the following
characteristics:
ORIGINAL TERM REMAINING TERM
PRINCIPAL APPROXIMATE APPROXIMATE TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
- --------- ------------- ---------- ------------ -----------
$ % %
$ % %
$ % %
$ % %
(ii) the Group II Mortgage Loans consist of two Mortgage Loans with the
following characteristics:
ORIGINAL TERM REMAINING TERM
PRINCIPAL APPROXIMATE APPROXIMATE TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE NET RATE (IN MONTHS) (IN MONTHS)
- --------- ------------- ---------- ------------ -----------
$ % %
$ % %
(iii) the Mortgage Loans prepay at the specified CONSTANT percentages of the
Prepayment Assumption, (iv) no defaults in the payment by Mortgagors of
principal of and interest on the Mortgage Loans are experienced, (v) scheduled
payments on the Mortgage Loans are received on the first day of each month
commencing in ____________, 199_ and are computed prior to giving effect to
prepayments received on the last day of the prior month, (vi) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vii) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in _____________, 199_, (viii) the scheduled
monthly payment for each Mortgage Loan has been calculated based on its
outstanding balance, interest rate and remaining term to maturity such that each
Mortgage Loan will amortize in amounts sufficient to repay the balance of such
Mortgage Loan by its remaining term to maturity, (ix) the initial principal or
notional amounts of the Certificates are as set forth on the cover page hereof
and under "Summary of Terms--Other Certificates," (x) interest accrues on each
Class of Certificates at the applicable interest rate or in the amounts
described herein or in the case of the Class A-I-7 and Class A-I-8 Certificates,
at their initial rates, (xi) distributions in respect of the Certificates are
received in cash on the _____ day of each month, commencing in _________, 199_,
(xii) the Offered Certificates are purchased on ___________, 199_ and (xiii) the
Master Servicer does not exercise the option to repurchase the Mortgage Loans
described under the caption "The Pooling and Servicing Agreement--Termination."
While it is assumed that each of the Mortgage Loans prepays at the specified
constant percentages of the Prepayment Assumption, this is not likely to be the
case.
Discrepancies will exist between the characteristics of the actual Mortgage
Loans that will be delivered to the Trustee and the characteristics of the
Mortgage Loans assumed in preparing the tables. To the extent that the Mortgage
Loans have characteristics which differ from those assumed in preparing the
tables, the Certificates may mature earlier or later than indicated by the
tables.
Based on the foregoing assumptions, the tables below indicate the weighted
average life of each Class of Offered Certificates (other than the Class A-I-8
and Class X Certificates) and set forth the percentages of the initial Current
Principal Amount of each such Class that would be outstanding after the
Distribution Date in December of each of the years indicated, assuming that the
Mortgage Loans prepay at the percentage of the Prepayment Assumption indicated
therein. Neither the Prepayment Assumption nor any other prepayment model or
assumption purports to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. Variations in the actual prepayment experience and
the balance of the Mortgage Loans that prepay may increase or decrease the
percentage of initial Current Principal Amount (and weighted average life) shown
in the following tables. Such variations may occur even if the average
prepayment experience of all such Mortgage Loans equals any of the specified
percentages of the Prepayment Assumption.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-1 CLASS A-I-2
CERTIFICATES CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006] ..........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average Life
to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-3 CLASS A-I-4
CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006] ..........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average Life
to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-5 CLASS A-I-6
CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006]...........
__________, [2007]...........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average Life
to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-7 CLASS A-I-9
CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006] ..........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026]...........
__________, [2027] ..........
Weighted Average Life
to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-10 CLASS A-I-11
CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006]...........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2018] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average
Life to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS A-I-II CLASS PO
CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006] ..........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average
Life to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
CLASS B-1, B-2 CLASS R-1 AND R-2
AND B-3 CERTIFICATES CERTIFICATES
% OF PREPAYMENT % OF PREPAYMENT
ASSUMPTION
---------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
--- --- --- --- --- --- --- --- --- ---
Initial Percentage........... 100 100 100 100 100 100 100 100 100 100
__________, [1998]...........
__________, [1999]...........
__________, [2000]...........
__________, [2001]...........
__________, [2002]...........
__________, [2003]...........
__________, [2004]...........
__________, [2005]...........
__________, [2006] ..........
__________, [2007] ..........
__________, [2008] ..........
__________, [2009] ..........
__________, [2010] ..........
__________, [2011] ..........
__________, [2012] ..........
__________, [2013] ..........
__________, [2014] ..........
__________, [2015] ..........
__________, [2016] ..........
__________, [2017] ..........
__________, [2018] ..........
__________, [2019] ..........
__________, [2020] ..........
__________, [2021] ..........
__________, [2022] ..........
__________, [2023] ..........
__________, [2024] ..........
__________, [2025] ..........
__________, [2026] ..........
__________, [2027] ..........
Weighted Average
Life to Maturity
(years)**....................
- --------------------
* Less than 0.5% but greater than 0%.
** The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate.
</TABLE>
<PAGE>
YIELD ON CLASS PO CERTIFICATES
The Class PO Certificates will be "principal only" certificates, will not
bear interest and will be offered at a substantial discount to their original
principal amount. As indicated in the table below a low rate of principal
payments (including prepayments) will have a material negative effect on the
yield to investors in the Class PO Certificates.
The significance of the effects of prepayments on the Class PO Certificates
is illustrated in the following table entitled "Sensitivity of the Class PO
Certificates to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis) to the holders of such Certificates under different CONSTANT
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above under "--Decrement Tables" and assuming that the purchase price of the
Class PO Certificates is approximately $_________ for 100% of such Class of
Certificates and such Certificates are purchased on __________, 199_.
It is not likely that the Group I Mortgage Loans will prepay at a constant
rate until maturity or that all of the Group I Mortgage Loans will prepay at the
same rate or that they will have the characteristics assumed. There can be no
assurance that the Group I Mortgage Loans will prepay at any of the rates shown
in the table or at any other particular rate. The timing of changes in the rate
of prepayments may affect significantly the yield realized by a holder of a
Class PO Certificate and there can be no assurance that the pre-tax yield to an
investor in the Class PO Certificates will correspond to any of the pre-tax
yields shown herein. Each investor must make its own decision as to the
appropriate prepayment assumptions to be used in deciding whether or not to
purchase a Class PO Certificate.
SENSITIVITY OF THE CLASS PO CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
% OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150%
--- --- ---- ---- ----
Pre-Tax Yields to Maturity..........
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class PO Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class PO Certificates indicated above and converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account variations that may occur in the interest rates at which investors may
be able to reinvest funds received by them as payments on the Class PO
Certificates and consequently does not purport to reflect the return on any
investment in the Class PO Certificates when such reinvestment rates are
considered.
YIELD ON CLASS A-I-8 CERTIFICATES
The significance of the effects of prepayments and changes in LIBOR on the
Class A-I-8 Certificates is illustrated in the following table entitled
"Sensitivity of the Class A-I-8 Certificates to Prepayments and LIBOR," which
shows the pre-tax yield (on a corporate bond equivalent basis) to the holders of
such Certificates under different constant percentages of the Prepayment
Assumption and levels of LIBOR. The yields of such Certificates set forth in the
following table were calculated using the assumptions specified above under
"--Decrement Tables" and assuming that (i) on the LIBOR Determination Date in
__________ 199_ and on each LIBOR Determination Date thereafter, LIBOR will be
at the level shown, (ii) the purchase price of the Class A-I-8 Certificates is
approximately $____________ for 100% of such Class of Certificates and (iii)
such Certificates are purchased on ____________, 199_.
THE YIELD TO INVESTORS IN THE CLASS A-I-8 CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE LEVEL OF LIBOR AND TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH GENERALLY CAN BE PREPAID AT
ANY TIME. IN PARTICULAR, A HIGH RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) AND/OR A HIGH LEVEL OF LIBOR WILL HAVE A MATERIAL NEGATIVE EFFECT
ON THE YIELD TO INVESTORS IN THE CLASS A-I-8 CERTIFICATES. UNDER CERTAIN
CIRCUMSTANCES, INVESTORS IN THE CLASS A-I-8 CERTIFICATES COULD FAIL TO RECOVER
FULLY THEIR INITIAL INVESTMENTS.
Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR.
SENSITIVITY OF THE CLASS A-I-8 CERTIFICATES
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
% OF PREPAYMENT ASSUMPTION
-----------------------------------------------------
LIBOR 50% 75% 100% 125% 150%
----- -- -- --- --- ---
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-I-8 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class A-I-8 Certificates indicated above and converting such
monthly rates to corporate bond equivalent rates. Such calculation does not take
into account variations that may occur in the interest rates at which investors
may be able to reinvest funds received by them as payments of principal of and
interest on the Class A-I-8 Certificates and consequently does not purport to
reflect the return on any investment in the Class A-I-8 Certificates when such
reinvestment rates are considered.
YIELD ON CLASS X CERTIFICATES
The significance of the effects of prepayments on the Class X Certificates
is illustrated in the following table entitled "Sensitivity of the Class X
Certificates to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis) to holders of such Certificates under different CONSTANT
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above under "--Decrement Tables" and assuming that the purchase price including
accrued interest of the Class X Certificates is approximately $___________ for
100% of such Class of Certificates and such Certificates are purchased on
__________, 199_.
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS (ESPECIALLY THOSE WITH HIGH NET
RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED ABOVE, THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES
WOULD BE _____% IF PREPAYMENTS WERE TO OCCUR AT A CONSTANT RATE OF APPROXIMATELY
______% OF THE PREPAYMENT ASSUMPTION. USING SUCH ASSUMPTIONS, IF THE ACTUAL
PREPAYMENT RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE FOREGOING RATE FOR AS
LITTLE AS ONE MONTH (WHILE EQUALING SUCH RATE FOR ALL OTHER MONTHS), INVESTORS
IN THE CLASS X CERTIFICATES WOULD NOT RECOVER FULLY THEIR INITIAL INVESTMENTS.
It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed. There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class X Certificate and
there can be no assurance that the pre-tax yield to an investor in the Class X
Certificates will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class X Certificate.
SENSITIVITY OF THE CLASS X
CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
% OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 200%
-- -- --- --- ---
Pre-Tax Yields to Maturity......... ----% ----% ----% ----% ----%
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class X Certificates indicated above and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as payments of interest on the Class X
Certificates and consequently does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Reference is made to the Prospectus for important information
additional to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. The Seller will provide to
a prospective or actual Certificateholder without charge, upon written request,
a copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to Structured Asset Mortgage Investments Inc., 245 Park
Avenue, New York, New York 10167. For information regarding collection and other
activities of the Master Servicer, see "Administration--Collection Procedures"
and "--Realization Upon Defaulted Mortgage Loans" in the Prospectus.
VOTING RIGHTS
Voting rights of the Trust in general will be allocated ___% to the Class
A-I-8 and Class X Certificates with the balance allocated among the Classes of
Certificates based upon their respective Current Principal Amounts. Voting
rights of the Class A-I-8 and Class X Certificates will be allocated pro rata
based on the Class A- I-8 Notional Amount and the Class X Notional Amount.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Seller will cause the
Mortgage Loans, together with all principal and interest due on or with respect
to such Mortgage Loans after the Cut-off Date, to be sold to the Trustee. The
Mortgage Loans will be identified in a schedule appearing as an exhibit to the
Pooling and Servicing Agreement with the Group I Mortgage Loans and the Group II
Mortgage Loans separately identified. Such schedule will include information as
to the principal balance of each Mortgage Loan as of the Cut-off Date, as well
as information including, among other things, the Mortgage Rate, the Net Rate,
the Monthly Payment, the maturity date of each Mortgage Note, and the
Loan-to-Value Ratio.
In addition, the Seller will deposit with the Trustee, with respect to each
Mortgage Loan, the original Mortgage Note, endorsed without recourse to the
order of the Trustee and showing an unbroken chain of endorsements from the
original payee thereof to the person endorsing it to the Trustee; the original
Mortgage which shall have been recorded, with evidence of such recording
indicated thereon; the assignment (which may be in the form of a blanket
assignment) to the Trustee of the Mortgage, with evidence of recording with
respect to each Mortgage Loan in the name of the Trustee thereon; all
intervening assignments of the Mortgage, if any, with evidence of recording
thereon; the original or a copy of the policy or certificate of primary mortgage
guaranty insurance, if any; the original policy of title insurance or
mortgagee's certificate of title insurance or commitment or binder for title
insurance; originals of all assumption and modification agreements; PROVIDED,
HOWEVER, that in lieu of the foregoing, the Seller may deliver certain other
documents, under the circumstances set forth in the Pooling and Servicing
Agreement. The documents delivered to the Trustee with respect to each Mortgage
Loan are referred to collectively as the "Mortgage File." The Master Servicer
will cause the Mortgage and intervening assignments, if any, and the assignment
of the Mortgage to be recorded not later than ______ days after the Closing
Date.
The Trustee will review each item of the Mortgage File within _____ days of
the Closing Date (and will review each document permitted to be delivered to the
Trustee after the Closing Date, if received by the Trustee after the initial
_____-day period, promptly after its delivery to the Trustee). If, as a result
of its review, the Trustee determines that any document is missing, does not
appear regular on its face, or appears to be unrelated to the Mortgage Loans
identified in the Mortgage Loan schedules (a "Material Defect"), the Trustee
shall notify [CORPORATION 1] of such Material Defect. [CORPORATION 1] shall
correct or cure any such Material Defect within _____ days from the date of
notice from the Trustee of the Material Defect and if [CORPORATION 1] does not
correct or cure such Material Defect within such period and such defect
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, [CORPORATION 1] will, within_____ days of the date of
notice, provide the Trustee with a substitute Mortgage Loan (if within _____
years of the Closing Date) or purchase the related Mortgage Loan at the
applicable Repurchase Price.
The Trustee also will review the Mortgage Files within _____ days of the
Closing Date. If the Trustee discovers a Material Defect, the Trustee shall
notify [CORPORATION 1] of such Material Defect. [CORPORATION 1] shall correct or
cure any such Material Defect within _____ days from the date of notice from the
Trustee of the Material Defect and if [CORPORATION 1] does not correct or cure
such Material Defect within such period and such defect materially and adversely
affects the interests of the Certificateholders in the related Mortgage Loan,
[CORPORATION 1] will, within _____ days of the date of notice, provide the
Trustee with a substitute Mortgage Loan (if within ______ years of the Closing
Date) or purchase the related Mortgage Loan at the applicable Repurchase Price.
The "Repurchase Price" means, with respect to any Mortgage Loan required to
be repurchased, an amount equal to (i) 100% of the Outstanding Principal Balance
of such Mortgage Loan plus accrued but unpaid interest on the Outstanding
Principal Balance at the related Mortgage Rate through and including the last
day of the month of repurchase reduced by (ii) any portion of the Master
Servicing Fee (as defined under "--Servicing Compensation and Payment of
Expenses" herein) or advances payable to the purchaser of the Mortgage Loan.
As of any time of determination, the "Outstanding Principal Balance" of a
Mortgage Loan is the principal balance of such Mortgage Loan remaining to be
paid by the Mortgagor or, in the case of an REO Property, the principal balance
of the related Mortgage Loan remaining to be paid by the Mortgagor at the time
such property was acquired by the Trust less any Net Insurance Proceeds with
respect thereto to the extent applied to the principal.
REPRESENTATIONS AND WARRANTIES
In the purchase agreement pursuant to which the Seller purchased the
Mortgage Loans, [CORPORATION 1] made certain representations and warranties to
the Seller concerning the Mortgage Loans. The Seller will assign to the Trustee
all of its right, title and interest in such purchase agreement insofar as it
relates to such representations and warranties, as well as the repurchase and
substitution remedies provided for breach of such representations and
warranties. The representations and warranties of [CORPORATION 1] include, among
other things, that as of the Closing Date or such other date as may be specified
below:
(a) the information set forth and to be set forth in the Mortgage Loan
schedules delivered and to be delivered to the Trustee was and will be true
and correct in all material respects at the date or dates respecting which
such information is furnished;
(b) each Mortgage relating to a Mortgage Loan is a valid and
enforceable first lien on the property securing the related Mortgage Note
and each Mortgaged Property is owned by the Mortgagor in fee simple (except
with respect to common areas in the case of condominiums, PUDs and DE
MINIMIS PUDs) or by leasehold for a term longer than the term of the
related Mortgage, subject only to certain permitted exceptions;
(c) as of the Cut-off Date, no payment of principal of or interest on
or in respect of any Mortgage Loan is 30 or more days past due:
(d) there is no valid offset, defense or counterclaim to any Mortgage
Note or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal and interest on such Mortgage Note;
(e) a lender's title insurance policy (on an ALTA or CLTA form) or
binder, or other assurance of title customary in the relevant jurisdiction
therefor, was issued on the date of the origination of each Mortgage Loan,
each such policy, binder or assurance is valid and remains in full force
and effect;
(f) at the time of origination of the Mortgage Loans, at least _____%
of the Group I Mortgage Loans and _____% of the Group II Mortgage Loans (by
aggregate principal balance), respectively, will be secured by Mortgages on
properties which were owner-occupied primary residences;
(g) the improvements on each Mortgaged Property securing such Mortgage
Loan is insured (by an insurer which is acceptable to [CORPORATION 1])
against loss by fire and such hazards as are covered under a standard
extended coverage endorsement in the locale where the Mortgaged Property is
located, in an amount which is not less than the lesser of the maximum
insurable value of the improvements securing such Mortgage Loan and the
outstanding principal balance of the Mortgage Loan but in no event in an
amount less than an amount that is required to prevent the Mortgagor from
being deemed to be a co- insurer thereunder; if the improvement on the
Mortgaged Property is a condominium unit, it is included under the coverage
afforded by a blanket policy for the condominium project; if upon
origination of the Mortgage Loan, the improvements on the Mortgaged
Property were in an area identified as a federally designated flood area, a
flood insurance policy is in effect in an amount representing coverage not
less than the least of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the restorable cost of improvements located on such
Mortgaged Property and (iii) the maximum coverage available under federal
law; and each Mortgage obligates the Mortgagor thereunder to maintain the
insurance referred to above at the Mortgagor's cost and expense;
(h) there is no material monetary default existing under any Mortgage
or the related Mortgage Note and there is no material event which, with the
passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach or event of acceleration; and
neither [Corporation 1] nor any of its affiliates has taken any action to
waive any default, breach or event of acceleration; no foreclosure action
is threatened or has been commenced with respect to the Mortgage Loan; and
(i) no Mortgagor, at the time of origination of the applicable
Mortgage, was a debtor in any state or federal bankruptcy or insolvency
proceeding.
Upon discovery or receipt of notice by [CORPORATION 1], the Seller or the
Trustee of a breach of any representation or warranty relating to the Mortgage
Loans which materially and adversely affects the value of the interests of
Certificateholders or the Trustee in any of the Mortgage Loans, the party
discovering or receiving notice of such breach shall give prompt written notice
to the others. In the case of any such breach, within 60 days from the date of
discovery by [CORPORATION 1], or the date [CORPORATION 1] is notified by the
party discovering or receiving notice of such breach (whichever occurs earlier),
[CORPORATION 1] will (i) cure such breach in all material respects, (ii)
purchase the affected Mortgage Loan at the applicable Repurchase Price (or, if
such Mortgage Loan or the related Mortgaged Property acquired in respect thereof
has been sold, pay the excess of the Repurchase Price over the Net Liquidation
Proceeds (as defined herein)) to the Trust or (iii) if within two years of the
Closing Date, substitute a qualifying substitute Mortgage Loan in exchange for
such Mortgage Loan. The obligations of [CORPORATION 1] to cure, purchase or
substitute a qualifying substitute Mortgage Loan shall constitute the
Certificateholders' sole and exclusive remedy respecting a breach of such
representations or warranties.
HAZARD INSURANCE
The Master Servicer will maintain and keep, or cause to be maintained and
kept, with respect to each Mortgage Loan, in full force and effect for each
Mortgaged Property a hazard insurance policy equal to at least the lesser of the
Outstanding Principal Balance of the Mortgage Loan or the current replacement
cost of the Mortgaged Property and containing a standard mortgagee clause;
PROVIDED, HOWEVER, that the amount of hazard insurance may not be less than the
amount necessary to prevent loss due to the application of any co-insurance
provision of the related policy. Unless a higher deductible is required by law,
the deductible on such hazard insurance policy may be no more than $______ or
____% of the applicable amount of coverage, whichever is less. In the case of a
condominium unit or a unit in a planned unit development, required hazard
insurance will take the form of a multiperil policy covering the entire
condominium project or planned unit development, in an amount equal to at least
100% of the insurable value based on replacement cost. Any amounts collected by
the Master Servicer under any such hazard insurance policy (other than amounts
to be applied to the restoration or repair of the Mortgaged Property or amounts
released to the Mortgagor in accordance with normal servicing procedures) shall
be deposited in a Protected Account. Any cost incurred in maintaining any such
hazard insurance policy shall not be added to the amount owing under the
Mortgage Loan for the purpose of calculating monthly distributions to
Certificateholders, notwithstanding that the terms of the Mortgage Loan so
permit. Such costs shall be recoverable by the Master Servicer out of related
late payments by the Mortgagor or out of Insurance Proceeds or Liquidation
Proceeds or any other amounts in the Certificate Account. The right of the
Master Servicer to reimbursement for such costs incurred will be prior to the
right of Certificateholders to receive any related Insurance Proceeds or
Liquidation Proceeds or any other amounts in the Certificate Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism and malicious mischief. The foregoing
list is merely indicative of certain kinds of uninsured risks and is not
intended to be all-inclusive.
Hazard insurance policies covering properties similar to the Mortgaged
Properties typically contain a clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally ____% to
____%) of the full replacement value of the improvements on the property in
order to recover the full amount of any partial loss. If the insured's coverage
falls below this specified percentage, such clause provides that the insurer's
liability in the event of partial loss does not exceed the greater of (i) the
replacement cost of the improvements less physical depreciation, or (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans may decline as the principal balances owing thereon
decrease, and since residential properties have historically appreciated in
value over time, in the event of partial loss, hazard insurance proceeds may be
insufficient to restore fully the damaged property.
Where the property securing a Mortgage Loan is located at the time of
origination in a federally designated flood area, the Master Servicer will cause
with respect to such Mortgage Loan flood insurance to the extent available and
in accordance with industry practices to be maintained. Such flood insurance
will be in an amount equal to the lesser of (i) the Outstanding Principal
Balance of the related Mortgage Loan and (ii) the minimum amount required under
the terms of coverage to compensate for any damage or loss on a replacement cost
basis, but not more than the maximum amount of such insurance available for the
related Mortgaged Property under either the regular or emergency programs of the
National Flood Insurance Program (assuming that the area in which such Mortgaged
Property is located is participating in such program). Unless applicable state
law requires a higher deductible, the deductible on such flood insurance may not
exceed $_______ or ___% of the applicable amount of coverage, whichever is less.
The Master Servicer, on behalf of the Trustee and Certificateholders, will
present claims to the insurer under any applicable Primary Insurance Policy or
hazard insurance policy. As set forth above, all collections by the Master
Servicer under such policies that are not applied to the restoration or repair
of the related Mortgaged Property or released to the Mortgagor in accordance
with normal servicing procedures are to be deposited in a Protected Account.
REALIZATION UPON DEFAULTED MORTGAGE LOANS; PURCHASES OF
DEFAULTED MORTGAGE LOANS
The Master Servicer will use its reasonable efforts to maximize the receipt
of principal and interest on Defaulted Mortgage Loans and foreclose upon or
otherwise comparably convert the ownership of properties securing Defaulted
Mortgage Loans as to which no satisfactory collection arrangements can be made.
The Master Servicer will service the property acquired by the Trust through
foreclosure or deed-in-lieu of foreclosure and use its reasonable efforts to
maximize the receipt of principal and interest on Defaulted Mortgage Loans;
PROVIDED, HOWEVER, that the Master Servicer will not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it determines in good faith (i) that such foreclosure or
restoration will increase the proceeds of liquidation of the Mortgage Loan to
the Certificateholders after reimbursement to itself for such expenses and (ii)
that such expenses will be recoverable to it through Liquidation Proceeds or
insurance proceeds (respecting which it shall have priority for purposes of
reimbursements from the Certificate Account).
Since Insurance Proceeds cannot exceed deficiency claims and certain
expenses incurred by the Master Servicer, no insurance payments will result in a
recovery to Certificateholders which exceeds the principal balance of the
Defaulted Mortgage Loan together with accrued interest thereon at its Net Rate.
Notwithstanding the foregoing, under the Pooling and Servicing Agreement,
the Master Servicer will have the option (but not the obligation) to purchase
any Mortgage Loan as to which the Mortgagor has failed to make unexcused payment
in full of three or more scheduled payments of principal and interest (a
"Defaulted Mortgage Loan"). Any such purchase will be for a price equal to the
Repurchase Price of such Mortgage Loan. The purchase price for any Defaulted
Mortgage Loan will be deposited in the Certificate Account on the Business Day
prior to the Distribution Date on which the proceeds of such purchase are to be
distributed to the Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer shall be entitled to receive the Master Servicing Fee
(as defined below) from full payments of accrued interest on each Mortgage Loan
as compensation for its activities under the Pooling and Servicing Agreement.
However, Interest Shortfalls resulting from prepayments in full or in part in
any calendar month will be offset by the Master Servicer on the Distribution
Date in the following calendar month to the extent such Interest Shortfalls do
not exceed the lesser of (i) the Master Servicing Fee in connection with such
Distribution Date or (ii) 1/12 of _______% of the Scheduled Principal Balances
of the Mortgage Loans for such Distribution Date (the amount of the Master
Servicing Fee used to offset Interest Shortfalls is referred to herein as a
"Compensating Interest Payment"). To the extent insufficient to cover all such
Interest Shortfall, Compensating Interest Payments will be allocated between
Mortgage Loan Group I and Mortgage Loan Group II PRO RATA based on the amount of
such Interest Shortfalls experienced by the Group I Mortgage Loans and the Group
II Mortgage Loans, respectively. The remaining amount of Interest Shortfalls
after applying Compensating Interest Payments is referred to herein as "Net
Interest Shortfalls."
In addition to the primary compensation described above, the Master
Servicer will retain all prepayment charges, if any, assumption fees, tax
service fees, fees for statement of account payoff and late payment charges, all
to the extent collected from Mortgagors. The Master Servicer will also be
entitled to retain, as additional servicing compensation, (a) amounts in respect
of interest paid by borrowers in connection with any principal prepayment in
full received by the Master Servicer from the _______ day through the _______
day of each month other than the month of the Cut-off Date, (b) any income
earned on the Certificate Account and certain other accounts and (c) any Excess
Liquidation Proceeds (i.e., the amount, if any, by which Liquidation Proceeds
with respect to a Liquidated Mortgage Loan exceeds the sum of (i) the
Outstanding Principal Balance of such Mortgage Loan and accrued but unpaid
interest at the related Mortgage Rate through the related Liquidation Date, plus
(ii) related liquidation expenses, to the extent that such amount is not
required by law to be paid to the related Mortgagor), but only to the extent
that transfers or withdrawals from the Certificate Account with respect thereto
are permitted under the Pooling and Servicing Agreement.
The Master Servicer or any sub-servicer will pay all expenses incurred in
connection with its servicing responsibilities (subject to limited reimbursement
as described herein). On each Distribution Date, the Trustee will pay itself the
respective fees and reimbursable expenses to which it is entitled for the month
of such Distribution Date from amounts in the Certificate Account.
In the event a successor Trustee is appointed by the Certificateholders
pursuant to the Pooling and Servicing Agreement, that portion, if any, of the
successor Trustee's fees which exceeds the Trustee's fees established at the
time of issuance of the Certificates will be borne by the Certificateholders.
The "Master Servicing Fee" in respect of each Mortgage Loan will be ______%
per annum of the Outstanding Principal Balance of such Mortgage Loan. The Master
Servicing Fee consists of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing activities and (b) sub-servicing and
other related compensation payable to any sub-servicer.
PROTECTED ACCOUNT
The Master Servicer and each permitted sub-servicer will establish and
maintain an account (each, a "Protected Account") into which it will deposit
daily all collections of principal and interest on any Mortgage Loan, including
Principal Prepayments, Insurance Proceeds, Liquidation Proceeds, the Repurchase
Price for any Mortgage Loans repurchased, and advances made from the Master
Servicer's own funds (less servicing compensation as permitted above). All
Protected Accounts shall be held in a depository institution, the accounts of
which are insured by the FDIC to the maximum extent permitted by law, segregated
on the books of such institution and held in trust. The amount at any time
credited to a Protected Account shall be fully insured by the FDIC to the
maximum extent permitted by law or, to the extent that such balance exceeds the
limits of such insurance, such excess must be transferred to an account or
invested in permitted investments meeting the requirements of the Rating
Agencies or to the Certificate Account. Certain payments may be required to be
transferred into noncommingled accounts on an accelerated basis.
Prior to each Distribution Date, the Master Servicer shall withdraw or
shall cause to be withdrawn from the Protected Accounts and any other permitted
accounts and shall deposit or cause to be deposited in the Certificate Account
amounts representing the following collections and payments (other than with
respect to principal of or interest on the Mortgage Loans due on or before the
Cut-off Date):
(i) Scheduled payments on the related Mortgage Loans received or
advanced by the Master Servicer which were due on the related Due Date, net
of servicing fees due the Master Servicer;
(ii) Full principal prepayments and any Liquidation Proceeds received
by the Master Servicer with respect to such Mortgage Loans in the related
Prepayment Period, with interest to the date of prepayment or liquidation,
net of servicing fees due the Master Servicer; and
(iii) Partial prepayments of principal received by the Master Servicer
for such Mortgage Loans in the related Prepayment Period.
CERTIFICATE ACCOUNT
The Trustee shall establish and maintain in the name of the Trustee, for
the benefit of the Certificateholders, an account (the "Certificate Account") as
a non-interest bearing trust account. The Certificate Account shall have two
separate subaccounts, one each for all funds with respect to each Mortgage Loan
Group. The Trustee will deposit in the appropriate subaccount of the Certificate
Account, as received, the following amounts:
(i) Any amounts withdrawn from a Protected Account or other permitted
account;
(ii) Any Monthly Advance and Compensating Interest Payments;
(iii) Any Insurance Proceeds or Liquidation Proceeds received by the
Master Servicer which were not deposited in a Protected Account or other
permitted account;
(iv) The Repurchase Price with respect to any Mortgage Loans
repurchased and all proceeds of any Mortgage Loans or property acquired in
connection with the optional termination of the Trust;
(v) Any amounts required to be deposited with respect to losses on
Permitted Investments; and
(vi) Any other amounts received by the Master Servicer or the Trustee
and required to be deposited in the Certificate Account pursuant to the
Pooling and Servicing Agreement.
All amounts deposited to the Certificate Account shall be held by the
Trustee in the name of the Trustee in trust for the benefit of the
Certificateholders in accordance with the terms and provisions of the Agreement,
subject to the right of the Master Servicer to require the Trustee to make
withdrawals therefrom as provided below. The amount at any time credited to the
Certificate Account shall be in general (i) fully insured by the FDIC to the
maximum coverage provided thereby or (ii) at the written direction of the Master
Servicer invested, in the name of the Trustee, in such Permitted Investments as
the Master Servicer may direct or deposited in demand deposits with such
depository institutions as designated by the Master Servicer, provided that time
deposits of such depository institutions would be a Permitted Investment.
The Trustee will, from time to time on demand of the Master Servicer, make
or cause to be made such withdrawals or transfers from the appropriate
subaccount of the Certificate Account as the Master Servicer has designated for
such transfer or withdrawal for the following purposes:
(i) to reimburse the Master Servicer or a sub-servicer for any Monthly
Advance of its own funds or any advance of such sub-servicer's own funds,
the right of the Master Servicer or a sub-servicer to reimbursement
pursuant to this subclause (i) being limited to amounts received on a
particular Mortgage Loan (including, for this purpose, the Repurchase
Proceeds, Insurance Proceeds and Liquidation Proceeds) which represent late
payments or recoveries of the principal of or interest on such Mortgage
Loan respecting which such Monthly Advance or advance was made;
(ii) to reimburse the Master Servicer or a sub-servicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
amounts expended by the Master Servicer or a Sub- Servicer in good faith in
connection with the restoration of the related Mortgaged Property which was
damaged by an uninsured cause or in connection with the liquidation of such
Mortgage Loan;
(iii) to reimburse the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from Insurance Proceeds
relating to a particular Mortgage Loan for expenses incurred with respect
to such Mortgage Loan and to reimburse the Master Servicer or a
sub-servicer from Liquidation Proceeds from a particular Mortgage Loan for
liquidation expenses incurred with respect to such Mortgage Loan;
(iv) to pay the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from Liquidation Proceeds
or Insurance Proceeds received in connection with the liquidation of a
Mortgage Loan, the amount which the Master Servicer or a sub-servicer would
have been entitled to receive under subclause (ix) below as servicing
compensation on account of each defaulted scheduled payment on such
Mortgage Loan if paid in a timely manner by the related Mortgagor;
(v) to pay the Master Servicer or a sub-servicer to the extent
permitted by the Pooling and Servicing Agreement from the Repurchase Price
for any Mortgage Loan, the amount which the Master Servicer or a
sub-servicer would have been entitled to receive under subclause (ix) below
as servicing compensation;
(vi) to reimburse the Master Servicer or a sub-servicer for certain
advances of funds made to protect a Mortgaged Property, the right to
reimbursement pursuant to this subclause being limited to amounts received
on the related Mortgage Loan (including, for this purpose, the Repurchase
Proceeds, Insurance Proceeds and Liquidation Proceeds) which represent late
recoveries of the payments for which such advances were made;
(vii) to pay the Master Servicer or a sub-servicer with respect to
each Mortgage Loan that has been repurchased, all amounts received thereon,
representing recoveries of principal that reduce the Outstanding Principal
Balance of the related Mortgage Loan below the Outstanding Principal
Balance used in calculating the Repurchase Price or representing interest
included in the calculation of the Repurchase Price or accrued after the
end of the month during which such repurchase occurs;
(viii) to reimburse the Master Servicer or a sub-servicer for any
Monthly Advance or advance, if a Realized Loss is to be allocated with
respect to the related Mortgage Loan on the related Distribution Date, if
the advance has not been reimbursed pursuant to clauses (i) and (vi);
(ix) to pay the Master Servicer and a sub-servicer servicing
compensation as set forth above;
(x) to reimburse the Master Servicer for expenses, costs and
liabilities incurred by and reimbursable to it pursuant to the Pooling and
Servicing Agreement, which, if not specifically allocable to a Mortgage
Loan Group, shall be allocated to each subaccount, PRO RATA, based on the
Schedule Principal Balances of the Group I Mortgage Loans and the Group II
Mortgage Loans;
(xi) to pay to the Master Servicer, as additional servicing
compensation, any Excess Liquidation Proceeds;
(xii) to clear and terminate the Certificate Account; and
(xiii) to remove amounts deposited in error.
On each Distribution Date, the Trustee shall make the following payments
from the funds in the Certificate Account:
(i) First, the Trustee's Fees shall be paid to the Trustee; and
(ii) Second, the amount distributable to the Certificateholders shall
be paid in accordance with the provisions set forth under "Description of
the Certificates--Distributions on the Certificates."
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Pooling and Servicing Agreement will provide that neither the Master
Servicer nor any of its directors, officers, employees and agents shall be under
any liability to the Trustee, the Trust or the Certificateholders for taking any
action or for refraining from taking any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; PROVIDED, HOWEVER,
that neither the Master Servicer nor any such person will be protected against
any breach of warranties or representations made in the Pooling and Servicing
Agreement or any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. The Pooling
and Servicing Agreement will further provide that the Master Servicer and its
directors, officers, employees and agents are entitled to indemnification from
the Certificate Account and will be held harmless thereby against any loss,
liability or expense incurred in connection with any legal proceeding relating
to the Pooling and Servicing Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loans (except as otherwise
reimbursable under the Pooling and Servicing Agreement) or incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, the Pooling and Servicing Agreement will provide that
the Master Servicer is under no obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties under the Pooling and
Servicing Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer may, however, in its discretion undertake any
such action which it may deem necessary or desirable in respect of the Pooling
and Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust and the Master Servicer will be
entitled to be reimbursed therefor from the Certificate Account. Any such
indemnification or reimbursement to the Trustee which is not specifically
related to a Mortgage Loan Group shall be charged against the subaccounts of the
Certificate Account PRO RATA based upon the respective outstanding principal
amounts of the Group I Mortgage Loans and the Group II Mortgage Loans. See
"Administration-- Certain Matters Regarding the Master Servicer and the Seller"
in the Prospectus.
Upon the receipt by the Master Servicer of a notice of termination or an
opinion of counsel to the effect that the Master Servicer is legally unable to
act or to delegate its duties to a person which is legally able to act, the
Trustee shall automatically become the successor in all respects to the Master
Servicer in its capacity under the Pooling and Servicing Agreement and the
transactions set forth or provided for therein and shall thereafter be subject
to all the responsibilities, duties, liabilities and limitations on liabilities
relating thereto placed on the Master Servicer by the terms and provisions
hereof; PROVIDED, HOWEVER, that the Trustee (i) shall be under no obligation to
repurchase any Mortgage Loan; and (ii) shall have no obligation whatsoever with
respect to any liability incurred by the Master Servicer at or prior to the time
of receipt by such Master Servicer of such notice or of such opinion of counsel.
As compensation therefor, the Trustee shall be entitled to all funds relating to
the Mortgage Loans which the Master Servicer would have been entitled to retain
if the Master Servicer had continued to act as such, except for those amounts
due the Master Servicer as reimbursement for advances previously made.
Notwithstanding the above, the Trustee may, if it shall be unwilling so to act,
or shall, if it is legally unable so to act, appoint, or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution which is a Fannie Mae or Freddie Mac-approved servicer having a net
worth of not less than $___________, as the successor to the Master Servicer
under the Pooling and Servicing Agreement in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer under the
Pooling and Servicing Agreement. Pending appointment of a successor to the
Master Servicer under the Pooling and Servicing Agreement, the Trustee shall act
in such capacity as provided under the Pooling and Servicing Agreement. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall AGREE; PROVIDED, HOWEVER, that no such
compensation shall be in excess of that permitted the Trustee as provided above,
and that such successor shall undertake and assume the obligations of the
Trustee to pay compensation to any third person acting as an agent or
independent contractor in the performance of master servicing responsibilities
under the Pooling and Servicing Agreement. See "Administration--Events of
Default; Rights Upon Event of Default" in the Prospectus.
MONTHLY ADVANCES
If the scheduled payment on a Mortgage Loan which was due on the Due Date
in the month of a Distribution Date and is delinquent other than as a result of
application of the Relief Act exceeds the amount deposited in the appropriate
subaccount of the Certificate Account which will be used for a Certificate
Account Advance (as defined below) with respect to such Mortgage Loan, the
Master Servicer will deposit in the appropriate subaccount of the Certificate
Account not later than the fourth Business Day immediately preceding the
Distribution Date an amount equal to such deficiency net of the related Master
Servicing Fee except to the extent the Master Servicer determines any such
advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or
from future payments on the Mortgage Loan for which such advance was made.
Subject to the foregoing, such advances will be made through liquidation of the
related Mortgaged Property. Any amount used as a Certificate Account Advance
shall be replaced by the Master Servicer by deposit in the appropriate
subaccount of the Certificate Account on or before any future date to the extent
that funds in the appropriate subaccount of the Certificate Account on such date
are less than the amount required to be transferred to the appropriate
subaccount of the Certificate Account. If applicable, on the _______ Business
Day preceding each Distribution Date, the Master Servicer shall present an
Officer's Certificate to the Trustee (i) stating that the Master Servicer elects
not to make a Monthly Advance in a stated amount and (ii) detailing the reason
it deems the advance to be nonrecoverable.
As of any Determination Date, a "Certificate Account Advance" is the amount
on deposit in a Protected Account or another permitted account which is not
required to be transferred to the Certificate Account for distribution during
the calendar month in which such Determination Date occurs but which is used to
make a distribution to Certificateholders during such calendar month on account
of scheduled payments on the Mortgage Loans due on the Due Date for such month
not being paid on or before the Determination Date except insofar as such unpaid
amounts are the result of application of the Relief Act.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, a written report will be provided to each holder
of Certificates setting forth certain information with respect to the
composition of the payment being made, the Current Principal Amount or Notional
Amount of an individual Certificate following the payment and certain other
information relating to the Certificates and the Mortgage Loans.
TERMINATION
The obligations of the Master Servicer and the Trustee created by the
Pooling and Servicing Agreement will terminate upon (i) the later of the making
of the final payment or other liquidation, or any advance with respect thereto,
of the last Mortgage Loan subject thereto or the disposition of all property
acquired upon foreclosure or acceptance of a deed in lieu of foreclosure of any
such Mortgage Loans and (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to such Agreement.
On any Distribution Date on which the aggregate unpaid principal balance of
the Mortgage Loans is less than _____% of the aggregate Scheduled Principal
Balance as of the Cut-off Date, the Master Servicer or its designee may
repurchase from the Trust all Mortgage Loans remaining outstanding at a purchase
price equal to (a) the unpaid principal balance of such Mortgage Loans (other
than Mortgage Loans related to REO Property), net of the principal portion of
any unreimbursed Monthly Advances made by the purchaser, plus accrued but unpaid
interest thereon at the applicable Mortgage Rate to the next Due Date, plus (b)
the appraised value of any REO Property (but not more than the unpaid principal
balance of the related Mortgage Loan, together with accrued but unpaid interest
on that balance at the applicable Mortgage Rate to the next Due Date), less the
good faith estimate of the Master Servicer of liquidation expenses to be
incurred in connection with its disposal thereof. The Trust may also be
terminated and the Certificates retired on any Distribution Date upon the Master
Servicer's determination, based upon an opinion of counsel, that the REMIC
status of REMIC I or REMIC II has been lost or that a substantial risk exists
that such status will be lost for the then current taxable year. Upon
termination, the holders of Certificates (other than the Class A-I-8 and Class X
Certificates) will receive the Current Principal Amount of their Certificates,
if any, and accrued but unpaid interest and the holders of the Class A-I-8 and
Class X Certificates will receive accrued but unpaid interest on their
Certificates.
THE TRUSTEE
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor Trustee. The Trustee also may be removed at
any time by the Master Servicer, if the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if the Trustee
becomes incapable of acting, bankrupt, insolvent or if a receiver or public
officer takes charge of the Trustee or its property. The Trustee may also be
removed at any time by the holders of Certificates evidencing ownership of not
less than _____% of the Trust. In the event that the Certificateholders remove
the Trustee, the compensation of any successor Trustee shall be paid by the
Certificateholders to the extent that such compensation exceeds the amount
agreed to by the Master Servicer and the Trustee. Any resignation or removal of
the Trustee and appointment of a successor Trustee will not become effective
until acceptance of the appointment by the successor Trustee.
YEAR 2000 ISSUE
The "Year 2000 Issue" relates to the fact that many existing computer
programs and applications use only two digits to identify a year in the date
field. A failure to modify such programs and applications to be Year 2000
compliant may adversely impact the operations at the turn of the century of the
Master Servicer and the Trustee. The Seller will seek to obtain representations
and warranties from the Master Servicer and the Trustee with respect to their
plans to modify or replace computer programs and applications in order to deal
with the Year 2000 Issue. There can be no assurance that any planned
modification or replacement will be timely completed.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Mortgage Loans, the Certificate
Account and certain assets owned by the Trust as a REMIC ("REMIC II") for
federal income tax purposes. REMIC II will issue "regular interests" and one
"residual interest." An election will be made to treat the "regular interests"
in REMIC II and certain other assets owned by the Trust as a REMIC ("REMIC I").
The Certificates (other than the Class R-1, Class R-2 and Class X Certificates),
as well as the Separate Components of the Class X Certificates, will be
designated as regular interests in REMIC I. The Certificates (other than the
Class R-1 and Class R-2 Certificates) and, where the context so requires, the
Separate Components of the Class X Certificates (in lieu of the Class X
Certificates) are herein referred to as "Regular Certificates" or "REMIC Regular
Certificates". The Class R-2 Certificates will be designated as the residual
interest in REMIC II and the Class R-1 Certificates will be designated as the
residual interest in REMIC I (collectively, the "Residual Certificates" or the
"REMIC Residual Certificates"). All Certificateholders are advised to see
"Federal Income Tax Consequences" in the Prospectus for a discussion of the
anticipated federal income tax consequences of the purchase, ownership and
disposition of the REMIC Regular Certificates and the REMIC Residual
Certificates.
Because the REMIC Regular Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the "Code"), and interest paid or accrued on
the Regular Certificates, including original issue discount with respect to any
Regular Certificates issued with original issue discount, will be taxable to
Certificateholders in accordance with the accrual method of accounting. The
Class A-I-8 Certificates, the Class PO Certificates and each of the Separate
Components comprising the Class X Certificates will be treated as issued with
original issue discount. Some or all of the other Classes of Regular
Certificates may also be subject to the original issue discount provisions. See
"Federal Income Tax Consequences--REMIC Regular Securities--Current Income on
REMIC Regular Securities--Original IssuE Discount" in the Prospectus. All
purchasers of REMIC Regular Certificates are urged to consult their tax advisors
for advice regarding the effect, if any, of the OID Regulations on the purchase
of the Regular Certificates. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount with respect to the
Certificates is 100% of the Prepayment Assumption. The Prepayment Assumption
represents a rate of payment of unscheduled principal on a pool of mortgage
loans, expressed as an annualized percentage of the outstanding principal
balance of such mortgage loans at the beginning of each period. However, no
representation is made as to the rate at which prepayments actually will occur.
In addition, other Classes of Regular Certificates may be treated as having been
issued at a premium. See "Federal Income Tax Consequences--REMIC Regular
Securities--Premium" in the Prospectus.
The Residual Certificates generally will not be treated as evidences of
indebtedness for federal income tax purposes. Instead, the Residual Certificates
will be considered as residual interests in a REMIC, representing rights to the
taxable income or net loss of REMIC I (in the case of the Class R-1
Certificates) or REMIC II (in the case of the Class R-2 Certificates). Holders
of the Residual Certificates will be required to report and will be taxed on
their PRO RATA share of such income or loss, and such reporting requirements
will continue until there are no Certificates of any Class outstanding, even
though holders of Residual Certificates previously may have received full
payment of any stated interest and principal. The taxable income of holders of
the Residual Certificates attributable to the Residual Certificates may exceed
any principal and interest payments received by such Certificateholders during
the corresponding period, which would result in a negligible (or even negative)
after-tax return, in certain circumstances.
The Offered Certificates (excluding the Class X Certificates and
including the Residual Certificates) as well as each of the Separate Components
comprising the Class X Certificates will be treated as "regular" or "residual
interests in a REMIC" for domestic building and loan associations, and "real
estate assets" for real estate investment trusts ("REIT"), subject to the
limitations described in "Federal Income Tax Consequences--REMIC
Securities--Status of REMIC Securities" in the Prospectus. Similarly, interest
on such Certificates and the Separate Components of the Class X Certificates
will be considered "interest on obligations secured by mortgages on real
property" for REITs, subject to the limitations described in "Federal Income Tax
Consequences--REMIC Securities--Status of REMIC Securities" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to Title I of ERISA should
consider the ERISA fiduciary investment standards before authorizing an
investment by a plan in the Certificates. In addition, fiduciaries of employee
benefit plans subject to Title I of ERISA, as well as certain plans or other
retirement arrangements not subject to ERISA, but which are subject to Section
4975 of the Code (such as individual retirement accounts and Keogh plans
covering only a sole proprietor, or partners), or any entity whose underlying
assets include plan assets by reason of a plan or account investing in such
entity, including an insurance company general account (collectively,
"Plan(s)"), should consult with their legal counsel to determine whether an
investment in the Certificates will cause the assets of the Trust ("Trust
Assets") to be considered plan assets pursuant to the plan asset regulations set
forth at 29 C.F.R. ss.2510.3-101 (the "Plan Asset Regulations"), thereby
subjecting the Plan to the prohibited transaction rules with respect to the
Trust Assets and the Trustee or the Master Servicer to the fiduciary investments
standards of ERISA, or cause the excise tax provisions of Section 4975 of the
Code to apply to the Trust Assets, unless an exemption granted by the Department
of Labor applies to the purchase, sale, transfer or holding of the Certificates.
In particular, investors that are insurance companies should consult with their
legal counsel with respect to the United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517
(1993). In John Hancock, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be plan assets under
certain circumstances. Investors should analyze whether that decision or federal
legislation enacted affecting insurance company general accounts (see Section
1460 of the Small Job Protection Act of 1996) and any regulations issued
thereunder may have an impact with respect to purchases of Certificates.
Prohibited Transaction Exemption 90-30 (the "Exemption") will generally be
met with respect to the Senior Certificates (other than the Class PO
Certificates), except for those conditions which are dependent on facts unknown
to the Seller or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision to
purchase such Class of Senior Certificates. However, before purchasing a Senior
Certificate (other than a Class PO Certificate), a fiduciary of a Plan should
make its own determination as to the availability of exemptive relief provided
by the Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will be applicable
to such Senior Certificates. See "ERISA Considerations" in the Prospectus.
The Exemption does not apply to the Class PO Certificates because neither
the Underwriter nor any of its affiliates is either underwriting or acting as a
selling or placement agent with respect to the Class PO Certificates. However,
if the Class PO Certificates were to be made available for purchase in the
secondary market through an underwriting or sale or placement by an entity
(including the Underwriter) which has been granted an underwriters' prohibited
transaction exemption similar to the Exemption, such Class PO Certificates, as
applicable would be eligible for purchase by Plans, subject to the same
considerations set forth herein with respect to the other Classes of Senior
Certificates. The Class PO may be acquired by a purchaser which is acquiring
such Certificates directly or indirectly for or on behalf of a Plan, provided
that neither the proposed transfer and/or holding of a Certificate nor the
servicing, management and operation of the Trust (i) will result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code which will
not be covered under an individual or class prohibited transaction exemption
including but not limited to Department of Labor Prohibited Transaction
Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers); PTE 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds);
PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts), PTE 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts), and PTCE 96-23 (Class Exemption
for Plan Asset Transactions Determined by In-House Asset Managers) or (ii) will
give rise to any additional fiduciary duties under ERISA on the part of the
Master Servicer or the Trustee, which will be deemed to be represented by the
purchaser of the PO Certificate by its acquisition of such Certificate.
The Exemption does not apply to the Class B Certificates because the rights
and interests evidenced by such Class B Certificates are subordinated to the
rights and interests evidenced by other Classes of Certificates issued by the
Trust. However, the Class B Certificates may be acquired by any investor who is,
or who is acquiring such Class B Certificates directly or indirectly for, on
behalf of or with the assets of, a Plan, unless such investor is an insurance
company and the source of funds to be used by the investor to pay the purchase
price of the Class B Certificates is funds held by the investor in an "insurance
company general account" as defined in Section V(e) of PTE 95-60. By acquiring a
Certificate, the owner of a Book-Entry Certificate will be deemed to have
represented, and the holder of a Physical Certificate or a Definitive
Certificate will be required to represent, that it meets one of the requirements
set forth in the immediately preceding sentence.
Any Plan fiduciary which proposes to cause a Plan to purchase Offered
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
the Certificates. Assets of a Plan should not be invested in the Certificates
unless it is clear that the Exemption or any other prohibited transaction
exemption will apply and exempt all potential prohibited transactions.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such governmental plan may be subject to
Federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for and the availability of any exemptive relief under any Similar Law.
LEGAL INVESTMENT
The Senior Certificates and the Class B-1 Certificates will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long as they are rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization, and, as such, will be legal investments for certain
entities to the extent provided in SMMEA, subject to state laws overriding
SMMEA. Certain states have enacted legislation overriding the legal investment
provisions of SMMEA. The remaining Classes of Certificates will NOT constitute
"mortgage related securities" under SMMEA (the "Non- SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Non-SMMEA Certificates, may be subject to significant
interpretive uncertainties.
All investors whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in the Certificates. Any such institution
should consult its own legal advisors in determining whether and to what extent
there may be restrictions on its ability to invest in the Certificates. See
"Legal Investment" in the Prospectus.
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL CERTIFICATES
The Residual Certificates are not offered for sale to any investor that is
a "disqualified organization" as described in "Federal Income Tax
Consequences--Transfers of REMIC Residual Securities--Tax on Disposition of
REMIC Residual Securities" and "--Restrictions on Transfer; Holding by
Pass-Through Entities" in the Prospectus.
Residual Certificates (or interests therein) may not be transferred without
the prior express written consent of __________________, acting as "Tax Matters
Person" as defined in the Code. The Tax Matters Person will not give its consent
to any proposed transfer to a disqualified organization. As a prerequisite to
such consent to any other transfer, the proposed transferee must provide the Tax
Matters Person and the Trustee with an affidavit that the proposed transferee is
not a disqualified organization (and, unless the Tax Matters Person consents to
the transfer to a person who is not a U.S. Person (as defined below), an
affidavit that it is a U.S. Person). Notwithstanding the fulfillment of the
prerequisites described above, the Tax Matters Person may withhold its consent
to a transfer, but only to the extent necessary to avoid a risk of REMIC
disqualification or REMIC-level tax. In the event that legislation is enacted
which would subject the Trust to tax (or disqualify REMIC I or REMIC II as a
REMIC) on the transfer of an interest in a Residual Certificate to any other
person or persons, the Tax Matters Person may, without action on the part of
Holders, amend the Pooling and Servicing Agreement to restrict or prohibit
prospectively such transfer. A transfer in violation of the restrictions set
forth herein may subject a Residual Certificateholder to taxation. See "Federal
Income Tax Consequences--Transfers of REMIC Residual Securities--Tax on
Disposition of REMIC Residual Securities" and "--Restrictions on Transfer;
Holding by Pass- Through Entities" in the Prospectus. Moreover, certain
transfers of Residual Certificates that are effective to transfer legal
ownership may nevertheless be ineffective to transfer ownership for federal
income tax purposes, if at the time of the transfer the Residual Certificate
represents a "non-economic residual interest" as defined in the REMIC
Regulations and if avoiding or impeding the assessment or collection of tax is a
significant purpose of the transfer. See "Federal Income Tax
Consequences--Transfers of REMIC Residual Securities" and "--Restrictions on
Transfer; Holding by Pass-Through Entities" in the Prospectus. Further, unless
the Tax Matters Person consents in writing (which consent may be withheld in the
Tax Matters Person's sole discretion), the Residual Certificates (including a
beneficial interest therein) may not be purchased by or transferred to any
person who is not a "United States person," as such term is defined in Section
7701(a)(30) of the Code (a "U.S. Person").
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Offered Certificates (other than the Class PO Certificates), are
being purchased from the Seller by the Underwriter upon issuance. The
Underwriter is an affiliate of the Seller. Distribution of such Certificates
will be made from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Seller are
expected to be approximately ______% of the aggregate principal balance of the
Offered Certificates, as of the Cut-off Date, plus accrued interest thereon, but
before deducting expenses payable by the Seller in connection with the Offered
Certificates. ln connection with the purchase and sale of the Offered
Certificates, the Underwriter may be deemed to have received compensation from
the Seller in the form of an underwriting discount.
The Seller will indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the Underwriters may be required to make in
respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Seller and the Underwriter by Stroock & Stroock & Lavan LLP, New York, New
York.
RATINGS
It is a condition to the issuance of each Class of Offered Certificates
that it receives the ratings set forth below from _______ and _______.
RATING
_____________________________________________
CLASS _______ _______
- -----
Class A-I-1 ___ ___
Class A-I-2 ___ ___
Class A-I-3 ___ ___
Class A-I-4 ___ ___
Class A-I-5 ___ ___
Class A-I-6 ___ ___
Class A-I-7 ___ ___
Class A-I-8 ___ ___
Class A-I-9 ___ ___
Class A-I-10 ___ ___
Class A-I-11 ___ ___
Class A-II ___ ___
Class PO ___ ___
Class X ___ ___
Class B-1 ___ ___
Class B-2 ___ ___
Class B-3 ___ ___
Class R-1 ___ ___
Class R-2 ___ ___
_______'s ratings on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of payments required under the
Pooling and Servicing Agreement. _______'s ratings take into consideration the
credit quality of the mortgage pool, structural and legal aspects associated
with the Certificates, and the extent to which the payment stream in the
mortgage pool is adequate to make payments required under the Certificates.
_______'s rating on the Offered Certificates does not, however, constitute a
statement regarding frequency of prepayments on the mortgages.
The ratings assigned by _______ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related certificateholders under the agreements pursuant to which such
certificates are issued. _______'s ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make payments
required by such certificates. _______'s ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments (i) Certificateholders might suffer a lower
than anticipated yield and (ii) if there is a rapid rate of principal payments
(including principal prepayments) on the Mortgage Loans, investors in the Class
A-I-8 or Class X Certificates could fail to fully recover their initial
investments. The ratings on the Class R-1 and Class R-2 Certificates address
only the return of their respective principal balances and interest thereon.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the Rating Agencies.
The Seller has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate the Offered Certificates or, in
such event, what rating would be assigned to the Offered Certificates by such
other rating agency. The ratings assigned by such other rating agency to the
Offered Certificates may be lower than the ratings assigned by the Rating
Agencies.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
[CORPORATION 1]..........................................................6, 28
_______________ Series Program..............................................30
Accrued Certificate Interest............................................11, 43
Adjustment Amount...........................................................53
Aggregate Expense Rate.......................................................8
Allocable Share.............................................................50
Assumed Final Distribution Date.........................................23, 55
Available Funds.........................................................10, 38
Bankruptcy Coverage Termination Date........................................53
Bankruptcy Loss.............................................................51
Bankruptcy Loss Amount......................................................53
Benefit Plan Opinion........................................................25
Book-Entry Certificates......................................................6
Business Day................................................................36
Buydown Loans...............................................................29
Cedel....................................................................6, 36
Certificate Account.........................................................74
Certificate Account Advance.................................................77
Certificates.......................................................1, 4, 5, 36
Class A Certificates.........................................................5
Class A-I Certificates.......................................................6
Class A-I Senior Percentage.................................................47
Class A-I-11 Optimal Principal Amount.......................................39
Class A-I-11 Pro Rata Optimal Principal Amount..............................39
Class A-I-8 Notional Amount..................................................5
Class A-II Certificates......................................................6
Class A-II Senior Percentage................................................47
Class B Certificates.........................................................6
Class B Group I Current Principal Amount....................................42
Class B Group II Current Principal Amount...................................42
Class PO Cash Shortfall.....................................................40
Class PO Deferred Amount................................................14, 52
Class PO Deferred Payment Writedown Amount..................................43
Class PO Principal Distribution Amount......................................48
Class Prepayment Distribution Trigger.......................................50
Class X Component I Accrued Certificate Interest............................42
Class X Component II Accrued Certificate Interest...........................42
CLTV........................................................................30
Code....................................................................24, 79
Compensating Interest Payment.......................................12, 44, 72
Component I.............................................................11, 42
Component II............................................................11, 42
CPR ........................................................................56
Cross-Over Date.........................................................12, 38
Current Principal Amount................................................12, 43
Cut-off Date Scheduled Principal Balance.................................7, 28
Defaulted Mortgage Loan.....................................................72
Determination Date..........................................................50
Distribution Date........................................................2, 9
DTC .....................................................................6, 36
Due Date.....................................................................8
Due Period...................................................................9
ERISA.......................................................................24
Euroclear................................................................6, 36
Excess Bankruptcy Loss..................................................16, 51
Excess Fraud Loss.......................................................16, 51
Excess Losses...............................................................16
Excess Special Hazard Loss..............................................16, 51
Exemption...............................................................25, 80
FHA ........................................................................28
Floating Rate Certificates...................................................6
Fraud Coverage Termination Date.............................................53
Fraud Loss..................................................................51
Fraud Loss Amount...........................................................53
Group I Available Funds.....................................................37
Group I Discount Mortgage Loan..............................................45
Group I Mortgage Loans.......................................................2
Group II Available Funds....................................................37
Group I Senior Optimal Principal Amount.....................................46
Group II Senior Optimal Principal Amount....................................46
Insurance Proceeds..........................................................50
Interest Accrual Period.....................................................10
Interest Shortfall..........................................................44
Inverse Floating Rate Certificates...........................................6
LIBOR.....................................................................1, 4
LIBOR Determination Date....................................................44
Liquidated Mortgage Loan....................................................51
Liquidation Proceeds........................................................51
Master Servicer....................................................3, 4, 6, 35
Master Servicing Fee........................................................73
Material Defect.............................................................68
Monthly Advance.............................................................15
Monthly Payment.............................................................50
Mortgage File...............................................................68
Mortgage Loan Group I........................................................2
Mortgage Loan Group II.......................................................2
Mortgage Rate................................................................8
Mortgaged Properties.........................................................7
Net Interest Shortfalls.................................................44, 72
Net Liquidation Proceeds....................................................51
Net Rate.....................................................................8
Non-Discount Mortgage Loan..................................................45
Non-PO Percentage...........................................................45
Non-SMMEA Certificates..................................................27, 81
Offered Certificates..................................................1, 5, 36
Original Subordinate Principal Balance......................................48
Other Certificates.......................................................5, 36
Outstanding Principal Balance...............................................69
Pass-Through Rate...........................................................10
Physical Certificates........................................................6
Plan Asset Regulations......................................................80
Plan(s)................................................................24, 80
PO Percentage...............................................................45
Pooling and Servicing Agreement..............................................4
Prepayment Assumption......................................................56
Prepayment Period........................................................9, 47
Primary Insurance Policy....................................................29
Principal Prepayment........................................................50
Protected Account.......................................................36, 73
PTE ........................................................................80
Rating Agencies.............................................................26
Realized Loss...............................................................51
Record Date..................................................................9
Reduced Documentation Program...............................................31
Reference Banks.............................................................44
Regular Certificates.................................................6, 24, 79
Relief Act..................................................................44
REMIC........................................................................3
REMIC I.................................................................24, 79
REMIC II................................................................24, 79
REMIC Regular Certificates..............................................24, 79
REMIC Residual Certificates.............................................24, 79
REO Property................................................................51
Repurchase Price............................................................69
Repurchase Proceeds.........................................................50
Reserve Interest Rate.......................................................45
Residual Certificates................................................6, 24, 79
SAMI......................................................................1, 2
Scheduled Principal Balance..................................................8
Seller..............................................................1, 2, 4, 6
Senior Certificates..........................................................6
Senior Percentage...........................................................47
Senior Prepayment Percentage................................................47
Senior Prepayment Percentage Stepdown Limitation............................48
Separate Component......................................................11, 42
Similar Law.................................................................81
SMMEA...................................................................26, 81
Special Hazard Loss.........................................................51
Special Hazard Loss Amount..................................................53
Special Hazard Termination Date.............................................53
Subordinate Certificate Writedown Amount....................................43
Subordinate Certificates.....................................................6
Subordinate Optimal Principal Amount........................................49
Subordinate Percentage......................................................49
Subordinate Prepayment Percentage...........................................49
TACs........................................................................20
Tax Matters Person......................................................25, 82
Trust.....................................................................2, 4
Trust Assets............................................................24, 80
Trustee......................................................................4
U.S. Person.................................................................82
VA ........................................................................28
<PAGE>
SCHEDULE A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The tables below set forth estimates of certain expected characteristics
(as of the Cut-off Date) of the Group I Mortgage Loans and the Group II Mortgage
Loans. In each of the following tables, the percentages are based on the Cut-off
Date Scheduled Principal Balances and have been rounded and, as a result, may
not total 100.00%.
The description herein of the Mortgage Loans is based upon estimates of the
composition of the Mortgage Loans as of the Cut-off Date, as adjusted for all
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed as a result of (i)
Principal Prepayments thereof in full prior to __________, 199_, (ii)
requirements of each of the Rating Agencies or (iii) delinquencies or otherwise.
In any such event, other mortgage loans may be included in the Trust. The
characteristics of the Mortgage Pool and the Mortgage Loan Groups at the time
the Certificates are issued will not, however, differ by more than 5% from the
estimated information set forth herein with respect to the Mortgage Pool and the
Mortgage Loans Groups as presently constituted, although certain characteristics
of the Mortgage Loans and the Mortgage Loans Groups may vary.
<TABLE>
<CAPTION>
YEAR OF FIRST PAYMENT OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
YEAR OF FIRST PAYMENT MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- --------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
199_............................................ $ %
199_............................................
Total.................................... -------------- ------------- -----
$ 100%
- ----------------
(1) As of the Cut-off Date, the weighted average seasoning of the Group I
Mortgage Loans is expected to be approximately ____ months.
</TABLE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP I MORTGAGE LOANS
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
PROPERTY TYPE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Single-Family............................ $ %
Two- to Four-Family......................
Planned Unit Development.................
Condominium.............................. ---------- ---------------- --------
Total..............................., $ 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
OCCUPANCY STATUS MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ---------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Primary Residence................................. $ %
Second Home......................................
Investor Property................................ --------------- ----------------- ----------
Total......................................... $ 100%
- ----------------
(1) Based on representations of the Mortgagor at the time of Group I Mortgage
Loan origination.
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
STATE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................
---------- ---------- ---------
Total.................................... $ 100$
- -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the aggregate
Outstanding Principal Balance of the Group I Mortgage Loans is expected to
be secured by properties located in any one zip code.
</TABLE>
LOAN PURPOSE OF THE GROUP I MORTGAGE LOANS
<TABLE>
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
LOSS PURPOSE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Purchase.......................................... $ %
Rate and Term Refinance..................
Cash-Out Refinance.......................
---------- ---------- ----------
Total.................................... $ 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ORIGINAL GROUP I MORTGAGE LOAN AMOUNTS(1)
AGGREGATE PRINCIPAL % OF
ORIGINAL MORTGAGE NUMBER OF BALANCE OUTSTANDING MORTGAGE
LOAN AMOUNT MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
$50,000 or less........................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000...................... ---------- ---------- ----------
Total $ 100%
- -----------------
(1) As of the Cut-off Date, the average Outstanding Principal Balance of the
Group I Mortgage Loans is expected to be approximately $_______.
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
ORIGINAL LOAN-TO-VALUE NUMBER OF BALANCE OUTSTANDING MORTGAGE
RATIOS MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
50.00% or less........................... $ %
50.01% - 55.00%..........................
55.01% - 60.00%..........................
60.01% - 65.00%..........................
65.01% - 70.00%..........................
70.01% - 75.00%..........................
75.01% - 80.00%..........................
80.01% - 85.00%..........................
85.01% - 90.00%..........................
90.01% - 95.00%..........................
---------- ---------- ----------
Total.................................... $ 100%
=====
- ---------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group I Mortgage Loans is expected to be
approximately _____%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
MORTGAGE RATE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
7.375%................................... $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%..................................
---------- ---------- ----------
Total.................................... $ 100%
=====
- --------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Group
I Mortgage Loans is expected to be approximately _____% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERM OF THE GROUP I MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
ORIGINAL TERM MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360...............................
---------- ---------- ----------
Total........................... $ 100%
=====
- ------------------
(1) As of the Cut-off Date, the weighted average calculated remaining term
of the Group I Mortgage Loans is expected to be approximately ___
months.
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE OF THE GROUP I MORTGAGE LOANS
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
DOCUMENTATION TYPE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset.......................
---------- ---------- ----------
Total.................................... $ 100%
====
</TABLE>
<TABLE>
<CAPTION>
YEAR OF FIRST PAYMENT OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
YEAR OF FIRST PAYMENT MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ---------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
199_..................................... $ %
199_.....................................
------- ----------
Total........................... $ 100%
=====
- ----------------
(1) As of the Cut-off Date, the weighted average seasoning of the Group II
Mortgage Loans is expected to be approximately ___ months.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
PROPERTY TYPE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Single-Family............................ $ %
Two- to Four-Family......................
Planned Unit
Development..............................
Condominium..............................
---------- ----------- -----
Total.................................... $ 100%
=====
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
OCCUPANCY STATUS MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ---------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Primary Residence................................. $ %
Second Home..............................
Investor Property........................
---------- ---------- --------
Total.................................... $ 100%
====
- ----------------
(1) Based on representations of the Mortgagor at the time of Group II
Mortgage Loan origination.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
STATE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ----- -------------- ------------------- ----------
<S> <C> <C> <C>
Alabama.................................. $ %
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................
---------- ---------- ---------
Total.................................... $ 100%
- -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the
aggregate Outstanding Principal Balance of the Group II Mortgage Loans
is expected to be secured by properties located in any one zip code.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PURPOSE OF THE GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
LOSS PURPOSE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Purchase................................. $ %
Rate and Term Refinance..................
Cash-Out Refinance.......................
---------- ---------- ----------
Total.................................... $ 100%
====
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ORIGINAL GROUP II MORTGAGE LOAN AMOUNTS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
ORIGINAL MORTGAGE LOAN AMOUNT MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------------------------ -------------- ------------------- ----------
<S> <C> <C> <C>
$50,000 or less.......................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000......................
---------- ---------- ----------
Total $ 100%
=====
- -----------------
(1) As of the Cut-off Date, the average Outstanding Principal Balance of
the Group II Mortgage Loans is expected to be approximately $_______.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------------------------ -------------- ------------------- ----------
<S> <C> <C> <C>
50.00% or less........................... $ %
50.01% - 55.00%..........................
55.01% - 60.00%..........................
60.01% - 65.00%..........................
65.01% - 70.00%..........................
70.01% - 75.00%..........................
75.01% - 80.00%..........................
80.01% - 85.00%..........................
85.01% - 90.00%..........................
90.01% - 95.00%..........................
---------- ---------- ----------
Total.................................... $ 100%
====
- ---------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group II Mortgage Loans is expected to be
approximately _____%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
MORTGAGE RATE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- -------------- -------------- ------------------- ----------
<S> <C> <C> <C>
7.375%................................... $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%..................................
---------- ---------- ----------
Total.................................... $ 100%
--------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Group
II Mortgage Loans is expected to be approximately _____% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERM OF THE GROUP II MORTGAGE LOANS(1)
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
ORIGINAL TERM MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------- -------------- ------------------- ----------
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360...............................
---------- ---------- ----------
Total.................................... $ 100%
------------------
(1) As of the Cut-off Date, the weighted average calculated remaining term
of the Group II Mortgage Loans is expected to be approximately ___
months.
</TABLE>
<TABLE>
<CAPTION>
DOCUMENTATION TYPE OF THE GROUP II MORTGAGE LOANS
AGGREGATE PRINCIPAL % OF
NUMBER OF BALANCE OUTSTANDING MORTGAGE
DOCUMENTATION TYPE MORTGAGE LOANS AS OF CUT-OFF DATE LOAN GROUP
- ------------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset.......................
---------- ---------- ----------
Total.................................... $ 100%
=====
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations in connection with this offering other than those
contained in this Prospectus Supplement and the accompanying Prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Seller or the Underwriter. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Certificates
offered hereby nor an offer of such Certificates to any person in any state or
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus Supplement and the accompanying Prospectus at any time does not imply
that 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
PROSPECTUS SUPPLEMENT
- -----------------------------------------------------------------------------
PAGE
Summary of Terms............................................S-
Description of the Mortgage Loans...........................S-
Description of the Certificates.............................S-
Yield and Prepayment Considerations.........................S-
The Pooling and Servicing Agreement.........................S-
Federal Income Tax Consequences.............................S-
ERISA Considerations........................................S-
Legal Investment............................................S-
Restrictions on Purchase and Transfer of
the Residual Certificates..................................S-
Method of Distribution......................................S-
Legal Matters...............................................S-
Ratings.....................................................S-
Index of Principal Definitions..............................S-
Schedule A - Certain Characteristics of the Mortgage Loans...A-
PROSPECTUS
Prospectus Supplement...........................................___
Available Information...........................................___
Incorporation of Certain Documents by
Reference.......................................................___
Reports to Securityholders......................................___
Summary of Terms................................................___
Risk Factors....................................................___
The Trust Fund..................................................___
Use of Proceeds.................................................___
The Seller......................................................___
The Mortgage Loans..............................................___
Description of the Securities...................................___
Exchangeable Securities.........................................___
Credit Enhancement..............................................___
Yield and Prepayment Considerations.............................___
Administration..................................................___
Legal Aspects of the Mortgage Loans.............................___
Federal Income Tax Consequences.................................___
ERISA Considerations............................................___
Legal Investment................................................___
Method of Distribution..........................................___
Legal Matters...................................................___
Financial Information..........................................___
Rating..........................................................___
Glossary .......................................................___
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<PAGE>
$___________
(Approximate)
Structured Asset
Mortgage Investments Inc.
Mortgage Pass-Through
Certificates,
Series 199_-_
PROSPECTUS SUPPLEMENT
Bear, Stearns & Co. Inc.
<PAGE>
MORTGAGE-BACKED CERTIFICATES
MORTGAGE-BACKED NOTES
(ISSUABLE IN SERIES)
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
SELLER
-------------
This Prospectus relates to Mortgage-Backed Certificates (the
"Certificates") and Mortgage-Backed Notes (the "Notes" and, collectively with
the Certificates, the "Securities") which may be sold from time to time in one
or more series (each, a "Series") on terms determined at the time of sale and
"Trust Fund") or the debt obligations of a Trust Fund. As specified in the
described in the related Prospectus Supplement for the Series. The Securities of
related Prospectus Supplement, a Trust Fund for a Series of Securities will a
Series will evidence either beneficial ownership of one or more trusts (each a
include certain mortgage-related assets (the "Mortgage Assets") consisting of
(i) mortgage loans or participations therein secured by one- to four-family
residential properties ("Single Family Loans"), (ii) mortgage loans or
participations therein secured by multifamily residential properties
("Multifamily Loans"), (iii) loans or participations therein secured by security
interests or similar liens on shares in cooperative housing corporations and the
related proprietary leases or occupancy agreements ("Cooperative Loans"), (iv)
conditional sales contracts and installment sales or loan agreements or
participations therein secured by manufactured housing ("Contracts"), (v)
mortgage pass-though securities (the "Agency Securities") issued or guaranteed
by the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("Fannie Mae"), Freddie Mac (formerly, the Federal Home
Loan Mortgage Corporation) ("Freddie Mac") or other government agencies or S-
government-sponsored agencies or (vi) privately issued mortgage-backed
securities ("Private Mortgage-Backed Securities"). If specified in the related
Prospectus Supplement, certain Securities will evidence the entire beneficial
ownership interest in, or the debt obligations of, a Trust Fund that will
contain a beneficial ownership interest in another Trust Fund which will contain
A- the Mortgage Assets. The Mortgage Assets will be acquired by Structured Asset
Mortgage Investments Inc. (formerly, Bear Stearns Mortgage Securities Inc.) (the
"Seller") from one or more institutions which may be affiliates of the Seller
(each, a "Lender") and conveyed by the Seller to the related Trust Fund. In
addition to Mortgage Assets, a Trust Fund may include United States Treasury
securities and other securities issued by the U.S. Government, any of its
agencies or other issuers established by federal statute (collectively, "U.S.
Government Securities"), insurance policies, cash accounts, letters of credit,
financial guaranty insurance policies, third party guarantees or other assets to
the extent described in the related Prospectus Supplement (collectively, the
"Trust Assets").
Each Series of Securities will include either one or more classes of
Certificates or, if Notes are issued as part of a Series, one or more classes of
Notes and one or more classes of Certificates, as set forth in the related
Prospectus Supplement. Each class of Securities of a Series will evidence
beneficial ownership of a specified percentage (which may be 0%) or portion of
future interest payments and a specified percentage (which may be 0%) or portion
of future principal payments on the Trust Assets in the related Trust Fund or
will evidence the obligations of the related Trust Fund to make payments from
amounts received on the Trust Assets in the related Trust Fund. A Series of
Securities may include one or more senior classes that receive certain
preferential treatment with respect to one or more other classes of Securities
of such Series. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof prior to
one or more other classes of Securities of such Series or after the occurrence
of specified events or may be required to absorb one or more types of losses
prior to one or more other classes of Securities, in each case as specified in
the related Prospectus Supplement. Certain Series will provide for the issuance
of one or more classes of "Exchangeable Securities," or "Callable Securities"
and "Call Securities," as provided in this Prospectus. See "Summary of
Terms--Description of the Securities."
Distributions to holders of Securities ("Securityholders") will be
made monthly, quarterly, semi-annually or at such other intervals and on the
dates specified in the related Prospectus Supplement. Distributions on the
Securities of a Series will be made only from the assets of the related Trust
Fund and any other assets specified in the related Prospectus Supplement.
The Securities will not represent an obligation of or interest in the
Seller or any affiliate thereof and will not be insured or guaranteed by any
governmental agency or instrumentality and will be insured or guaranteed by
another person only if specified in the related Prospectus Supplement. In
general, with respect to a Series of Securities, the Seller will obtain certain
representations and warranties from the Lender or Lenders from which it acquired
the Mortgage Assets or other third parties and will assign its rights with
respect to such representations and warranties to the Trust Fund for the related
Series of Securities. The Seller will have obligations with respect to a Series
only to the extent specified in the related Prospectus Supplement. The principal
obligations of one or more master servicers (each, a "Master Servicer") named in
the Prospectus Supplement with respect to the related Series of Securities will
be limited to its or their contractual servicing obligations, including any
obligation to advance delinquent payments on the Mortgage Assets in the related
Trust Fund. (CONTINUED ON NEXT PAGE)
FOR A DISCUSSION OF SIGNIFICANT FACTORS AFFECTING INVESTMENTS IN THE
SECURITIES, SEE "RISK FACTORS" ON PAGE __ HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
Prior to issuance there will have been no market for the Securities of
any Series and there can be no assurance that a secondary market for any
Securities will develop. This Prospectus may not be used to consummate sales of
a Series of Securities unless accompanied by a Prospectus Supplement.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement. To the
extent Securities are underwritten, Securities will be distributed by, or sold
by underwriters managed by:
BEAR, STEARNS & CO. INC.
The date of this Prospectus is _______, 199_.
<PAGE>
The yield on each class of Securities of a Series will be affected by
the rate of payment of principal (including prepayments) 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. Certain classes of
Securities may be subject to call and a Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Administration--Termination; Optional Termination."
If specified in a Prospectus Supplement, one or more elections may be
made to treat each Trust Fund or specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") or a "financial asset securitization
investment trust" ("FASIT") for federal income tax purposes. See "Federal Income
Tax Consequences."
Until 90 days after the date of each Prospectus Supplement, all
dealers effecting transactions in the securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Securities of each Series to
be offered hereunder will, among other things, set forth with respect to such
Securities, as appropriate: (i) a description of the class or classes of
Securities; (ii) the rate of interest or method of determining the amount of
interest, if any, to be paid to each such class; (iii) the aggregate principal
amount, if any, relating to each such class; (iv) the distribution dates (each a
"Distribution Date") for interest and principal distributions and, if
applicable, the initial and final scheduled Distribution Dates for each class;
(v) if applicable, the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Securities; (vi) information as to
the nature and extent of subordination with respect to any class of Securities
that is subordinate to any other class; (vii) information as to the assets
comprising the Trust Fund, including the general characteristics of the Mortgage
Assets included therein and, if applicable, the amount and source of any reserve
fund (a "Reserve Account"), and the insurance, letters of credit, guarantees, or
other instruments or agreements included in the Trust Fund; (viii) the
circumstances, if any, under which the Trust Fund may be subject to early
termination; (ix) additional information with respect to the plan of
distribution of such Securities; (x) whether one or more REMIC or FASIT
elections will be made and designation of the regular interests and residual
interests; (xi) information as to the Trustee; and (xii) information as to any
Master Servicer.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus and the Prospectus
Supplement relating to each Series of Securities contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part. For further information, reference is made to such
Registration Statement and the exhibits thereto. Such Registration Statement and
exhibits can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
as follows: 500 West Madison Street, Chicago, Illinois 60661; and Seven World
Trade Center, New York, New York 10048. The Commission maintains an Internet Web
site that contains reports, proxy and information statements and other
information regarding the registrants that file electronically with the
Commission, including the Seller. The address of such Internet Web site is
(http://www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by Structured Asset Mortgage Investments Inc.
(formerly, Bear Stearns Mortgage Securities Inc.) (the "Seller") pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, with respect to a Series of Securities subsequent to the date of this
Prospectus and the related Prospectus Supplement and prior to the termination of
the offering of such Series of Securities shall be deemed to be incorporated by
reference in this Prospectus as supplemented by the related Prospectus
Supplement from the date of filing of such documents. If so specified in any
such documents, such document shall also be deemed to be incorporated by
reference in the Registration Statement of which this Prospectus forms a part.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
) or in the accompanying Prospectus Supplement) or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus and the related Prospectus Supplement.
The Seller will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and the related Prospectus
Supplement is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the President, Structured Asset Mortgage Investments Inc.,
245 Park Avenue, New York, New York 10167. Telephone requests for such copies
should be directed to the President at (212) 272-2000.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund will be
provided to the Securityholders. See "Description of the Securities-Reports to
Securityholders."
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT WHICH WILL BE PREPARED IN CONNECTION WITH EACH SERIES OF SECURITIES.
Title of Securities................... Mortgage-Backed Certificates (the
"Certificates") and Mortgage- Backed
Notes (the "Notes" and, together with
the Certificates, the "Securities"),
issuable from time to time in Series.
Seller................................ Structured Asset Mortgage Investments
Inc., a Delaware corporation and a
wholly-owned subsidiary of Bear Stearns
Mortgage Capital Corporation. See "The
Seller."
Issuer................................. The trust created pursuant to the
Pooling and Servicing Agreement (each, a
"Pooling and Servicing Agreement") among
the Seller, the Master Servicer(s), if
applicable, and the Trustee for the
related Series or the owner trust
created pursuant to the Deposit Trust
Agreement (each, a "Trust Agreement")
among the Seller, the Master
Servicer(s), if applicable, and the
Trustee for the related Series, as
applicable.
Trustee.................................The trustee under the applicable Pooling
and Servicing Agreement, Trust Agreement
or Indenture (as herein defined) and
named as such in the related Prospectus
Supplement.
Master
Servicer............................... One or more entities named as a Master
Servicer in the related Prospectus
Supplement, which may be an affiliate of
the Seller. See "Administration-Certain
Matters Regarding the Master Servicer
and the Seller."
Trust Fund
Assets............................. A Trust Fund for a Series of Securities
will include the Mortgage Assets
consisting of (i) a pool (a "Mortgage
Pool") of Single Family Loans,
Multifamily Loans, Cooperative Loans or
Contracts (collectively, the "Mortgage
Loans"), (ii) Agency Securities or (iii)
Private Mortgage-Backed Securities,
together with payments in respect of
such Mortgage Assets and certain other
accounts, obligations or agreements,
such as United States Treasury
securities and other securities issued
by the U.S. Government, any of its
agencies or other issuers established by
federal statute (collectively, "U.S.
Government Securities"), in each case as
specified in the related Prospectus
Supplement. The assets of a Trust Fund
will be purchased by such Trust Fund
under the terms of the related Pooling
and Servicing Agreement or the related
Trust Agreement, as applicable.
A. Single Family, Cooperative
and Multifamily Loans..............Single Family Loans will be secured by
mortgage liens on one- to four-family
residential properties or by other liens
specified in the related Prospectus
Supplement. Cooperative Loans generally
will be secured by security interests in
shares issued by private, nonprofit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy
agreements granting exclusive rights to
occupy specific dwelling units in such
Cooperatives' buildings. Single Family
Loans and Cooperative Loans may be
conventional loans (I.E., loans that are
not insured or guaranteed by any
governmental agency), insured by the
Federal Housing Authority ("FHA") or
partially guaranteed by the Veterans
Administration ("VA") as specified in
the related Prospectus Supplement.
Single Family Loans and Cooperative
Loans will all have individual principal
balances at origination of not less than
$25,000 and not more than $1,000,000,
and original terms to stated maturity of
15 to 40 years, or such other individual
principal balances at origination and/or
original terms to stated maturity as are
specified in the related Prospectus
Supplement.
Multifamily Loans will be secured by
mortgage liens on rental apartment
buildings or projects containing five or
more residential units, including
apartment buildings owned by
Cooperatives. Such loans may be
conventional loans or insured by the
FHA, as specified in the related
Prospectus Supplement. Multifamily Loans
will all have individual principal
balances at origination of not less than
$25,000 and original terms to stated
maturity of not more than 40 years, or
such other individual principal balances
at origination and/or original terms to
stated maturity as are specified in the
related Prospectus Supplement.
The payment terms of the Mortgage Loans
to be included in a Trust Fund will be
described in the related Prospectus
Supplement and may include any of the
following features or combinations
thereof or other features described in
the related Prospectus Supplement:
(a) Interest may be payable at a fixed
rate, a rate adjustable from time
to time in relation to an index, a
rate that is fixed for a period of
time or under certain circumstances
and is followed by an adjustable
rate, a rate that otherwise varies
from time to time, or a rate that
is convertible from an adjustable
rate to a fixed rate. Changes to an
adjustable rate may be subject to
periodic limitations, maximum
rates, minimum rates or a
combination of such limitations.
Accrued interest may be deferred
and added to the principal of a
Mortgage Loan for such periods and
under such circumstances as may be
specified in the related Prospectus
Supplement. Mortgage Loans may
provide for the payment of interest
at a rate lower than the specified
interest rate on the Mortgage Loan
(the "Mortgage Rate") for a period
of time or for the life of the
Mortgage Loan, and the amount of
any difference may be contributed
from funds supplied by the seller
of the Mortgaged Property or
another source ("Buydown Loans") or
may be treated as accrued interest
and added to the principal of the
Mortgage Loan.
(b) Principal may be payable on a level
debt service basis to fully
amortize the Mortgage Loan over its
term, may be calculated on the
basis of an assumed amortization
schedule that is significantly
longer than the original term to
maturity or on an interest rate
that is different from the interest
rate on the Mortgage Loan or may
not be amortized during all or a
portion of the original term.
Payment of all or a substantial
portion of the principal may be due
on maturity ("balloon payments").
Principal may include interest that
has been deferred and added to the
principal balance of the Mortgage
Loan.
(c) Payments of principal and interest
may be fixed for the life of the
Mortgage Loan, may increase over a
specified period of time or may
change from period to period.
Mortgage Loans may include limits
on periodic increases or decreases
in the amount of monthly payments
and may include maximum or minimum
amounts of monthly payments.
(d) Prepayments of principal may be
subject to a prepayment fee, which
may be fixed for the life of the
Mortgage Loan or may decline over
time, and may be prohibited for the
life of the Mortgage Loan or for
certain periods ("lockout
periods"). Certain Mortgage Loans
may permit prepayments after
expiration of the applicable
lockout period and may require the
payment of a prepayment fee in
connection with any such subsequent
prepayment. Other Mortgage Loans
may permit prepayments without
payment of a fee unless the
prepayment occurs during specified
time periods. The Mortgage Loans
may include due-on-sale clauses
which permit the mortgagee to
demand payment of the entire
Mortgage Loan in connection with
the sale or certain transfers of
the related Mortgaged Property.
Other Mortgage Loans may be
assumable by persons meeting the
then applicable underwriting
standards of the Lender.
Certain Mortgage Loans may be originated
or acquired in connection with employee
relocation programs. The real property
constituting security for repayment of a
Mortgage Loan may be located in any one
of the fifty states, the District of
Columbia, Guam, Puerto Rico or any other
territory of the United States. The
Mortgage Loans generally will be covered
by standard hazard insurance policies
insuring against losses due to fire and
various other causes. The Mortgage Loans
will be covered by primary mortgage
insurance policies to the extent
provided in the related Prospectus
Supplement. All Mortgage Loans will have
been purchased by the Seller, either
directly or through an affiliate, from
Lenders.
B. Contracts........................ Contracts will consist of conditional
sales and installment sales or loan
agreements secured by new or used
Manufactured Homes (as defined herein).
Contracts may be conventional loans,
insured by the FHA or partially
guaranteed by the VA, as specified in
the related Prospectus Supplement. Each
Contract will be fully amortizing and
will bear interest at a fixed accrual
percentage rate ("APR") or will amortize
on another basis, and bear interest at
another APR, as 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, or such other individual
principal balances at origination and/or
original terms to stated maturity as are
specified in the related Prospectus
Supplement.
C. Agency Securities................ The Agency Securities will consist of
(i) fully modified pass- through
mortgage-backed certificates guaranteed
as to timely payment of principal and
interest by the Government National
Mortgage Association ("GNMA
Certificates"), (ii) Guaranteed Mortgage
Pass-Through Certificates issued and
guaranteed as to timely payment of
principal and interest by the Federal
National Mortgage Association ("Fannie
Mae Certificates"), (iii) Mortgage
Participation Certificates issued and
guaranteed as to timely payment of
interest and ultimate (but generally not
timely) payment of principal by Freddie
Mac (formerly, the Federal Home Loan
Mortgage Corporation) ("Freddie Mac
Certificates"), (iv) stripped
mortgage-backed securities representing
an undivided interest in all or a part
of either the principal distributions
(but not the interest distributions) or
the interest distributions (but not the
principal distributions) or in some
specified portion of the principal and
interest distributions (but not all of
such distributions) on certain GNMA,
Fannie Mae, Freddie Mac or other
government agency or
government-sponsored agency certificates
and generally guaranteed to the same
extent as the underlying securities, (v)
another type of guaranteed pass-through
certificate issued or guaranteed by
GNMA, Fannie Mae, Freddie Mac or another
government agency or
government-sponsored agency and
described in the related Prospectus
Supplement, or (vi) a combination of
such Agency Securities. All GNMA
Certificates will be backed by the full
faith and credit of the United States.
No Fannie Mae or Freddie Mac
Certificates will be backed, directly or
indirectly, by the full faith and credit
of the United States. However, to the
extent any Fannie Mae or Freddie Mac
Certificates are backed by GNMA
Certificates, such Fannie Mae or Freddie
Mac Certificates benefit from the
backing of the underlying GNMA
Certificates by the full faith and
credit of the United States. The Agency
Securities may consist of pass-through
securities issued under the GNMA I
Program, the GNMA II Program, Freddie
Mac's Cash or Guarantor Program or
another program specified in the related
Prospectus Supplement. The payment
characteristics of the Mortgage Loans
underlying the Agency Securities will be
described in the related Prospectus
Supplement.
D. Private Mortgage-Backed
Securities........................ Private Mortgage-Backed Securities may
include (i) mortgage participation or
pass-through certificates representing
beneficial interests in certain Mortgage
Loans or (ii) Collateralized Mortgage
Obligations ("CMOs") secured by such
Mortgage Loans. Private Mortgage-Backed
Securities may include stripped
mortgage-backed securities representing
an undivided interest in all or a part
of any of the principal distributions
(but not the interest distributions) or
the interest distributions (but not the
principal distributions) or in some
specified portion of the principal and
interest distributions (but not all of
such distributions) on certain mortgage
loans. Although individual Mortgage
Loans underlying a Private
Mortgage-Backed Security may be insured
or guaranteed by the United States or an
agency or instrumentality thereof, they
need not be, and the Private
Mortgage-Backed Securities themselves
will not be so insured or guaranteed.
See "The Trust Fund-Private
Mortgage-Backed Securities." Payments on
the Private Mortgage-Backed Securities
will be distributed directly to the
Trustee as registered owner of such
Private Mortgage-Backed Securities or as
otherwise specified in the related
Prospectus Supplement. See "The Trust
Fund-Private Mortgage-Backed
Securities."
The Prospectus Supplement for a Series
will specify (i) the aggregate
approximate principal amount, if any,
and type of any Private Mortgage-Backed
Securities to be included in the Trust
Fund for such Series; (ii) certain
characteristics of the Mortgage Loans
which comprise the underlying assets for
the Private Mortgage-Backed Securities
including to the extent available (A)
the payment features of such Mortgage
Loans, (B) the approximate aggregate
principal amount, if known, of the
underlying Mortgage Loans which are
insured or guaranteed by a governmental
entity, (C) the servicing fee or range
of servicing fees with respect to the
Mortgage Loans, (D) the minimum and
maximum stated maturities of the
Mortgage Loans at origination and (E)
delinquency experience with respect to
the Mortgage Loans; (iii) the pass-
through or certificate rate or ranges
thereof for the Private Mortgage-Backed
Securities and the method of
determination thereof; (iv) the issuer
of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the
servicer of the Private Mortgage-Backed
Securities (the "PMBS Servicer") and the
trustee of the Private Mortgage-Backed
Securities (the "PMBS Trustee"); (v)
certain characteristics of credit
support, if any, such as subordination,
reserve funds, insurance policies,
letters of credit, financial guaranty
insurance policies or third party
guarantees, relating to the Mortgage
Loans underlying the Private
Mortgage-Backed Securities, or to such
Private Mortgage-Backed Securities
themselves; (vi) the terms on which
underlying Mortgage Loans for such
Private Mortgage- Backed Securities, or
such Private Mortgage-Backed Securities
themselves, may, or are required to, be
repurchased prior to stated maturity;
and (vii) the terms on which substitute
Mortgage Loans or substitute Private
Mortgage-Backed Securities may be
delivered to replace those initially
deposited with the PMBS Trustee or the
Trustee. See "The Trust Fund." Such
securities will (i) either (a) have been
previously registered under the
Securities Act of 1933, as amended or
(b) will at the time be eligible for
sale under Rule 144(k) under such act;
and (ii) will be acquired in bona fide
secondary market transactions not from
an issuer or seller that is an affiliate
of the Seller.
E. U.S. Government Securities......... If specified in the related Prospectus
Supplement, United States Treasury
securities and other securities issued
by the U.S. Government, any of its
agencies or other issuers established by
federal statute (collectively, "U.S.
Government Securities") may be included
in the Trust Assets. Such securities
will be backed by the full faith and
credit of the United States or will
represent the obligations of the U.S.
Government or such agency or such other
issuer or obligations payable from the
proceeds of U.S. Government Securities,
as specified in the related Prospectus
Supplement.
F. Pre-Funding and Capitalized
Interest Accounts................. If specified in the related Prospectus
Supplement, a Trust Fund will include
one or more segregated trust accounts
(each, a "Pre- Funding Account")
established and maintained with the
Trustee for the related Series. If so
specified, on the closing date for such
Series, a portion of the proceeds of the
sale of the Securities of such Series
(such amount to be equal to the excess
of (x) the principal amounts of
Securities being sold over (y) the
principal balance (as of the related
Cut-off Date) of the Trust Assets on the
Closing Date, the "Pre-Funded Amount")
will be deposited in the Pre-Funding
Account and may be used to purchase
additional Mortgage Assets during the
period of time, not to exceed six
months, specified in the related
Prospectus Supplement (the "Pre- Funding
Period"). The Mortgage Assets to be so
purchased will be required to have
certain characteristics specified in the
related Prospectus Supplement. Each
additional asset so purchased must
conform to the representations and
warranties set forth in the applicable
Agreement. Therefore, the
characteristics of the Trust Assets at
the end of the Pre-Funding Period will
conform in all material respects to the
characteristics of the Trust Assets on
the Closing Date. If any Pre-Funded
Amount remains on deposit in the
Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be
applied in the manner specified in the
related Prospectus Supplement to prepay
the Securities of the applicable Series.
Pending the acquisition of additional
assets during the Pre-Funding Period,
all amounts in the Pre-Funding Account
will be invested in Permitted
Investments, as defined under "Credit
Enhancement--Reserve and other Accounts"
herein. It is expected that
substantially all of the funds deposited
in the Pre- Funding Account will be used
during the related Pre-Funding Period to
purchase additional assets as described
above. If, however, amounts remain in
the Pre-Funding Account at the end of
the Pre-Funding Period, such amounts
will be distributed to the
Securityholders, as described in the
related Prospectus Supplement.
If a Pre-Funding Account is established,
one or more segregated trust accounts
(each, a "Capitalized Interest Account")
may be established and maintained with
the Trustee for the related Series. On
the closing date for such Series, a
portion of the proceeds of the sale of
the Securities of such Series will be
deposited in the Capitalized Interest
Account and used to fund the excess, if
any, of (x) the sum of (i) the amount of
interest accrued on the Securities of
such Series and (ii) if specified in the
related Prospectus Supplement, certain
fees or expenses during the Pre-Funding
Period such as trustee fees and credit
enhancement fees, over (y) the amount of
interest available therefor from the
Mortgage Assets or other assets in the
Trust Fund. Any amounts on deposit in
the Capitalized Interest Account at the
end of the Pre-Funding Period that are
not necessary for such purposes will be
distributed to the person specified in
the related Prospectus Supplement.
Description of the Securities......... A Series will include either one or more
classes of Certificates or, if Notes are
issued as part of a Series, one or more
classes of Notes and one or more classes
of Certificates. Each Certificate will
represent a beneficial ownership
interest in a trust (a "Trust Fund")
created by the Seller pursuant to a
Pooling and Servicing Agreement or a
Trust Agreement for the related Series.
Each Note will represent a debt
obligation of a Trust Fund created
pursuant to an Indenture for such Notes.
The Securities of any Series may be
issued in one or more classes as
specified in the related Prospectus
Supplement. A Series of Securities may
include one or more classes of senior
Securities (collectively, the "Senior
Securities") which receive certain
preferential treatment specified in the
related Prospectus Supplement with
respect to one or more classes of
subordinate Securities (collectively,
the "Subordinated Securities"). Certain
Series or classes of Securities may be
covered by U.S. Government Securities,
insurance policies, cash accounts,
letters of credit, financial guaranty
insurance policies, third party
guarantees or other forms of credit
enhancement as described herein and in
the related Prospectus Supplement.
One or more classes of Securities of
each Series (i) may be entitled to
receive distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) may be
entitled to receive distributions only
of prepayments of principal throughout
the lives of the Securities or during
specified periods; (iii) may be
subordinated in the right to receive
distributions of scheduled payments of
principal, prepayments of principal,
interest or any combination thereof to
one or more other classes of Securities
of such Series throughout the lives of
the Securities or during specified
periods or may be subordinated with
respect to certain losses or
delinquencies; (iv) may be entitled to
receive such distributions only after
the occurrence of events specified in
the related Prospectus Supplement; (v)
may be entitled to receive distributions
in accordance with a schedule or formula
or on the basis of collections from
designated portions of the assets in the
related Trust Fund; (vi) as to
Securities entitled to distributions
allocable to interest, may be entitled
to receive interest at a fixed rate or a
rate that is subject to change from time
to time; and (vii) as to Securities
entitled to distributions allocable to
interest, may be entitled to such
distributions only after the occurrence
of events specified in the related
Prospectus Supplement and may accrue
interest until such events occur, in
each case as specified in the related
Prospectus Supplement. The timing and
amounts of such distributions may vary
among classes, over time, or otherwise
as specified in the related Prospectus
Supplement.
In addition, certain Series may provide
for the issuance of one or more classes
of of exchangeable certificates (each an
"ES Class" or "Exchangeable Security")
as provided in the related Prospectus
Supplement. The holders of such ES
Classes will be entitled to exchange all
or a portion of such ES Classes for
proportionate interests in other related
classes of Exchangeable Securities. See
"Exchangeable Securities--General."
Further, if so provided in the related
Prospectus Supplement, one or more
classes of Securities (each, a "Callable
Class") may be callable at the option of
one or more other classes of securities
(each, a "Call Class"). A Call Class and
its related Callable Class or Classes
will be issued pursuant to a separate
trust agreement. A Callable Class
generally will not be called unless the
market value of the assets in the trust
fund for such Callable Class exceeds the
outstanding principal balance of such
assets. If so provided in the related
Prospectus Supplement, after the
issuance of the Callable Class, there
may be a specified "lock- out period"
during which such Securities could not
be called. It is anticipated that Call
Classes generally will be offered only
on a private basis. See "Description of
the Securities--General."
The related Prospectus Supplement will
specify whether application will be made
to list any Securities on a securities
exchange or to quote the Securities in
the automated quotation system of a
registered securities association.
Distributions on the Securities...... Distributions on the Securities entitled
thereto will be made monthly, quarterly,
semi-annually or at such other intervals
and on such other Distribution Dates
specified in the related Prospectus
Supplement solely out of the payments
received in respect of the assets of the
related Trust Fund or other assets
pledged for the benefit of the
Securities as specified in the related
Prospectus Supplement. The amount
allocable to distributions of principal
and interest on any Distribution Date
will be determined as specified in the
related Prospectus Supplement. All
distributions will be made pro rata to
Securityholders of the class entitled
thereto or as otherwise specified in the
related Prospectus Supplement, and the
aggregate original principal balance of
the Securities will equal the aggregate
distributions allocable to principal
that such Securities will be entitled to
receive. If specified in the related
Prospectus Supplement, the Securities
will have an aggregate original
principal balance equal to or less than
the aggregate unpaid principal balance
of the Trust Assets (plus amounts held
in a Pre-Funding Account) as of a date
specified in the Prospectus Supplement
related to the creation of the Trust
Fund (the "Cut-off Date") and will bear
interest in the aggregate at a rate (the
"Interest Rate") equal to the interest
rate borne by the underlying Mortgage
Loans, Agency Securities or Private
Mortgage-Backed Securities, net of the
aggregate servicing fees and any other
amounts specified in the related
Prospectus Supplement. If specified in
the related Prospectus Supplement, the
aggregate original principal balance of
the Securities and interest rates on the
classes of Securities will be determined
based on the cash flow on the Trust
Assets. The Interest Rate at which
interest will be paid to holders of
Securities entitled thereto may be a
fixed rate or a rate that is subject to
change from time to time from the time
and for the periods, in each case as
specified in the related Prospectus
Supplement. Any such rate may be
calculated on a loan-by-loan, weighted
average or other basis, in each case as
described in the related Prospectus
Supplement.
Credit Enhancement................... The assets in a Trust Fund or the
Securities of one or more classes in the
related Series may have the benefit of
one or more types of credit enhancement
described in the related Prospectus
Supplement. The protection against
losses afforded by any such credit
support will be limited. Such credit
enhancement may include one or more of
the following types:
A. Subordination.................... The rights of the holders of the
Subordinated Securities of a Series to
receive distributions with respect to
the assets in the related Trust Fund
will be subordinated to such rights of
the holders of the Senior Securities of
the same Series to the extent described
in the related Prospectus Supplement.
This subordination is intended to
enhance the likelihood of regular
receipt by holders of Senior Securities
of the full amount of payments which
such holders would be entitled to
receive if there had been no losses or
delinquencies. The protection afforded
to the holders of Senior Securities of a
Series by means of the subordination
feature may be accomplished by (i) the
preferential right of such holders to
receive, prior to any distribution being
made in respect of the related
Subordinated Securities, the amounts of
principal and interest due them on each
Distribution Date out of the funds
available for distribution on such date
in the related Securities Account and,
to the extent described in the related
Prospectus Supplement, by the right of
such holders to receive future
distributions from the assets in the
related Trust Fund that would otherwise
have been payable to the Subordinated
Securityholders; (ii) reducing the
ownership interest of the related
Subordinated Securities; (iii) a
combination of clauses (i) and (ii)
above; or (iv) as otherwise described in
the related Prospectus Supplement. The
protection afforded to the holders of
Senior Securities of a Series by means
of the subordination feature also may be
accomplished by allocating certain types
of losses or delinquencies to the
Subordinated Securities to the extent
described in the related Prospectus
Supplement.
If so specified in the related
Prospectus Supplement, the same class of
Securities may be Senior Securities with
respect to certain types of payments or
certain types of losses or delinquencies
and Subordinated Securities with respect
to other types of payments or types of
losses or delinquencies. If so specified
in the related Prospectus Supplement,
subordination may apply only in the
event of certain types of losses not
covered by other forms of credit
support, such as hazard losses not
covered by standard hazard insurance
policies or losses due to the bankruptcy
of the borrower. If specified in the
related Prospectus Supplement, a reserve
fund may be established and maintained
by the deposit therein of distributions
allocable to the holders of Subordinated
Securities until a specified level is
reached. The related Prospectus
Supplement will set forth information
concerning the amount of subordination
of a class or classes of Subordinated
Securities in a Series, the
circumstances in which such
subordination will be applicable, the
manner, if any, in which the amount of
subordination will decrease over time,
the manner of funding the related
reserve fund, if any, and the conditions
under which amounts in any such reserve
fund will be used to make distributions
to holders of Senior Securities or
released from the related Trust Fund.
B. Reserve Accounts................ One or more Reserve Accounts may be
established and maintained for each
Series. The related Prospectus
Supplement will specify whether or not
any such Reserve Account will be
included in the corpus of the Trust Fund
for such Series and will also specify
the manner of funding the related
Reserve Account and the conditions under
which the amounts in any such Reserve
Account will be used to make
distributions to holders of Securities
of a particular class or released from
the related Trust Fund.
C. Pool Insurance Policy........... A mortgage pool insurance policy or
policies (the "Pool Insurance Policy")
may be obtained and maintained for each
Series pertaining to Single Family
Loans, Cooperative Loans or Contracts,
limited in scope, covering defaults on
the related Single Family Loans,
Cooperative Loans or Contracts in an
initial amount equal to a specified
percentage of the aggregate principal
balance of all Single Family Loans,
Cooperative Loans or Contracts included
in the Mortgage Pool as of the Cut-off
Date or such other date as is specified
in the related Prospectus Supplement.
D. Special Hazard Insurance Policy.. In the case of Single Family Loans,
Cooperative Loans or Contracts, certain
physical risks that are not otherwise
insured against by standard hazard
insurance policies may be covered by a
special hazard insurance policy or
policies (the "Special Hazard Insurance
Policy"). Each Special Hazard Insurance
Policy generally will be limited in
scope and will cover losses in an
initial amount equal to the greatest of
(i) a specified percentage of the
aggregate principal balance of the
Single Family Loans, Cooperative Loans
or Contracts as of the related Cut-off
Date, (ii) twice the unpaid principal
balance as of the related Cut-off Date
of the largest Single Family Loan,
Cooperative Loan or Contract in the
related Mortgage Pool, or (iii) the
aggregate principal balance of Single
Family Loans, Cooperative Loans or
Contracts as of the Cut-off Date secured
by property in any single zip code
concentration.
E. Bankruptcy Bond.................. A bankruptcy bond or bonds (the
"Bankruptcy Bond") may be obtained
covering certain losses resulting from
action which may be taken by a
bankruptcy court in connection with a
Single Family Loan, Cooperative Loan or
Contract. The level of coverage of each
Bankruptcy Bond will be specified in the
related Prospectus Supplement.
F. FHA Insurance and VA Guarantee... All or a portion of the Mortgage Loans
in a Mortgage Pool may be insured by FHA
insurance and all or a portion of the
Single Family Loans or Contracts in a
Mortgage Pool may be partially
guaranteed by the VA.
G. Other Arrangements............... Other arrangements as described in the
related Prospectus Supplement including,
but not limited to, one or more U.S.
Government Securities, letters of
credit, financial guaranty insurance
policies or third party guarantees,
interest rate or other swap agreements,
caps, collars or floors, may be used to
provide coverage for certain risks of
defaults or losses. These arrangements
may be in addition to or in substitution
for any forms of credit support
described in the Prospectus. Any such
arrangement must be acceptable to each
nationally recognized rating agency that
rates the related Series of Securities
(the "Rating Agency").
H. Cross Support.................... If specified in the related Prospectus
Supplement, separate groups of assets or
separate Trust Funds may be beneficially
owned by separate classes of the related
Series of Securities or separate groups
of assets or separate Trust Funds may be
available for the payment of principal
and interest on certain classes of
Securities. In any such case, credit
support may be provided by a cross-
support feature which requires that
distributions be made with respect to
certain Securities relating to one or
more asset groups or Trust Funds out of
funds received with respect to other
asset groups or Trust Funds prior to
distributions to other Securities
relating to such other asset groups or
Trust Funds or that losses be allocated
in such manner as to provide such
cross-support. If specified in the
related Prospectus Supplement, the
coverage provided by one or more forms
of credit support may apply concurrently
to two or more separate Trust Funds,
without priority among such Trust Funds,
until the credit support is exhausted.
If specified in the related Prospectus
Supplement, one or more asset groups or
Trust Funds relating to certain
securities could be initially free of
cross-support but later might become
subject to cross-support. If applicable,
the related Prospectus Supplement will
identify the asset groups or Trust Funds
to which such credit support relates and
the manner of determining the amount of
the coverage provided thereby and of the
application of such coverage to the
identified asset groups or Trust Funds.
Advances............................. Each Master Servicer and, if applicable,
each mortgage servicing institution that
services a Mortgage Loan in a Mortgage
Pool on behalf of a Master Servicer (a
"Sub-Servicer") generally will be
obligated to advance amounts
corresponding to delinquent principal
and interest payments on such Mortgage
Loan until the date on which the related
Mortgaged Property is sold at a
foreclosure sale or the related Mortgage
Loan is otherwise liquidated. Any such
obligation to make advances may be
limited to amounts due holders of Senior
Securities of the related Series, to
amounts deemed to be recoverable from
late payments or liquidation proceeds,
for specified periods or any combination
thereof, or as otherwise specified in
the related Prospectus Supplement. See
"Description of the
Securities-Advances." Advances will be
reimbursable to the extent described
herein and in the related Prospectus
Supplement.
Optional Termination................ The Seller, a Master Servicer, the
holders of the residual interests in a
REMIC, a FASIT or any other entity
specified in the related Prospectus
Supplement may have the option to effect
early retirement of a Series of
Securities through the purchase of the
Mortgage Assets and other assets in the
related Trust Fund under the
circumstances and in the manner
described in
"Administration-Termination; Optional
Termination."
Legal Investment..................... The related Prospectus Supplement for
each Series of Securities will specify
which, if any, of the classes of
Securities offered will constitute
"mortgage-related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
and, as such, will be legal investments
for certain types of institutional
investors to the extent provided in
SMMEA, subject, in any case, to any
other regulations which may govern
investments by such institutional
investors. See "Legal Investment."
Institutions whose investment activities
are subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Securities. Any such institution should
consult its own legal advisors in
determining whether and to what extent
there may be restrictions on its ability
to invest in the Securities. See "Legal
Investment" herein.
Federal Income Tax Consequences..... The income tax consequences of the
purchase, ownership and disposition of
the Securities of each Series will
depend on whether an election is made to
treat the corresponding Trust Fund (or
certain assets of the Trust Fund) as
either a REMIC or a FASIT under the
Internal Revenue Code of 1986, as
amended (the "Code"), or whether the
Trust Fund will be treated as either a
grantor trust or a partnership for
federal income tax purposes.
REMIC. If an election is to be made to
treat the Trust Fund for a Series of
Securities as a REMIC for federal income
tax purposes, the related Prospectus
Supplement will specify which class or
classes thereof will be designated as
regular interests in the REMIC ("REMIC
Regular Securities") and which class of
Certificates will be designated as the
residual interest in the REMIC ("REMIC
Residual Certificates").
For federal income tax purposes, REMIC
Regular Securities generally will be
treated as debt obligations of the Trust
Fund with payment terms equivalent to
the terms of such Securities. Holders of
REMIC Regular Securities will be
required to report income with respect
to such Securities under an accrual
method, regardless of their normal tax
accounting method. Original issue
discount, if any, on REMIC Regular
Securities will be includible in the
income of the holders thereof as it
accrues, in advance of receipt of the
cash attributable thereto, which rate of
accrual will be determined based on a
reasonable assumed prepayment rate. The
REMIC Residual Certificates generally
will not be treated as evidences of
indebtedness for federal income tax
purposes, but instead, as representing
rights to the taxable income or net loss
of the REMIC.
Each holder of a REMIC Residual
Certificate will be required to take
into account separately its pro rata
portion of the REMIC's taxable income or
loss. Certain income of a REMIC
(referred to as "excess inclusions")
generally may not be offset by such a
holder's net operating loss carryovers
or other deductions, and in the case of
a tax-exempt holder of a REMIC Residual
Certificate will be treated as
"unrelated business taxable income". In
certain situations, particularly in the
early years of a REMIC, holders of a
REMIC Residual Certificate may have
taxable income, and possibly tax
liabilities with respect to such income,
in excess of cash distributed to them.
Certain "disqualified organizations (as
defined under "Federal Income Tax
Consequences--Transfers of REMIC
Residual Certificates--Restrictions on
Transfer; Holding by Pass- Through
Entities") are prohibited from acquiring
or holding any beneficial interest in
the REMIC Residual Certificates. In
certain cases, a transfer of a REMIC
Residual Certificate will not be
effective for federal income tax
purposes.
FASIT. If an election is to be made to
treat the Trust Fund for a Series of
Securities as a FASIT for federal income
tax purposes, the related Prospectus
Supplement will specify which class or
classes thereof will be designated as
regular interests in the FASIT ("FASIT
Regular Securities"), which class or
classes of FASIT Regular Securities
constitute "High-Yield Interests" and
which class of Certificates will be
designated as the ownership interest in
the FASIT ("FASIT Ownership
Certificate").
For federal income tax purposes, FASIT
Regular Securities generally will be
treated as debt obligations of the Trust
Fund with payment terms equivalent to
the terms of such Securities. Holders of
FASIT Regular Securities will be
required to report income with respect
to such Securities under an accrual
method, regardless of their normal tax
accounting method. Original issue
discount, if any, on FASIT Regular
Securities will be includible in the
income of the holders thereof as it
accrues, in advance of receipt of the
cash attributable thereto, which rate of
accrual will be determined based on a
reasonable assumed prepayment rate.
Holders of High-Yield Interests may not
use net operating losses to offset any
non-FASIT income derived from the
High-Yield Interest, and in certain
cases, a transfer of a High-Yield
Interest will not be recognized for
federal income tax purposes.
The FASIT Ownership Certificate
generally will not be treated as an
evidence of indebtedness for federal
income tax purposes, but instead, as
representing rights to the taxable
income or net loss of the FASIT. The
holder of the FASIT Ownership
Certificate will be required to take
into account all of the income or loss
of the FASIT under an accrual method
regardless of its normal accounting
method. In certain situations,
particularly in the early years of a
FASIT, the holder of the FASIT Ownership
Certificate may have taxable income, and
possibly tax liabilities with respect to
such income, in excess of cash
distributed to it. Certain "disqualified
holders" are prohibited from acquiring
or holding the FASIT Ownership
Certificate.
GRANTOR TRUST. If a determination is to
be made to treat the Trust Fund for a
Series of Certificates as a grantor
trust, the Trust Fund will be classified
as a grantor trust for federal income
tax purposes and not as an association
or taxable mortgage pool taxable as a
corporation. Holders of Certificates
issued by a grantor trust ("Non-
Electing Securities") will be treated
for such purposes, subject to the
possible application of the stripped
bond rules, as owners of undivided
interests in the related Trust Assets
and generally will be required to report
as income their pro rata share of the
entire gross income (including amounts
paid as reasonable servicing
compensation) from the Trust Assets and
will be entitled, subject to certain
limitations, to deduct their pro rata
share of expenses of the Trust Fund.
PARTNERSHIPS. If a Prospectus Supplement
for a Series indicates that a Trust Fund
is to be treated as a partnership,
assuming that all the provisions of the
applicable Agreement are complied with,
the Trust Fund will not be treated as an
association, taxable mortgage pool, or a
publicly traded partnership taxable as a
corporation. If a Prospectus Supplement
indicates that one or more classes of
Securities of the related Series are to
be treated as indebtedness for federal
income tax purposes, assuming that all
of the provisions of the applicable
Agreement are complied with, the
Securities so designated will be
considered indebtedness for federal
income tax purposes. Each holder of a
Note, by the acceptance of a Note of a
given Series, will agree to treat such
Note as indebtedness, and each holder of
a Certificate, by the acceptance of a
Certificate of a given Series, will
agree to treat the related Trust Fund
for federal tax purposes as a
partnership in which such holder is a
partner if there is more than one holder
of Certificates for federal income tax
purposes, or to disregard the Trust Fund
as an entity separate from the holder of
Certificates if there is only one such
holder for federal income tax purposes.
Alternative characterizations of such
Trust Fund and such Securities are
possible, but would not result in
materially adverse tax consequences to
holders of Securities. See "Federal
Income Tax Consequences."
Generally, gain or loss will be
recognized on a sale of Securities in
the amount equal to the difference
between the amount realized and the
seller's tax basis in the Securities
sold. The material federal income tax
consequences for investors associated
with the purchase, ownership and
disposition of the Securities are set
forth herein under "Federal Income Tax
Consequences." The material federal
income tax consequences for investors
associated with the purchase, ownership
and disposition of Securities of any
particular Series will be set forth
under the heading "Federal Income Tax
Consequences" in the related Prospectus
Supplement. See "Federal Income Tax
Consequences."
ERISA Considerations................. A fiduciary of any employee benefit plan
or other retirement plan or arrangement
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and/or Section 4975 of the
Code should carefully review with its
legal advisors whether the purchase,
holding or disposition of Securities
could give rise to a prohibited
transaction under ERISA or the Code or
subject the assets of the Trust Fund to
the fiduciary investment standards of
ERISA. See "ERISA Considerations."
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY. There will be no market for the Securities of any
Series prior to the issuance thereof, and there can be no assurance that a
secondary market will develop or, if it does develop, that it will provide
liquidity of investment or will continue for the life of the Securities of such
Series. The market value of the Securities will fluctuate with changes in
prevailing rates of interest. Consequently, the sale of Securities in any market
that may develop may be at a discount from the Securities' par value or purchase
price. Owners of Securities generally have no right to request redemption of
Securities, and the Securities are subject to redemption only under the limited
circumstances, if any, described in the related Prospectus Supplement. It is not
intended to list any class of Securities on any securities exchange or to quote
the Securities in the automated quotation system of a regulated securities
association. However, if such listing or such quotation is intended with respect
to some or all of the Securities in a Series, relevant information will be
included in the related Prospectus Supplement. If the Securities are not so
listed or quoted, investors may experience more limited liquidity. The
Prospectus Supplement for a Series may indicate that an underwriter specified
therein intends to establish a secondary market in some or all of the Securities
of such Series. However, no underwriter will be obligated to do so.
BOOK-ENTRY SECURITIES. If Securities are issued in a book-entry form,
investors may experience delay in receipt of their payments and/or reports since
payments and reports will initially be made to the book-entry depository or its
nominee. In addition, the issuance of Securities in book-entry form may reduce
the liquidity of such Securities in the secondary trading market since some
investors may be unwilling to purchase Securities for which they cannot receive
physical certificates. See "The Securities--Book-Entry Registration".
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS. The yield to maturity
and weighted average life of the Securities of each series will depend on the
rate and timing of principal payments (including prepayments, liquidations due
to defaults, and repurchases due to conversion of adjustable rate loans to fixed
interest rate loans or breaches of representations and warranties) on the
Mortgage Loans and the price paid by Securityholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of prepayments or
level of losses on the related Mortgage Loans. The yield to maturity on
Securities purchased at a discount to their principal amounts (including any
principal only Securities) will be lower than anticipated if prepayments occur
at a slower than anticipated rate and the yield to maturity on Securities
purchased at a premium to their principal amounts or on interest only
Securities, will be lower than anticipated if prepayments occur at a faster than
anticipated rate. In the case of certain interest only Securities, a faster rate
of prepayments may result in a loss of investment. In addition, the yield to
maturity on certain other types of classes of Securities, including accrual
Securities, Securities with a pass-through rate which fluctuates inversely with
an index or certain other classes in a series including more than one class of
Securities, may be relatively more sensitive to the rate of prepayment on the
related Mortgage Loans than other classes of Securities. Prepayments are
influenced by a number of factors, including prevailing mortgage market interest
rates, local and regional economic conditions and homeowner mobility. Any losses
allocated to the Securities will have a negative effect on the yield to maturity
of such Securities. See "Yield and Prepayment Considerations" herein.
OPTIONAL TERMINATION MAY ADVERSELY AFFECT YIELD. As described under
"Administration--Termination; Optional Termination", a Trust Fund may be subject
to optional termination. Any such optional termination may adversely affect the
yield to maturity on the related Series of Securities. In addition, if the
Mortgage Assets include properties which have been acquired by the related Trust
Fund through foreclosure or deed-in-lieu of foreclosure, the purchase price paid
to exercise the optional termination may be less than the outstanding principal
balances of the related Series of Securities. In such event, the Holders of one
or more classes of Securities may incur a loss.
SUBORDINATION OF THE SUBORDINATED SECURITIES; EFFECT OF LOSSES ON THE
MORTGAGE ASSETS. The rights of Holders of Subordinated Securities to receive
distributions to which they would otherwise be entitled with respect to the
Mortgage Assets will be subordinated to the rights of the Holders of the Senior
Securities to the extent described in the related Prospectus Supplement. As a
result of the foregoing, investors must be prepared to bear the risk that they
may be subject to delays in payment and may not recover their initial
investments in the Subordinated Securities.
The yields on the Subordinated Securities may be extremely sensitive
to the loss experience of the Mortgage Assets and the timing of any such losses.
If the actual rate and amount of losses experienced by the Mortgage Assets
exceed the rate and amount of such losses assumed by an investor, the yields to
maturity on the Subordinated Securities may be lower than anticipated.
LIMITED OBLIGATIONS. The Securities will not represent an interest in
or obligation of the Seller, a Master Servicer or any of their affiliates. The
only obligations of the foregoing entities with respect to the Securities or any
Mortgage Assets will be the obligations (if any) of the Seller and a Master
Servicer pursuant to certain limited representations and warranties made with
respect to the Mortgage Assets, a Master Servicer's servicing obligations under
the related Pooling and Servicing Agreement (including its limited obligation to
make certain advances) and pursuant to the terms of any Mortgage Assets, and, if
and to the extent expressly described in the related Prospectus Supplement,
certain limited obligations of a Master Servicer in connection with a swap,
yield supplement agreement or purchase obligation. If an affiliate of the Seller
has originated any Mortgage Loan, such affiliate will only have an obligation
with respect to the representations and warranties of the Seller, as described
herein. Neither the Securities nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Seller, a Master Servicer or any of their affiliates. Proceeds of the assets
included in the related Trust Fund (including the Mortgage Assets and any form
of credit enhancement) will be the sole source of payments on the Securities,
and there will be no recourse to the Seller, a Master Servicer or any other
entity in the event that such proceeds are insufficient or otherwise unavailable
to make all payments provided for under the Securities.
DECLINING REAL ESTATE MARKET; GEOGRAPHICAL CONCENTRATION. If the
residential real estate market in general or a regional or local area where real
property securing Mortgage Loans constituting or underlying the Mortgage Assets
for a Trust Fund are concentrated should experience an overall decline in
property values, or a significant downturn in economic conditions, rates of
delinquencies, foreclosures and losses could be higher than those then generally
experienced in the mortgage lending industry. See "The Trust Fund--The Mortgage
Loans-General".
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. Credit
enhancement may be provided in one or more of the forms described in the related
Prospectus Supplement, including, but not limited to, prioritization as to
payments of one or more classes of the related Series, a Pool Insurance Policy,
a Special Hazard Insurance Policy, Bankruptcy Bond, FHA Insurance, VA
Guarantees, Reserve Accounts, other insurance, guaranties and similar
instruments and agreements, or any combination thereof. See "Credit
Enchancement". Regardless of the credit enhancement provided, the coverage
provided may be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. Furthermore, such credit
enhancement may provide only very limited coverage as to certain types of losses
and may provide no coverage as to certain other types of losses. The Trustee may
be permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any Series of Securities, if the applicable rating agencies
indicate that the then-current rating thereof will not be adversely affected.
RISKS RELATED TO FINANCIAL INSTRUMENTS. A Trust Fund may include one
or more financial instruments such as interest rate or other swap agreements and
interest rate cap or floor agreements. See "Credit Enchancement". These
financial instruments provide protection against certain types of risks or
provide certain cashflow characteristics for one or more classes of a Series.
The protection or benefit to be provided by any such financial instrument will
be dependent on, among other things, the performance of the provider of such
financial instrument. If such provider were to be unable or unwilling to perform
its obligations under the related financial instrument, the Securityholders of
the applicable class or classes would bear the effects of such non-performance,
including the possibility of a material adverse effect on the yield to maturity,
the market price and liquidity for such class or Series. Even if the provider of
a financial instrument performs its obligations thereunder, a withdrawal or
reduction in a credit rating assigned to such provider may adversely affect the
market price and liquidity of the applicable class or classes of Securities. To
the extent that a financial instrument is intended to provide an approximate or
partial hedge for certain risks or cashflow characteristics, the Securityholders
of the applicable class or classes will bear the risk that such an imperfect
hedge may result in a material adverse effect on the yield to maturity, the
market price and liquidity for such class or classes.
ENVIRONMENTAL CONSIDERATIONS. Real property pledged as security for a
mortgage loan may be subject to certain environmental risks. There are many
federal and state environmental laws concerning hazardous waste and other
substances that may affect the property securing Mortgage Assets. Under certain
federal and state laws, a person who takes a deed in lieu of foreclosure or
purchases a mortgaged property in foreclosure may become liable for remedial
action to remove hazardous waste and other substances from such property. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Securityholders if a Mortgaged
Property securing a Mortgage Loan constituting part of or underlying the
Mortgage Assets became the property of the Trust Fund in certain circumstances
and if the costs of such remediation were incurred. Moreover, certain states by
statute impose a priority lien for any such remediation costs incurred by such
state on such property. In such states, even prior recorded liens are
subordinated to such state liens. In these states, the security interest of the
Trustee in a property that is subject to such a state lien could be adversely
affected. See "Legal Aspects of the Mortgage Loans--Environmental
Considerations".
SECURITY INTERESTS IN MANUFACTURED HOMES MAY BE LOST. The method of
perfecting a security interest in a Manufactured Home depends on the laws of the
state in which the Manufactured Home is located and, in some cases, the facts
and circumstances surrounding the location of the Manufactured Home (for
example, whether the Manufactured Home has become permanently affixed to its
site). If a Manufactured Home is moved from one state to another, steps must be
taken to re-perfect the security interest under the laws of the new state.
Generally the Sub- Servicer would become aware of the need to take such steps
following notice due to the notation of the Lender's lien on the applicable
certificate of title. However, if through fraud or administrative error such
steps were not taken in a timely manner, the perfected status of the lien on the
related Manufactured Home could be lost.
Similarly, if a Manufactured Home were to become or be deemed to be
permanently affixed to its site, additional steps may have to be taken to
maintain the priority and/or perfection of the security interest granted by the
related Contract. Although the borrower will have agreed not to permit the
Manufactured Homes to become or to be deemed to be permanently affixed to the
site, there can be no assurance that the borrower will comply with this
agreement. In such cases, the Sub-Servicer would be unlikely to obtain knowledge
thereof which would permit the Sub-Servicer to take additional steps, if any,
required under applicable law to maintain the priority and/or perfection of the
lien on the Manufactured Home.
THE TRUST FUND
A Trust Fund for a Series of Securities will include the Mortgage
Assets consisting of (A) a Mortgage Pool* comprised of (i) Single Family Loans,
(ii) Multifamily Loans, (iii) Cooperative Loans or (iv) Contracts, (B) Agency
Securities, or (C) Private Mortgage-Backed Securities, in each case, as
specified in the related Prospectus Supplement, together with payments in
respect of such Mortgage Assets and certain other accounts, obligations or
agreements, such as U.S. Government Securities, in each case as specified in the
related Prospectus Supplement.
* Whenever the terms "Mortgage Pool" and "Securities" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Securities
representing certain undivided interests in, or the debt obligations of, a
single Trust Fund consisting primarily of the Mortgage Loans in such
Mortgage Pool. Similarly, the term "Interest Rate" will refer to the
Interest Rate borne by the Securities of one specific Series and the term
"Trust Fund" will refer to one specific Trust Fund.
The Securities will be entitled to payment only from the assets of the
related Trust Fund and any other assets specified in the related Prospectus
Supplement, but will not be entitled to payments in respect of the assets of any
other trust fund established by the Seller. If specified in the related
Prospectus Supplement, certain Securities in a Series will evidence the entire
beneficial ownership interest in, or the debt obligations of, a trust fund, and,
in turn the assets of such trust fund will consist of a beneficial ownership
interest in another trust fund which will contain the underlying trust assets,
as would be the case, for example, in a Series that includes Exchangeable
Secuirites. For a further discussion of such a structure, see "Exchangeable
Securities--General".
The Mortgage Assets will be acquired by the Seller, either directly or
through affiliates, from Lenders and conveyed by the Seller to the related Trust
Fund. The Lenders may have originated the Mortgage Assets or acquired the
Mortgage Assets from the originators or other entities. See "The Mortgage
Loans--Underwriting Standards."
As used herein, "Agreement" means, (i) with respect to the
Certificates of a Series, the Pooling and Servicing Agreement or the Trust
Agreement and (ii) with respect to the Notes of a Series, the Indenture or the
Master Servicing Agreement, as the context requires.
The following is a brief description of the Trust Assets expected to
be included in a Trust Fund. If specific information respecting the Trust Assets
is not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Securities (the "Detailed Description"). A copy of the
Pooling and Servicing Agreement or the Trust Agreement and/or the Indenture, as
applicable, with respect to each Series of Securities will be attached to the
Form 8-K and will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Securities.
THE MORTGAGE LOANS-GENERAL
The real property and Manufactured Homes, as the case may be, which
secure repayment of the Mortgage Loans (the "Mortgaged Properties") may be
located in any one of the fifty states or the District of Columbia, Guam, Puerto
Rico or any other territory of the United States. Certain Mortgage Loans may be
conventional loans (I.E., loans that are not insured or guaranteed by any
governmental agency), insured by the FHA or partially guaranteed by the VA, as
specified in the related Prospectus Supplement and described below. Mortgage
Loans with certain Loan-to-Value Ratios (as defined herein) or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Insurance Policy"). The existence, extent
and duration of any such coverage will be described in the related Prospectus
Supplement.
Mortgage Loans in a Mortgage Pool will provide for payments to be made
monthly or bi-weekly or as specified in the related Prospectus Supplement. All
of the monthly-pay Mortgage Loans in a Mortgage Pool will have payments due on
the first day of each month or such other day as is specified in the related
Prospectus Supplement. The payment terms of the Mortgage Loans to be included in
a Trust Fund will be described in the related Prospectus Supplement and may
include any of the following features or combination thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index, a rate that is fixed for
period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a
rate that is convertible from an adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a
Mortgage Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the Mortgage
Rate for a period of time or for the life of the Mortgage Loan, and
the amount of any difference may be contributed from funds supplied by
the seller of the Mortgaged Property or another source or may be
treated as accrued interest added to the principal of the Mortgage
Loan.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest rate that
is different from the interest rate on the Mortgage Loan or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity
("balloon" payments). Principal may include interest that has been
deferred and added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the Mortgage Loan, may increase over a specified period of
time or may change from period to period. Mortgage Loans may include
limits on periodic increases or decreases in the amount of monthly
payments and may include maximum or minimum amounts of monthly
payments. Certain Mortgage Loans, sometimes called graduated payment
mortgage loans, may require the monthly payments of principal and
interest to increase for a specified period, provide for deferred
payment of a portion of the interest due monthly during such period,
and recoup the deferred interest through negative amortization whereby
the difference between the scheduled payment of interest and the
amount of interest actually accrued is added monthly to the
outstanding principal balance. Other Mortgage Loans, sometimes
referred to as growing equity mortgage loans, may provide for periodic
scheduled payment increases for a specified period with the full
amount of such increases being applied to principal. Other Mortgage
Loans, sometimes referred to as reverse mortgages, may provide for
monthly payments to the borrowers with interest and principal payable
when the borrowers move or die. Reverse mortgages typically are made
to older persons who have substantial equity in their homes.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the Mortgage Loan or may decline
over time, and may be prohibited for the life of the Mortgage Loan or
for certain periods ("lockout periods"). Certain Mortgage Loans may
permit prepayments after expiration of the applicable lockout period
and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
due-on-sale clauses which permit the mortgagee to demand payment of
the entire Mortgage Loan in connection with the sale or certain
transfers of the related Mortgaged Property. Other Mortgage Loans may
be assumable by persons meeting the then applicable underwriting
standards of the Lender.
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then specifically known to the
Seller, with respect to the Mortgage Loans contained in the related Mortgage
Pool, including, generally (i) the aggregate outstanding principal balance and
the average outstanding principal balance of the Mortgage Loans as of the
applicable Cut-off Date, (ii) the type of property securing the Mortgage Loans
(E.G., one- to four-family houses, vacation and second homes, Manufactured
Homes, multifamily apartments or other real property), (iii) the original terms
to maturity of the Mortgage Loans, (iv) the largest original principal balance
and the smallest original principal balance of any of the Mortgage Loans, (v)
the earliest origination date and latest maturity date of any of the Mortgage
Loans, (vi) the aggregate principal balance of Mortgage Loans having
Loan-to-Value Ratios at origination exceeding 80%, (vii) the Mortgage Rates or
APR's or range of Mortgage Rates or APR's borne by the Mortgage Loans, and
(viii) the geographical distribution of the Mortgage Loans on a state-by-state
basis. If specific information respecting the Mortgage Loans is not known to the
Seller at the time the related Securities are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement and specific information will be set forth in the Detailed
Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property. The
"Collateral Value" of a Mortgaged Property, other than with respect to Contracts
and certain Mortgage Loans the proceeds of which were used to refinance an
existing mortgage loan (each, a "Refinance Loan"), generally is the lesser of
(a) the appraised value determined in an appraisal obtained by the originator at
origination of such Mortgage Loan and (b) the sales price for such property. In
the case of Refinance Loans, the Collateral Value of the related Mortgaged
Property generally is the appraised value thereof determined in an appraisal
obtained at the time of refinancing. For purposes of calculating the
Loan-to-Value Ratio of a Contract relating to a new Manufactured Home, the
Collateral Value generally is no greater than the sum of a fixed percentage of
the list price of the unit actually billed by the manufacturer to the dealer
(exclusive of freight to the dealer site) including "accessories" identified in
the invoice (the "Manufacturer's Invoice Price"), plus the actual cost of any
accessories purchased from the dealer, a delivery and set-up allowance,
depending on the size of the unit, and the cost of state and local taxes, filing
fees and up to three years prepaid hazard insurance premiums. The Collateral
Value of a used Manufactured Home generally is the least of the sales price,
appraised value, and National Automobile Dealer's Association book value plus
prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties, in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. In the case of
Multifamily Loans, such other factors could include excessive building resulting
in an oversupply of rental housing stock or a decrease in employment reducing
the demand for rental units in an area; federal, state or local regulations and
controls affecting rents; prices of goods and energy; environmental
restrictions; increasing labor and material costs; and the relative
attractiveness to tenants of the Mortgaged Properties. To the extent that such
losses are not covered by credit enhancements, such losses will be borne, at
least in part, by the holders of the Securities of the related Series.
The Seller will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the holders of the Securities of the related Series. One or more
Master Servicers named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through Sub-Servicers, pursuant to the
Pooling and Servicing Agreement or, if the Series includes Notes, pursuant to a
Master Servicing Agreement among the Seller, the Master Servicer and the related
Trust Fund (the "Master Servicing Agreement") and will receive a fee for such
services. See "The Mortgage Loans" and "Administration". With respect to
Mortgage Loans serviced by a Master Servicer through a Sub-Servicer, the Master
Servicer will remain liable for its servicing obligations under the applicable
Agreement, as if the Master Servicer alone were servicing such Mortgage Loans.
In general, the Seller with respect to a Series of Securities will
obtain certain representations and warranties from the Lenders or other third
parties and will assign its rights with respect to such representations and
warranties to the Trustee for such Series of Securities. The Seller will have
obligations with respect to a Series only to the extent specified in the related
Prospectus Supplement. See "Administration-Assignment of Mortgage Assets." The
obligations of each Master Servicer with respect to the Mortgage Loans will
consist principally of its contractual servicing obligations under the related
Agreement (including its obligation to enforce the obligations of the
Sub-Servicers, Lenders or other third parties as more fully described herein
under "The Mortgage Loans--Representations by Lenders; Repurchases" and
"Administration--Sub-Servicing by Lenders," "--Assignment of Mortgage Assets")
and its obligation to make certain cash advances in the event of delinquencies
in payments on or with respect to the Mortgage Loans in the amounts described
herein under "Description of the Securities-Advances." The obligations of a
Master Servicer to make advances may be subject to limitations, to the extent
provided herein and in the related Prospectus Supplement.
SINGLE FAMILY AND COOPERATIVE LOANS
Single Family Loans generally will consist of mortgage loans, deeds of
trust or participation or other beneficial interests therein, secured by liens
on one- to four-family residential properties. The Single Family Loans also may
include loans or participations therein secured by mortgages or deeds of trust
on condominium units in condominium buildings together with such condominium
unit's appurtenant interest in the common elements of the condominium building.
Cooperative Loans generally will be secured by security interests in or similar
liens on stock, shares or membership certificates issued by Cooperatives and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in such Cooperatives' buildings. Single Family
Loans and Cooperative Loans may be conventional loans (I.E., loans that are not
insured or guaranteed by any governmental agency), insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Single Family Loans and Cooperative Loans will all have individual
principal balances at origination of not less than $25,000 and not more than
$1,000,000, and original terms to stated maturity of 15 to 40 years or such
other individual principal balances at origination and/or original terms to
stated maturity as are specified in the related Prospectus Supplement.
The Mortgaged Properties relating to Single Family Loans will consist
of detached or semi-detached one- family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments, and certain other dwelling units. Such
Mortgaged Properties may include vacation and second homes, investment
properties and leasehold interests. In the case of leasehold interests, the term
of the leasehold generally will exceed the scheduled maturity of the Mortgage
Loan by at least five years. Certain Mortgage Loans may be originated or
acquired in connection with employee relocation programs.
MULTIFAMILY LOANS
Multifamily Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by liens on rental
apartment buildings or projects containing five or more residential units. Such
loans may be conventional loans or FHA-insured loans, as specified in the
related Prospectus Supplement. Multifamily Loans generally will have original
terms to stated maturity of not more than 40 years.
Mortgaged Properties which secure Multifamily Loans may include
high-rise, mid-rise and garden apartments. Certain of the Multifamily Loans may
be secured by apartment buildings owned by Cooperatives. The Cooperative owns
all the apartment units in the building and all common areas. The Cooperative is
owned by tenant-stockholders who, through ownership of stock, shares or
membership certificates in the corporation, receive proprietary leases or
occupancy agreements which confer exclusive rights to occupy specific apartments
or units. Generally, a tenant- stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its mortgage loan, real property taxes,
maintenance expenses and other capital or ordinary expenses. Those payments are
in addition to any payments of principal and interest the tenant- stockholder
must make on any loans to the tenant-stockholder secured by its shares in the
Cooperative. The Cooperative will be directly responsible for building
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. A Cooperative's ability to meet debt service obligations on
a Multifamily Loan, as well as all other operating expenses, will be dependent
in large part on the receipt of maintenance payments from the tenant-
stockholders, as well as any rental income from units or commercial areas the
Cooperative might control. Unanticipated expenditures may in some cases have to
be paid by special assessments on the tenant-stockholders.
CONTRACTS
The Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home. Contracts may be conventional, insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Each Contract generally will be fully amortizing and will bear
interest at its APR. Contracts will have individual principal balances at
origination of not less than $10,000 and not more than $1,000,000 and original
terms to stated maturity of 5 to 40 years, or such other individual principal
balances at origination and/or original terms to stated maturity as are
specified in the related Prospectus Supplement.
The "Manufactured Homes" securing the Contracts generally will consist
of manufactured homes within the meaning of 42 United States Code, Section
5402(6), which defines a "manufactured home" as "a structure, transportable in
one or more sections, which in the traveling mode, is eight body feet or more in
width or forty body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a permanent chassis
and designed to be used as a dwelling with or without a permanent foundation
when connected to the required utilities, and includes the plumbing, heating,
air conditioning, and electrical systems contained therein; except that such
term shall include any structure which meets all the requirements of [this]
paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established under
[this] chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust Fund among other things, the date of origination
of the Contracts; the APRs on the Contracts; the Contract Loan-to-Value Ratios;
the minimum and maximum outstanding principal balances as of the Cut-off Date
and the average outstanding principal balance; the outstanding principal
balances of the Contracts included in the related Trust Fund, and the original
maturities of the Contracts and the last maturity date of any Contract.
AGENCY SECURITIES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. GNMA is a wholly-owned
corporate instrumentality of the United States with the United States Department
of Housing and Urban Development. Section 306(g) of Title II of the National
Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which represent an interest in a pool of mortgage loans insured by FHA under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or partially
guaranteed by the VA under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an amount which is at
any time sufficient to enable GNMA, with no limitations as to amount, to perform
its obligations under its guarantee.
GNMA CERTIFICATES. Each GNMA Certificate held in a Trust Fund (which
may be issued under either the GNMA I Program or the GNMA II Program) will be a
"fully modified pass-through" mortgaged-backed certificate issued and serviced
by a mortgage banking company or other financial concern ("GNMA Issuer")
approved by GNMA or approved by Fannie Mae as a seller-servicer of FHA Loans
and/or VA Loans. The mortgage loans underlying the GNMA Certificates will
consist of FHA Loans and/or VA Loans. Each such mortgage loan is secured by a
one- to four- family residential property or a manufactured home. GNMA will
approve the issuance of each such GNMA Certificate in accordance with a guaranty
agreement (a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to
its Guaranty Agreement, a GNMA Issuer will be required to advance its own funds
in order to make timely payments of all amounts due on each such GNMA
Certificate, even if the payments received by the GNMA Issuer on the FHA Loans
or VA Loans underlying each such GNMA Certificate are less than the amounts due
on each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties or manufactured homes and will provide for the payment by
or on behalf of the GNMA Issuer to the registered holder of such GNMA
Certificate of scheduled monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
such GNMA Certificate, less the applicable servicing and guarantee fee which
together equal the difference between the interest on the FHA Loan or VA Loan
and the pass- through rate on the GNMA Certificate. In addition, each payment
will include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
as it becomes due, it must promptly notify GNMA and request GNMA to make such
payment. Upon notification and request, GNMA will make such payments directly to
the registered holder of such GNMA Certificate. In the event no payment is made
by a GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make
such payment, the holder of such GNMA Certificate will have recourse only
against GNMA to obtain such payment. The Trustee or its nominee, as registered
holder of the GNMA Certificates held in a Trust Fund, will have the right to
proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA I Certificate must
have the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in
a Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or Buydown Loans. No statistics comparable
to the FHA's prepayment experience on level payment, non-buydown loans are
available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
If specified in a related Prospectus Supplement, GNMA Certificates may
be backed by multifamily mortgage loans having the characteristics specified in
such Prospectus Supplement.
The GNMA Certificates included a Trust Fund, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FEDERAL NATIONAL MORTGAGE ASSOCIATION. Fannie Mae is a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act (the "Charter Act"). Fannie
Mae was originally established in 1938 as a United States government agency to
provide supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing their funds for
additional lending. Fannie Mae acquires funds to purchase mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, Fannie Mae helps to redistribute mortgage funds from capital-surplus
to capital-short areas.
FANNIE MAE CERTIFICATES. Fannie Mae Certificates are Guaranteed
Mortgage Pass-Through Certificates representing fractional undivided interests
in a pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet
the applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae Certificates held by a Trust Fund
will consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae Certificate are expected to be between either 8 to
15 years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a Fannie Mae Certificate may have annual
interest rates that vary by as much as two percentage points from each other.
The rate of interest payable on a Fannie Mae Certificate is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and Fannie Mae's guaranty
fee. Under a regular servicing option (pursuant to which the mortgagee or other
servicers assumes the entire risk of foreclosure losses), the annual interest
rates on the mortgage loans underlying a Fannie Mae Certificate will be between
50 basis points and 250 basis points greater than in its annual pass-through
rate and under a special servicing option (pursuant to which Fannie Mae assumes
the entire risk for foreclosure losses), the annual interest rates on the
mortgage loans underlying a Fannie Mae Certificate will generally be between 55
basis points and 255 basis points greater than the annual Fannie Mae Certificate
pass-through rate. If specified in the related Prospectus Supplement, Fannie Mae
Certificates may be backed by adjustable rate mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae
Certificate that it will distribute amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass- through rate provided for by such Fannie Mae Certificate on the
underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of Fannie Mae under its guarantees are
obligations solely of Fannie Mae and are not backed by, nor entitled to, the
full faith and credit of the United States. Although the Secretary of the
Treasury of the United States has discretionary authority to lend Fannie Mae up
to $2.25 billion outstanding at any time, neither the United States nor any
agency thereof is obligated to finance Fannie Mae's operations or to assist
Fannie Mae in any other manner. If Fannie Mae were unable to satisfy its
obligations, distributions to holders of Fannie Mae Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of Fannie Mae Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage
loans formed on or after May 1, 1985 (other than Fannie Mae Certificates backed
by pools containing graduated payment mortgage loans or mortgage loans secured
by multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each Fannie Mae Certificate will be made by Fannie Mae
on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or registered
on the Fannie Mae Certificate register in the case of fully registered Fannie
Mae Certificates) as of the close of business on the last day of the preceding
month. With respect to Fannie Mae Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
Fannie Mae Certificates, distributions thereon will be made by check.
The Fannie Mae Certificates included in a Trust Fund, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FREDDIE MAC. Freddie Mac is a publicly-held United States
government-sponsored enterprise created pursuant to the Federal Home Loan
Mortgage Corporation Act, Title III of the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). Freddie Mac was established primarily for the
purpose of increasing the availability of mortgage credit for the financing of
urgently needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of Freddie
Mac currently consists of the purchase of first lien conventional mortgage loans
or participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of mortgage securities,
primarily Freddie Mac Certificates. Freddie Mac is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
FREDDIE MAC CERTIFICATES. Each Freddie Mac Certificate represents an
undivided interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA Loans or VA Loans (a "Freddie Mac Certificate Group").
Freddie Mac Certificates are sold under the terms of a Mortgage Participation
Certificate Agreement. A Freddie Mac Certificate may be issued under either
Freddie Mac's Cash Program or Guarantor Program.
Mortgage loans underlying the Freddie Mac Certificates held by a Trust
Fund will consist of mortgage loans with original terms to maturity of between
10 and 30 years or such other period as provided in the related Prospectus
Supplement. Each such mortgage loan must meet the applicable standards set forth
in the FHLMC Act. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another Freddie Mac Certificate group. Under
the Guarantor Program, any such Freddie Mac Certificate group may include only
whole loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable Certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans in the Freddie Mac Certificate group represented by such Freddie
Mac Certificate, whether or not received. Freddie Mac also guarantees to each
registered holder of a Freddie Mac Certificate collection by such holder of all
principal on the underlying mortgage loans, without any offset or deduction, to
the extent of such holder's pro rata share thereof, but does not, except if and
to the extent specified in the Prospectus Supplement for a Series of
Certificates, guarantee the timely payment of scheduled principal. Under Freddie
Mac's Gold PC Program, Freddie Mac guarantees the timely payment of principal
based on the difference between the pool factor, published in the month
preceding the month of distribution and the pool factor published in such month
of distribution. Pursuant to its guarantees, Freddie Mac indemnifies holders of
Freddie Mac Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. Freddie Mac may remit
the amount due on account of its guarantee of collection of principal at any
time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying Freddie Mac Certificates, including the timing
of demand for acceleration, Freddie Mac reserves the right to exercise its
judgment with respect to the mortgage loans in the same manner as for mortgage
loans which it has purchased but not sold. The length of time necessary for
Freddie Mac to determine that a mortgage loan should be accelerated varies with
the particular circumstances of each mortgagor, and Freddie Mac has not adopted
standards which require that the demand be made within any specified period.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed by,
nor entitled to, the full faith and credit of the United States. If Freddie Mac
were unable to satisfy such obligations, distributions to holders of Freddie Mac
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Freddie Mac Certificates would be affected by delinquent payments and defaults
on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac Certificateholder's
pro rata share of principal payments on the underlying mortgage loans, interest
at the Freddie Mac pass-through rate and any other sums such as prepayment fees,
within 60 days of the date on which such payments are deemed to have been
received by Freddie Mac.
Under Freddie Mac's cash program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a Freddie Mac
Certificate may exceed the pass-through rate on the Freddie Mac Certificate.
Under such program, Freddie Mac purchases groups of whole mortgage loans from
sellers at specified percentages of their unpaid principal balances, adjusted
for accrued or prepaid interest, which when applied to the interest rate of the
mortgage loans and participations purchased, results in the yield (expressed as
a percentage) required by Freddie Mac. The required yield, which includes a
minimum servicing fee retained by the servicer, is calculated using the
outstanding principal balance. The range of interest rates on the mortgage loans
and participations in a Freddie Mac Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a Freddie Mac Certificate group based upon their yield to Freddie Mac rather
than on the interest rate on the underlying mortgage loans. Under Freddie Mac's
Guarantor Program, the pass-through rate on a Freddie Mac Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of Freddie Mac's management
and guaranty income as agreed upon between the seller and Freddie Mac.
Freddie Mac Certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a Freddie
Mac Certificate will be distributed so as to be received normally by the 15th
day of the second month following the month in which the purchaser became a
registered holder of the Freddie Mac Certificates. Thereafter, such remittance
will be distributed monthly to the registered holder so as to be received
normally by the 15th day of each month. The Federal Reserve Bank of New York
maintains book-entry accounts with respect to Freddie Mac Certificates sold by
Freddie Mac on or after January 2, 1985, and makes payments of principal and
interest each month to the registered holders thereof in accordance with such
holders' instructions.
STRIPPED MORTGAGE-BACKED SECURITIES. Agency Securities may consist of
one or more stripped mortgage- backed securities, each as described herein and
in the related Prospectus Supplement. Each such Agency Security will represent
an undivided interest in all or part of either the principal distributions (but
not the interest distributions) or the interest distributions (but not the
principal distributions), or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain Freddie
Mac, Fannie Mae, GNMA or other government agency or government-sponsored agency
Certificates. The underlying securities will be held under a trust agreement by
Freddie Mac, Fannie Mae, GNMA or another government agency or
government-sponsored agency, each as trustee, or by another trustee named in the
related Prospectus Supplement. Freddie Mac, Fannie Mae, GNMA or another
government agency or government-sponsored agency generally will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security.
OTHER AGENCY SECURITIES. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, Fannie Mae, Freddie Mac or other government
agencies or government-sponsored agencies. The characteristics of any such
mortgage pass-through certificates will be described in such related Prospectus
Supplement. If so specified, a combination of different types of Agency
Securities may be held in a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
GENERAL. Private Mortgage-Backed Securities may consist of (a)
mortgage pass-through certificates evidencing a direct or indirect undivided
interest in a pool of Mortgage Loans, or (b) collateralized mortgage obligations
secured by Mortgage Loans. Private Mortgage-Backed Securities will have been
issued pursuant to a pooling and servicing agreement (a "PMBS Agreement"). The
Private Mortgage-Backed Securities in a Trust Fund may include a class or
classes of securities that are callable at the option of another class or
classes of securities. The seller/servicer of the underlying Mortgage Loans will
have entered into the PMBS Agreement with the PMBS Trustee under the PMBS
Agreement. The PMBS Trustee or its agent, or a custodian, will possess the
Mortgage Loans underlying such Private Mortgage-Backed Security. Mortgage Loans
underlying a Private Mortgage-Backed Security will be serviced by the PMBS
Servicer directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS Servicer. The PMBS Servicer will be a Fannie Mae or
Freddie Mac approved servicer and, if FHA Loans underlie the Private
Mortgage-Backed Securities, approved by the Department of Housing and Urban
Development ("HUD") as an FHA mortgagee, or such other servicer as specified in
the related Prospectus Supplement.
Such securities will (i) either (a) have been previously registered
under the Securities Act of 1933, as amended, or (b) will at the time be
eligible for sale under Rule 144(k) under such act; and (ii) will be acquired in
bona fide secondary market transactions not from the issuer or its affiliates.
The PMBS Issuer generally will be a financial institution or other entity
engaged generally in the business of mortgage lending or the acquisition of
mortgage loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the related Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Seller. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust or the assignment by it of the
representations and warranties of another entity from which it acquired the
assets. The PMBS Issuer generally will not have guaranteed any of the assets
conveyed to the related trust or any of the Private Mortgage-Backed Securities
issued under the PMBS Agreement. Additionally, although the Mortgage Loans
underlying the Private Mortgage-Backed Securities may be guaranteed by an agency
or instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
UNDERLYING LOANS. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing loans or graduated payment mortgage loans, buydown loans, adjustable
rate mortgage loans, or loans having balloon or other special payment features.
Such Mortgage Loans may be secured by single family property, multifamily
property, Manufactured Homes or by an assignment of the proprietary lease or
occupancy agreement relating to a specific dwelling within a Cooperative and the
related shares issued by such Cooperative. In general, (i) no Mortgage Loan will
have had a Loan-to-Value Ratio at origination in excess of 95%, (ii) each Single
Family Loan secured by a Mortgaged Property having a Loan-to-Value Ratio in
excess of 80% at origination will be covered by a primary mortgage insurance
policy until the principal balance is reduced to 80%, (iii) each Mortgage Loan
will have had an original term to stated maturity of not less than 5 years and
not more than 40 years, (iv) no Mortgage Loan that was more than 30 days
delinquent more than once in the past 12 months and will not be delinquent as of
the Cut-off Date as to the payment of principal or interest will have been
eligible for inclusion in the assets under the related PMBS Agreement, (v) each
Mortgage Loan (other than a Cooperative Loan) will be required to be covered by
a standard hazard insurance policy (which may be a blanket policy), and (vi)
each Mortgage Loan (other than a Cooperative Loan or a Contract secured by a
Manufactured Home) will be covered by a title insurance policy.
CREDIT SUPPORT RELATING TO PRIVATE MORTGAGE-BACKED SECURITIES. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Mortgage Loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
ADDITIONAL INFORMATION. The related Prospectus Supplement for a Series
for which the Trust Fund includes Private Mortgage-Backed Securities will
specify (i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including to the extent available (A) the
payment features of such Mortgage Loans, (B) the approximate aggregate principal
balance, if known, of underlying Mortgage Loans insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing fees with
respect to the Mortgage Loans, (D) the minimum and maximum stated maturities of
the underlying Mortgage Loans at origination and (E) delinquency experience with
respect to the Mortgage Loans, (iii) the pass-through or certificate rate of the
Private Mortgage-Backed Securities and the method of determination thereof, (iv)
the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS
Trustee for such Private Mortgage-Backed Securities, (v) certain characteristics
of credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the Mortgage Loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (vi) the terms on which the underlying
Mortgage Loans for such Private Mortgage-Backed Securities, or such Private
Mortgage-Backed Securities themselves, may, or are required to, be purchased
prior to their stated maturity or the stated maturity of the Private
Mortgage-Backed Securities and (vii) the terms on which Mortgage Loans or
Private Mortgage-Backed Securities may be substituted for those originally
deposited with the PMBS Trustee or the Trustee.
U.S. GOVERNMENT SECURITIES
If specified in the related Prospectus Supplement, United States
Treasury securities and other securities issued by the U.S. Government, any of
its agencies or other issuers established by federal statute (collectively,
"U.S. Government Securities") may be included in the Trust Assets. Such
securities will be backed by the full faith and credit of the United States or
will represent the obligations of the U.S. Government or such agency or such
other issuer or obligations payable from the proceeds of U.S. Government
Securities, as specified in the related Prospectus Supplement.
FASITS
Assets may be added to the Trust Fund if it has elected to be treated
as a FASIT for federal income tax purposes under the Code, subject to the
provisions of the Code restricting such additional assets to "permitted assets",
as defined in the Code, and so long as the FASIT does not engage in a
"prohibited transaction" under the Code. See "Federal Income Tax
Consequences--Qualification as a FASIT" and "--FASIT Ownership Certificate--
INCOME FROM PROHIBITED TRANSACTIONS". Subject to the foregoing, it is intended
that, in connection with a particular Trust Fund, assets will be chosen for a
FASIT on the basis of similarity of certain characteristics such as coupon and
market price, as provided in the related Prospectus Supplement. Assets would be
added to a FASIT upon the occurrence of certain events such as prepayment of
existing assets or removal of assets for credit or other reasons, as provided in
the related Prospectus Supplement. Any such addition or removal would be subject
to confirmation from the applicable rating agency or agencies that such actions
would not affect the ratings then assigned to the related 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 or
other party identified in the related Prospectus Supplement to be incomplete.
The period during which such substitution will be permitted generally will be
indicated in the related Prospectus Supplement. The related Prospectus
Supplement will describe any other conditions upon which Mortgage Assets may be
substituted for Mortgage Assets initially included in the Trust Fund.
USE OF PROCEEDS
The Seller intends to use the net proceeds to be received from the
sale of the Securities of each Series to repay short-term loans incurred to
finance the purchase of the Trust Assets related to such Securities, to acquire
certain of the Trust Assets to be deposited in the related Trust Fund, and/or to
pay other expenses connected with pooling Trust Assets and issuing Securities.
Any amounts remaining after such payments may be used for general corporate
purposes. The Seller expects to sell Securities in Series from time to time.
THE SELLER
Structured Asset Mortgage Investments Inc. (formerly, Bear Stearns
Mortgage Securities Inc.), the Seller, is a Delaware corporation organized on
October 17, 1991. The Seller is engaged in the business of acquiring Mortgage
Assets and selling interests therein or bonds secured thereby. It is a wholly
owned subsidiary of Bear Stearns Mortgage Capital Corporation, a Delaware
corporation, and an affiliate of Bear, Stearns & Co. Inc. The Seller maintains
its principal office at 245 Park Avenue, New York, New York 10167. Its telephone
number is (212) 272-2000.
The Seller does not have, nor is it expected in the future to have,
any significant assets.
THE MORTGAGE LOANS
The Mortgage Loans will have been purchased by the Seller, either
directly or through affiliates, from Lenders. The Mortgage Loans so acquired by
the Seller will have been originated in accordance with the underwriting
criteria specified below under "Underwriting Standards" or such other
underwriting criteria as is specified in the related Prospectus Supplement.
UNDERWRITING STANDARDS
In general, each Lender will represent and warrant that all Mortgage
Loans originated and/or sold by it to the Seller or one of its affiliates will
have been underwritten in accordance with standards consistent with those
utilized by mortgage lenders or manufactured home lenders generally during the
period of origination. As to any Mortgage Loan insured by the FHA or partially
guaranteed by the VA, the Lender will represent that it has complied with
underwriting policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a Lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the Mortgaged Property as collateral. In general, a prospective
borrower applying for a Single Family Loan or a Cooperative Loan or for
financing secured by a Manufactured Home is required to fill out a detailed
application designed to provide to the underwriting officer pertinent credit
information. As part of the description of the borrower's financial condition,
the borrower generally is required to provide a current list of assets and
liabilities and a statement of income and expenses, as well as an authorization
to apply for a credit report which summarizes the borrower's credit history with
local merchants and lenders and any record of bankruptcy. In most cases, an
employment verification is obtained from an independent source (typically the
borrower's employer) which verification reports the length of employment with
that organization, the current salary, and whether it is expected that the
borrower will continue such employment in the future. If a prospective borrower
is self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
Underwriting standards which pertain to the creditworthiness of borrowers
seeking Multifamily Loans will be described in the related Prospectus
Supplement.
In determining the adequacy of the Mortgaged Property as collateral,
an appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. With respect to Single Family
Loans, the appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the home. With respect to Cooperative Loans, the appraisal is based
on the market value of comparable units. With respect to Contracts, the
appraisal is based on recent sales of comparable Manufactured Homes and, when
deemed applicable, a replacement cost analysis based on the cost of a comparable
Manufactured Home. With respect to a Multifamily Loan, the appraisal must
specify whether an income analysis, a market analysis or a cost analysis, was
used. An appraisal employing the income approach to value analyzes a multifamily
project's cashflow, expenses, capitalization and other operational information
in determining the property's value. The market approach to value focuses its
analysis on the prices paid for the purchase of similar properties in the
multifamily project's area, with adjustments made for variations between these
other properties and the multifamily project being appraised. The cost approach
calls for the appraiser to make an estimate of land value and then determine the
current cost of reproducing the building less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal,
must be such that it currently supports, and is anticipated to support in the
future, the outstanding loan balance.
In the case of Single Family Loans, Cooperative Loans and Contracts,
once all applicable employment, credit and property information is received, a
determination generally is made as to whether the prospective borrower has
sufficient monthly income available (i) to meet the borrower's monthly
obligations on the proposed mortgage loan (determined on the basis of the
monthly payments due in the year of origination) and other expenses related to
the Mortgaged Property (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly living
expenses. The underwriting standards applied by Lenders may be varied in
appropriate cases where factors such as low Loan-to-Value Ratios or other
favorable credit factors exist.
A Lender may originate Mortgage Loans under a reduced documentation
program with balances that exceed in size or other respects general agency
criteria. A reduced documentation program is designed to facilitate the loan
approval process and thereby improve the Lender's competitive position among
other loan originators. Under a reduced documentation program, relatively more
emphasis is placed on property underwriting than on credit underwriting and
certain credit underwriting documentation concerning income and employment
verification is waived.
In the case of a Single Family or Multifamily Loan secured by a
leasehold interest in a real property, the title to which is held by a third
party lessor, the Lender will represent and warrant, among other things, that
the remaining term of the lease and any sublease is at least five years longer
than the remaining term of the Mortgage Loan.
Certain of the types of Mortgage Loans which may be included in the
Mortgage Pools are more recently developed and may involve additional
uncertainties not present in traditional types of loans. For example, certain of
such Mortgage Loans may provide for escalating or variable payments by the
mortgagor or obligor. These types of Mortgage Loans are underwritten on the
basis of a judgment that mortgagors or obligors will have the ability to make
monthly payments required initially. In some instances, however, a mortgagor's
or obligor's income may not be sufficient to permit continued loan payments as
such payments increase.
RE-UNDERWRITING. The Seller will acquire Mortgage Loans utilizing
re-underwriting criteria it believes are appropriate depending to some extent on
the Seller's or its affiliates' prior experience with the Lender and the
servicer, as well as the Seller's prior experience with a particular type of
loan or with loans relating to mortgaged properties in a particular geographical
region. A standard approach to re-underwriting will be to compare loan file
information and information that is represented to the Seller on a tape with
respect to a percentage of the Mortgage Loans deemed appropriate by the Seller
in the circumstances. No independent investigation of the creditworthiness of
particular obligors will be undertaken by the Seller.
QUALIFICATIONS OF LENDERS
Each Lender will be required to satisfy the qualifications set forth
herein or as otherwise set forth in the related Prospectus Supplement. Each
Lender must be an institution experienced in originating and servicing Mortgage
Loans of the type contained in the related Mortgage Pool in accordance with
accepted practices and prudent guidelines, and must maintain satisfactory
facilities to originate and service those Mortgage Loans. In general, each
Lender must be a seller/servicer approved by either Fannie Mae or Freddie Mac,
and each Lender must be a mortgagee approved by the HUD or an institution the
deposit accounts in which are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
REPRESENTATIONS BY LENDERS; REPURCHASES
Each Lender generally will have made representations and warranties in
respect of the Mortgage Loans sold by such Lender and included in the assets of
the Trust Fund. Such representations and warranties generally include, among
other things: (i) that title insurance (or in the case of Mortgaged Properties
located in areas where such policies are generally not available, an attorney's
certificate of title) in the case of Single Family Loans and Multifamily Loans
and any required hazard insurance policy was in effect on the date of purchase
of the Mortgage Loan from the Lender by or on behalf of the Seller; (ii) that
the Lender had title to each such Mortgage Loan and such Mortgage Loan was
subject to no offsets, defenses or counterclaims; (iii) that each Mortgage Loan
constituted a valid first or other applicable lien on, or a perfected security
interest with respect to, the Mortgaged Property (subject only to permissible
title insurance exceptions, if applicable, and certain other exceptions
described in the Agreement) and that the Mortgaged Property was free from damage
and was in good repair; (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property, (v) that no required payment on a Mortgage
Loan was more than a specified number of days delinquent; and (vi) that each
Mortgage Loan was made in compliance with, and is enforceable under, all
applicable state and federal laws and regulations in all material respects.
All of the representations and warranties of a Lender in respect of a
Mortgage Loan will have been made as of the date on which such Lender sold the
Mortgage Loan to the Seller or one of its affiliates or as of such other date as
is specified in the related Prospectus Supplement. A substantial period of time
may have elapsed between such date and the date of initial issuance of the
Series of Securities evidencing an interest in, or secured by, such Mortgage
Loan. Since the representations and warranties of a Lender do not address events
that may occur following the sale of a Mortgage Loan by such Lender, its
repurchase obligation described below will not arise if the relevant event that
would otherwise have given rise to such an obligation with respect to a Mortgage
Loan occurs after the date of sale of such Mortgage Loan by such Lender to the
Seller or its affiliates. If the Master Servicer is also a Lender with respect
to a particular Series, such representations will be in addition to the
representations and warranties, if any, made by the Master Servicer in its
capacity as a Master Servicer.
In general, the Master Servicer or the Trustee, if the Master Servicer
is the Lender, will be required to promptly notify the relevant Lender of any
breach of any representation or warranty made by it in respect of a Mortgage
Loan which materially and adversely affects the interests of the Securityholders
with respect to such Mortgage Loan. If such Lender cannot cure such breach
generally within 60 days after notice from the Master Servicer or the Trustee,
as the case may be, then such Lender generally will be obligated to repurchase
such Mortgage Loan from the Trust Fund at a price (the "Purchase Price") equal
to the unpaid principal balance thereof as of the date of the repurchase plus
accrued interest thereon to the first day of the month following the month of
repurchase at the Mortgage Rate (less any amount payable as related servicing
compensation if the Lender is the Master Servicer) or such other price as may be
described in the related Prospectus Supplement. This repurchase obligation will
constitute the sole remedy available to holders of Securities or the Trustee for
a breach of representation by a Lender. Certain rights of substitution for
defective Mortgage Loans may be provided with respect to a Series in the related
Prospectus Supplement.
Neither the Seller nor the Master Servicer (unless the Master Servicer
is the Lender) will be obligated to purchase a Mortgage Loan if a Lender
defaults on its obligation to do so, and no assurance can be given that Lenders
will carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of a representation and warranty of
a Lender may also constitute a breach of a representation made by the Seller or
the Master Servicer, the Master Servicer may have a repurchase obligation as
described below under "Administration-Assignment of Mortgage Assets."
If specified in the related Prospectus Supplement, the Lender may have
acquired the Mortgage Loans from a third party which made certain
representations and warranties to the Lender as of the time of the sale to the
Lender. In lieu of representations and warranties made by the Lender as of the
time of the sale to the Seller, the Lender may assign the representations and
warranties from the third party to the Seller, which will assign them to the
Trustee on behalf of the Securityholders. In such cases, the third party will be
obligated to purchase a Mortgage Loan upon a breach of such representations and
warranties, and the Lender will not be obligated to purchase a Mortgage Loan if
the third party defaults on its obligation to do so.
The Lender and any third party which conveyed the Mortgage Loans to
the Lender may experience financial difficulties and in some instances may enter
into insolvency proceedings. As a consequence, the Lender or such third party
may be unable to perform its repurchase obligations with respect to the Mortgage
Loans. Any arrangements for the assignment of representations and the repurchase
of Mortgage Loans must be acceptable to the Rating Agency rating the related
Securities.
OPTIONAL PURCHASE OF DEFAULTED LOANS
If specified in the related Prospectus Supplement, the Master Servicer
or another entity identified in such Prospectus Supplement may, at its option,
purchase from the Trust Fund any Mortgage Loan which is delinquent in payment by
91 days or more. Any such purchase shall be at such price as may be described in
the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
The Notes of a Series will be issued pursuant to an indenture (the
"Indenture") between the related Trust Fund and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Notes. The
Certificates will also be issued in Series pursuant to separate agreements (each
a "Pooling and Servicing Agreement" or a "Trust Agreement") among the Seller,
one or more Master Servicers, if applicable, and the Trustee. The provisions of
each such Agreement will vary depending upon the nature of the Securities to be
issued thereunder and the nature of the related Trust Fund. A form of Pooling
and Servicing Agreement, a form of a Trust Agreement and a form of Indenture are
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions which may appear in each such
Agreement. The Prospectus Supplement for a Series of Securities will provide
additional information regarding each such Agreement relating to such Series.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
applicable Agreement or Agreements for each Series of Securities and the
applicable Prospectus Supplement. The Seller will provide a copy of the
applicable Agreement or Agreements (without exhibits) relating to any Series
without charge upon written request of a Securityholder of such Series addressed
to Structured Asset Mortgage Investments Inc., 245 Park Avenue, New York, New
York 10167; Attention: Mortgage Department.
GENERAL
The Securities of each Series will be issued in fully registered form,
in the denominations specified in the related Prospectus Supplement, will
evidence specified beneficial ownership interests in, or debt secured by the
assets of, the related Trust Fund and will not be entitled to distributions in
respect of the Trust Assets included in any other Trust Fund established by the
Seller. The Securities will not represent obligations of the Seller or any
affiliate of the Seller. The Mortgage Loans generally will not be insured or
guaranteed by any governmental entity or other person unless the Prospectus
Supplement provides that loans are included that have the benefit of FHA
insurance ("FHA Insurance"), VA guarantees ("VA Guarantees"), primary mortgage
insurance, pool insurance or another form of insurance or guarantees. Each Trust
Fund will consist of, to the extent provided in the Agreement, (i) the Mortgage
Assets, as from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement ("Retained
Interest")), (ii) such assets as from time to time are required to be deposited
in the related Protected Account, Securities Account or any other accounts
established pursuant to the Agreement (collectively, the "Accounts"); (iii)
property which secured a Mortgage Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure, (iv) U.S.
Government Securities; and (v) any Primary Insurance Policies, FHA Insurance, VA
Guarantees, other insurance policies or other forms of credit enhancement
required to be maintained pursuant to the Agreement. If so specified in the
related Prospectus Supplement, a Trust Fund may include one or more of the
following: reinvestment income on payments received on the Trust Assets, a
reserve fund, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a financial guaranty
insurance policy, third party guarantees or similar instruments, U.S. Government
Securities designed to assure payment of the Securities or other agreements. If
provided in the related Agreement, a securities administrator may be obligated
to perform certain duties in connection with the administration of the
Securities. It is not intended to list any class of Securities on any securities
exchange or to quote the Securities in the automated quotation system of a
regulated securities association. However, if such listing or such quotation is
intended in a Series, relevant information will be included in the related
Prospectus Supplement.
Each Series of Securities will be issued in one or more classes. Each
class of Securities of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the assets in the related Trust Fund or will evidence the
obligations of the related Trust Fund to make payments from amounts received on
the such assets in the related Trust Fund. A Series of Securities may include
one or more classes that receive certain preferential treatment with respect to
one or more other classes of Securities of such Series. Certain Series or
classes of Securities may he covered by insurance policies or other forms of
credit enhancement, in each case as described herein and in the related
Prospectus Supplement. Distributions on one or more classes of a Series of
Securities may be made prior to one or more other classes, after the occurrence
of specified events, in accordance with a schedule or formula, on the basis of
collections from designated portions of the assets in the related Trust Fund or
on a different basis, in each case, as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among classes
or over time as specified in the related Prospectus Supplement. If so provided
in the related Prospectus Supplement, the Securityholder of a class (a "Call
Class") of securities of a Series may have the right to direct the Trustee to
redeem a related Callable Class or Classes (as defined herein). A "Callable
Class" is a class of Securities of a Series that is redeemable, directly or
indirectly, at the direction of the holder of the related Call Class, as
provided in the related Prospectus Supplement. A Call Class and its related
Callable Class or Classes will be issued pursuant to a separate trust agreement.
A Callable Class generally will not be called unless the market value of the
assets in the trust fund for such Callable Class exceeds the outstanding
principal balance of such assets. If so provided in the related Prospectus
Supplement, after the issuance of the Callable Class, there may be a specified
"lock-out period" during which such Securities could not be called. It is
anticipated that Call Classes generally will be offered only on a private basis.
It is anticipated that Call Classes generally will be offered only on a private
basis.
Distributions of principal and interest (or, where applicable, of
principal only or interest only) on the related Securities will be made by the
Trustee on each Distribution Date (I.E., monthly, quarterly, semi-annually or at
such other intervals and on the dates specified in the related Prospectus
Supplement) in the proportions specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Securities are
registered at the close of business on the dates specified in the related
Prospectus Supplement (each, a "Record Date"). Distributions will be made by
check or money order mailed to the persons entitled thereto at the address
appearing in the register maintained for holders of Securities (the "Securities
Register") or, if specified in the related Prospectus Supplement, in the case of
Securities that are of a certain minimum denomination, upon written request by
the Securityholder, by wire transfer or by such other means as are described
therein; provided, however, that the final distribution in retirement of the
Securities will be made only upon presentation and surrender of the Securities
at the office or agency of the Trustee or other person specified in the notice
to Securityholders of such final distribution.
Except with respect to REMIC Residual Securities and FASIT Ownership
Securities, the Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge. Certain
representations will be required in connection with the transfer of REMIC
Residual Securities and FASIT Ownership Securities, as provided in the related
Prospectus Supplement.
DISTRIBUTIONS ON SECURITIES
GENERAL. In general, the method of determining the amount of
distributions on a particular Series of Securities will depend on the type of
credit support, if any, that is used with respect to such Series. See "Credit
Enhancement." Set forth below are descriptions of various methods that may be
used to determine the amount of distributions on the Securities of a particular
Series. The Prospectus Supplement for each Series of Securities will describe
the method to be used in determining the amount of distributions on the
Securities of such Series.
Distributions allocable to principal and interest on the Securities
will be made by the Trustee out of, and only to the extent of, funds in the
related Securities Account, including any funds transferred from any Reserve
Account and funds received as a result of credit enhancement or from other
specified sources. As between Securities of different classes and as between
distributions of interest and principal and, if applicable, between
distributions of prepayments of principal and scheduled payments of principal,
distributions made on any Distribution Date will be applied as specified in the
related Prospectus Supplement. Distributions to any class of Securities will be
made pro rata to all Securityholders of that class or as specified in the
related Prospectus Supplement.
AVAILABLE FUNDS. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds in accordance with
the terms described in the related Prospectus Supplement and as specified in the
Agreement. "Available Funds" for each Distribution Date will generally equal the
amounts on deposit in the related Securities Account on a date specified in the
related Prospectus Supplement, net of related fees and expenses payable by the
related Trust Fund and other amounts to be held therein for distribution on
future Distribution Dates.
DISTRIBUTIONS OF INTEREST. Interest generally will accrue on the
aggregate Current Principal Amount (defined herein) (or, in the case of
Securities entitled only to distributions allocable to interest, the aggregate
notional principal balance) of each class of Securities entitled to interest
from the date, at the interest rate (the "Interest Rate") and for the periods
specified in the related Prospectus Supplement. To the extent funds are
available therefor, interest accrued during each such specified period on each
class of Securities entitled to interest (other than a class of Securities that
provides for interest that accrues, but is not currently payable, referred to
hereinafter as "Accrual Securities") will be distributable on the Distribution
Dates specified in the related Prospectus Supplement until the aggregate Current
Principal Amount of the Securities of such class has been distributed in full
or, in the case of Securities entitled only to distributions allocable to
interest, until the aggregate notional principal balance of such Securities is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Current Principal Amount of each Security will equal
the aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated based on the
notional principal balance of such Security or on such other basis as is
specified in the related Prospectus Supplement. The notional principal balance
of a Security will not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in expressing the
calculation of interest and for certain other purposes.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Current Principal
Amount of such class of Securities on that Distribution Date. Distributions of
interest on each class of Accrual Securities will commence only after the
occurrence of the events specified in the related Prospectus Supplement. Prior
to such time, the beneficial ownership interest of such class of Accrual
Securities in the Trust Fund, as reflected in the aggregate Current Principal
Amount of such class of Accrual Securities, generally will increase on each
Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Current Principal Amount as so adjusted.
DISTRIBUTIONS OF PRINCIPAL. The aggregate "Current Principal Amount"
of any class of Securities entitled to distributions of principal generally will
be the aggregate original Current Principal Amount of such class of Securities
specified in the related Prospectus Supplement, reduced by all distributions and
losses reported to the holders of such Securities as allocable to principal,
and, in the case of Accrual Securities, generally will be increased by all
interest accrued but not then distributable on such Accrual Securities. The
related Prospectus Supplement will specify the method by which the amount of
principal to be distributed on the Securities on each Distribution Date will be
calculated and the manner in which such amount will be allocated among the
classes of Securities entitled to distributions of principal.
If so provided in the related Prospectus Supplement, one or more
classes of Senior Securities will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received from
borrowers in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in the related Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Securities will have the
effect of accelerating the amortization of such Senior Securities while
increasing the interests evidenced by the Subordinated Securities in the Trust
Fund. Increasing the interests of the Subordinated Securities relative to that
of the Senior Securities is intended to preserve the availability of the
subordination provided by the Subordinated Securities. See "Credit
Enhancement-Subordination."
UNSCHEDULED DISTRIBUTIONS. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in the related Prospectus Supplement. If applicable, the
Trustee will be required to make such unscheduled distributions on the day and
in the amount specified in the related Prospectus Supplement if, due to
substantial payments of principal (including Principal Prepayments) on the
Mortgage Assets, low rates then available for reinvestment of such payments or
both, the Trustee or the Master Servicer determines, based on the assumptions
specified in the Agreement, that the amount anticipated to be on deposit in the
Securities Account on the next Distribution Date, together with, if applicable,
any amounts available to be withdrawn from any Reserve Account, may be
insufficient to make required distributions on the Securities on such
Distribution Date. The amount of any such unscheduled distribution that is
allocable to principal generally will not exceed the amount that would otherwise
have been required to be distributed as principal on the Securities on the next
Distribution Date. All unscheduled distributions generally will include interest
at the applicable Interest Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified in
the related Prospectus Supplement.
All distributions allocable to principal in any unscheduled
distribution generally will be made in the same priority and manner as
distributions of principal on the Securities would have been made on the next
Distribution Date, and with respect to Securities of the same class, unscheduled
distributions of principal generally will be made on a pro rata basis. Notice of
any unscheduled distribution will be given by the Trustee prior to the date of
such distribution.
ADVANCES
The Master Servicer or other person designated in the Prospectus
Supplement will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in any of the
Accounts for future distributions to the holders of such Securities), an amount
equal to the aggregate of payments of principal and interest that were
delinquent on the related Determination Date and were not advanced by any Sub-
Servicer, subject to the Master Servicer's determination that such advances will
be recoverable out of late payments by Mortgagors, Liquidation Proceeds,
Insurance Proceeds or otherwise with respect to the specific Mortgage Loan or,
if required by the applicable Rating Agency, with respect to any of the Mortgage
Loans.
In making advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
Securities, rather than to guarantee or insure against losses. If advances are
made by the Master Servicer from cash being held for future distribution to
Securityholders, the Master Servicer will replace such funds on or before any
future Distribution Date to the extent that funds in the applicable Account on
such Distribution Date would be less than the amount required to be available
for distributions to Securityholders on such date. Any Master Servicer funds
advanced will be reimbursable to the Master Servicer out of recoveries on the
specific Mortgage Loans with respect to which such advances were made (E.G.,
late payments made by the related Mortgagor, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Mortgage Loan purchased by a Lender
under the circumstances described herein). Advances by the Master Servicer (and
any advances by a Sub-Servicer) also will be reimbursable to the Master Servicer
(or Sub-Servicer) from cash otherwise distributable to Securityholders
(including the holders of Senior Securities) at such time as the Master Servicer
determines that any such advances previously made are not ultimately recoverable
from the proceeds with respect to the specific Mortgage Loan or, if required by
the applicable Rating Agency, at such time as a loss is realized with respect to
a specific Mortgage Loan. The Master Servicer also will be obligated to make
advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by Mortgagors on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the Agreement. If specified in the
related Prospectus Supplement, the obligations of the Master Servicer to make
advances may be supported by a cash advance reserve fund, a surety bond or other
arrangement, in each case as described in such Prospectus Supplement.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date
or at such other time as is specified in the related Prospectus Supplement or
Agreement, the Master Servicer or the Trustee will furnish to each
Securityholder of record of the related Series a statement setting forth, to the
extent applicable or material to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments and if so specified in the related Prospectus Supplement,
prepayment penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any advance by the Master Servicer;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Securityholders on such Distribution Date, and (b)
withdrawn from the Reserve Fund, if any, that is included in the
amounts distributed to the Senior Securityholders;
(v) the outstanding Current Principal Amount or notional
principal balance of such class after giving effect to the
distribution of principal on such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Loans,
if any, which such class will be entitled to receive on the following
Distribution Date;
(vii) the percentage of Principal Prepayments on the Mortgage
Loans, if any, which such class will be entitled to receive on the
following Distribution Date;
(viii) unless the Interest Rate is a fixed rate, the Interest
Rate applicable to the distribution on the Distribution Date;
(ix) the number and aggregate principal balances of Mortgage
Loans in the related Mortgage Pool delinquent (a) one month, (b) two
months or (c) three or more months, and the number and aggregate
principal balances of Mortgage Loans in foreclosure;
(x) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure, and if such
real estate secured a Multifamily Loan, such additional information as
may be specified in the related Prospectus Supplement; and
(xi) if applicable, the amount remaining in any Reserve Account
or the amount remaining of any other credit support, after giving
effect to the distribution on the Distribution Date.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Security of the relevant class having a denomination or
interest specified in the related Prospectus Supplement or in the report to
Securityholders. The report to Securityholders for any Series of Securities may
include additional or other information of a similar nature to that specified
above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) for such calendar
year and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
BOOK-ENTRY REGISTRATION
If specified in the related Prospectus Supplement, one or more classes
of Securities of any Series may be issued in book-entry form. Persons acquiring
beneficial ownership interests in the book-entry Securities ("Owners") will hold
their Securities through the Depository Trust Company ("DTC") in the United
States, or Cedel Bank, societe anonyme, ("Cedel") or the Euroclear System
("Euroclear") (in Europe) if they are participants of any of such systems
("Participants"), or indirectly through organizations which are Participants.
The book-entry Securities will be issued in one or more certificates or notes,
as the case may be, that equal the aggregate principal balance of the applicable
class or classes of Securities and will initially be registered in the name of
Cede & Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions
on behalf of their Participants through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective depositaries that
in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank N.A. will act as depositary
for Cedel and The Chase Manhattan Bank will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no person acquiring a
book-entry Security will be entitled to receive a physical certificate or note
representing such Security (a "Definitive Security"). Unless and until
Definitive Securities are issued, it is anticipated that the only
"Securityholder" will be Cede & Co., as nominee of DTC. Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Owner's ownership of a book-entry Security will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such book-entry Security will be recorded on the records of DTC (or
of a DTC Participant that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant and on the records of
Cedel or Euroclear, as appropriate).
Owners will receive all distributions allocable to principal and
interest with respect to the book-entry Securities from the Trustee through DTC
and DTC Participants. While the book-entry Securities are outstanding (except
under the circumstances described below), under the rules, regulations and
procedures creating, governing and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Securities and is required to receive
and transmit distributions allocable to principal and interest with respect to
the Securities. Participants and Financial Intermediaries with whom Owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Owners. Accordingly, although Owners will not possess physical
certificates or notes, the Rules provide a mechanism by which Owners will
receive distributions and will be able to transfer their beneficial ownership
interests in the Securities.
Owners will not receive or be entitled to receive Definitive
Securities, except under the limited circumstances described below. Unless and
until Definitive Securities are issued, Owners who are not Participants may
transfer ownership of Securities only through Participants and Financial
Intermediaries by instructing such Participants and Financial Intermediaries to
transfer beneficial ownership interests in the Securities by book-entry transfer
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants or Financial Intermediaries.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and Financial Intermediaries will make debits or credits, as the
case may be, on their records on behalf of the selling and purchasing Owners.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
or Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC is a New York-chartered limited purpose trust company that
performs services for its Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the book-entry
Securities, whether held for its own account or as a nominee for another person.
In general, beneficial ownership of book-entry Securities will be subject to the
Rules as in effect from time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its Participants and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for movement of physical securities. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to its Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets in
several countries. As a professional depository, Cedel is subject to regulation
by the Luxembourg Monetary Institute. Cedel Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to Cedel is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its Participants
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for movement of physical securities and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled in
any of 32 currencies, including United States dollars. Euroclear provides
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the book-entry Securities will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC Participants
in accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payments to the Owners that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Owners that it
represents.
Under a book-entry format, Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede & Co. Distributions with respect to Securities held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Because DTC can only act on behalf of
DTC Participants that in turn can only act on behalf of Financial
Intermediaries, the ability of an Owner to pledge book-entry Securities to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such book-entry Securities, may be limited due to the lack
of physical certificates or notes for such book-entry Securities. In addition,
issuance of the book-entry Securities in book-entry form may reduce the
liquidity of such Securities in the secondary market since certain potential
investors may be unwilling to purchase Securities for which they cannot obtain
physical certificates or notes.
Monthly and annual reports on the applicable Trust Fund will be
provided to Cede & Co., as nominee of DTC, and may be made available by Cede &
Co. to Owners upon request, in accordance with the Rules, and to the DTC
Participants to whose DTC accounts the book-entry Securities of such Owners are
credited directly or are credited indirectly through Financial Intermediares.
DTC has advised the Trustee that, unless and until Definitive
Securities are issued, DTC will take any action permitted to be taken by the
holders of the book-entry Securities under the Agreement only at the direction
of one or more DTC Participants to whose DTC accounts the book-entry Securities
are credited, to the extent that such actions are taken on behalf of such
Participants whose holdings include such book-entry Securities. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a holder under the Agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Securities which conflict with actions taken
with respect to other Securities.
Definitive Securities will be issued to Owners only upon the events
specified in the related Agreement. Such events may include the following: (i)
the Seller advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Securities, and the Trustee or the Seller is unable to locate a qualified
successor, (ii) the Seller, at its option, elects to terminate the book-entry
system through DTC, or (iii) after the occurrence of an Event of Default
(defined herein), Securityholders representing not less than 50% of the
aggregate Current Principal Amount of the applicable Securities advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interest of the Securityholders. Upon the occurrence of any of the events
specified in the related Agreement, DTC will be required to notify all
Participants of the availability through DTC of Definitive Securities. Upon
surrender by DTC of the certificates or notes representing the Securities and
instruction for re-registration, the Trustee will issue the Securities in the
form of Definitive Securities, and thereafter the Trustee will recognize the
holders of such Definitive Securities as Securityholders. Thereafter, payments
of principal of and interest on the Certificates will be made by the Trustee
directly to Securityholders in accordance with the procedures set forth herein
and in the Agreement. The final distribution of any Security (whether Definitive
Securities or Securities registered in the name of Cede & Co.), however, will be
made only upon presentation and surrender of such Securities on the final
Distribution Date at such office or agency as is specified in the notice of
final payment to Securityholders.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Seller, the Master Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
EXCHANGEABLE SECURITIES
GENERAL
Certain Series will provide for the issuance of one or more classes of
Exchangeable Securities, as set forth in the relevant Prospectus Supplement. In
any such Series, the holders of one or more of the specified classes of
Exchangeable Securities will be entitled, upon notice and payment to the Trustee
of an administrative fee, to exchange all or a portion of such classes for
proportionate interests in one or more of the other specified classes of
Exchangeable Securities. The classes of Exchangeable Securities that are
exchangeable for one another will be referred to as being "related" to one
another, and related classes of Exchangeable Securities will be referred to as
"Combinations". The Combinations for the Exchangeable Securities in a Series, if
any, will be set forth in the Prospectus Supplement for the Series.
In each Series that includes Exchangeable Securities, all of the
classes of Securities that are shown on the cover page of the related Prospectus
Supplement will be issued, and those classes that are to be the basis for the
exchange arrangements will be deposited in a separate trust fund (an
"Exchangeable Security Trust Fund") established pursuant to a trust agreement
between the Seller and a trustee. The Trustee may serve as such trustee. The
Exchangeable Security Trust Fund initially will issue classes of Exchangeable
Securities that are identical in all respects to the classes of Securities
deposited in such trust fund. At any time after their issuance, including
immediately after such issuance, these classes of Exchangeable Securities may be
exchanged, in whole or in part, for other related classes of Exchangeable
Securities that are part of the same Combination, as specified in the related
Prospectus Supplement. When an exchange is effected, the Exchangeable Security
Trust Fund will cancel the relevant portion or portions of the class or classes
of Exchangeable Securities that are being exchanged and will issue the
corresponding portion or portions of the class or classes of other related
Exchangeable Securities into which such class or classes of securities are
exchangeable. Exchangeable Securities received in an exchange may subsequently
be exchanged for other Exchangeable Securities that are part of the same
Combination. This process may be repeated again and again. Each Exchangeable
Security issued by an Exchangeable Security Trust Fund will represent a
beneficial ownership interest in the class or classes of Securities deposited in
such trust fund.
In general, the descriptions in this Prospectus of classes of
Securities of a Series also apply to the ES Classes of that Series, except where
the context requires otherwise. For example, the ES Classes of a Series are
entitled to receive payments of principal and/or interest, are issued in
book-entry form or as Definitive Securities to Securityholders in prescribed
denominations, may be provided with credit enhancements, and are subject to
yield and prepayment considerations, in the same manner and to the same extent
as are the classes of Securities of such Series. Similarly, the discussions
under "ERISA Considerations" and "Legal Investment" apply to Exchangeable
Securities as well as Securities.
EXCHANGES
The ability of a holder of a class or classes of Exchangeable
Securities to exchange such class or classes for another related class or
classes of Exchangeable Securities within the same Combination will be subject
to three basic constraints, as follows:
o The aggregate principal amount (rounded to whole dollars) of the
Exchangeable Securities received in the exchange, immediately
after the exchange, must equal that of the Exchangeable
Securities surrendered for exchange immediately before the
exchange (for this purpose, the principal amount of any interest
only class will always equal $0).
o The aggregate amount of annual interest (rounded to whole
dollars) (the "Annual Interest Amount") payable with respect to
the Exchangeable Securities received in the exchange must equal
that of the Exchangeable Securities surrendered for exchange.
o Such classes must be exchanged in the applicable exchange
proportions, if any, shown in the related Prospectus Supplement,
which, as described below, are based at all times on the original
principal amounts (or original notional principal amounts, if
applicable) of such classes.
Within any particular Series, one or more types of Combinations may
exist. For example, a class of Exchangeable Securities with an Interest Rate
that varies directly with changes in an index (a "Floating Rate Class") and a
class of Exchangeable Securities with an Interest Rate that varies inversely
with changes in an index (an "Inverse Floating Rate Class") may be exchangeable
for a class of Exchangeable Securities with a fixed Interest Rate. Under another
Combination, a class of Exchangeable Securities that is a principal only class
and a class of Exchangeable Securities that is an interest only class may be
exchangeable for a class of Exchangeable Securities that pays both principal and
interest. Further, a class of Exchangeable Securities that accretes all of its
interest for a period (such accreted interest being added to the principal of
such class) (an "Accrual Class") and a class of Exchangeable Securities that
receives principal payments from such accretions on the Accrual Class may be
exchangeable for a class of Exchangeable Securities that receives payments of
principal continuously from the first Distribution Date on which it receives
principal until it is retired. Under another Combination, a class of
Exchangeable Securities that is designed to receive principal payments in
accordance with a predetermined schedule derived by assuming two constant
prepayment rates for the underlying Mortgage Loans ( a "Planned Amortization
Class") and a class of Exchangeable Securities that receives principal payments
on any Distribution Date only if scheduled payments have been made on the
Planned Amortization Class may be exchangeable for a class of Exchangeable
Securities that receives payments of principal continuously from the first
Distribution Date on which it receives principal until it is retired and that
also receives a coupon. The foregoing examples describe only some of the types
of Combinations that are possible.
Set forth below are additional examples that illustrate in simple
mathematical terms how certain possible Combinations might operate. The first
example shows a Combination in which Exchangeable Securities of a principal only
class and Exchangeable Securities of an interest bearing class are exchangeable
for Exchangeable Securities of a class that has the aggregate characteristics of
the two original classes of Exchangeable Securities:
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL INTEREST PRINCIPAL INTEREST
CLASS AMOUNT RATES CLASS AMOUNT RATE
ES-1 $20,000,000 10% ES-2 $40,000,000 5%
ES-P* 20,000,000 0%
- --------------
* Class ES-P is a principal only class and will receive no interest.
The following example illustrates a Combination of a Floating Rate
Exchangeable Security and an Inverse Floating Rate Exchangeable Security which
are exchangeable for a single class of Exchangeable Securities with a fixed
interest rate:
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL INTEREST PRINCIPAL INTEREST
CLASS AMOUNT RATES CLASS AMOUNT RATE
ES-3 $9,333,330 LIBOR+ 0.75% ES-5 $11,333,330 7%
ES-4 2,000,000 36.16666 -
(LIBOR x
4.666667)
In the following Combination, a Exchangeable Security that pays both
principal and interest is exchangeable for two Exchangeable Securities, one of
which pays only interest and the other pays only principal:
MAXIMUM
ORIGINAL OR
ORIGINAL NOTIONAL
PRINCIPAL INTEREST PRINCIPAL INTEREST
CLASS AMOUNT RATES CLASS AMOUNT RATE
ES-5 $20,000,000 10% ES-P* $20,000,000 0%
10% ES-X** 20,000,000
(notional)***
- --------------
* Class ES-P is a principal only class and will receive no interest.
** Class ES-X is an interest only class and will receive no principal.
*** Notional principal amount of ES-X Class being exchanged equals principal
amount of ES-P Class being exchanged.
In some Series, a Combination may include a number of classes of
Exchangeable Securities that are exchangeable for one another and that will
enable a holder of one of the classes of Exchangeable Securities to exchange it
for another class of Exchangeable Securities with a higher or lower coupon. As
discussed below, any such exchange also will require the issuance of a third
class of Exchangeable Securities that will pay only principal or interest,
respectively. The following table illustrates such a Combination:
MAXIMUM
ORIGINAL OR
ORIGINAL NOTIONAL
PRINCIPAL INTEREST PRINCIPAL INTEREST
CLASS AMOUNT RATES CLASS AMOUNT RATE
ES-6 $20,000,000 7.00% ES-X* $20,000,000 7.00%
(notional)
ES-7 20,000,000 6.00
20,000,000 6.25
20,000,000 6.50
20,000,000 6.75
19,310,344 7.25
ES-8 18,666,666 7.50
ES-9 18,064,516 7.75
ES-10 17,500,000 8.00
ES-11 20,000,000 0.00
ES-12
ES-13
ES-14
ES-P**
- --------------
* Class ES-X is an interest only class and will receive no principal.
** Class ES-P is a principal only class and will receive no interest.
The foregoing table shows the maximum amount of each other ES Class
that can be created from the related Class ES-6 Exchangeable Security. Such
amounts could not exist concurrently, as any combination is limited to the
amount of principal and interest distributable on the related Exchangeable
Security to be exchanged. One method of calculating the maximum amount that can
be created in a specific combination is to determine the Annual Interest Amount
applicable to the Exchangeable Security to be exchanged, and divide such
interest amount by the coupon of the desired Exchangeable Security. The
resulting principal amount can in no case be greater than the principal amount
of Exchangeable Securities to be exchanged. For example, using the foregoing
table, if Class ES-12 is desired, the maximum original principal amount of the
Class ES-12 Exchangeable Securities that could be created would be $18,666,666,
an amount arrived at by dividing the Annual Interest Amount of the Class ES-6
Securities ($1,400,000) by the Interest Rate of the Class ES-12 Exchangeable
Securities (7.50%). Since all of the available Annual Interest Amount with
respect to the Class ES-6 Exchangeable Securities would be used to create the
Class ES-12 Exchangeable Securities, principal only Class ES-P Exchangeable
Securities would be created to receive the remainder of the Class ES-6 principal
in the amount of $1,333,334 (calculated by subtracting the Class ES-12
Exchangeable Securities original principal amount from the Class ES-6
Exchangeable Securities original principal amount).
Similarly, if Class ES-9 Exchangeable Securities are desired, dividing
the Annual Interest Amount of the Class ES-6 Exchangeable Securities
($1,400,000) by the Interest Rate of the Class ES-9 Exchangeable Securities
(6.50%) would indicate an original principal amount of $21,538,461. However,
since the Class ES-6 Exchangeable Securities have a principal balance of
$20,000,000, only $20,000,000 of the Class ES-9 Exchangeable Securities could be
created. The Annual Interest Amount applicable to the Class ES-9 Exchangeable
Securities would be $20,000,000 multiplied by 6.50% or $1,300,000. Since the
Annual Interest Amount of the Class ES-6 Exchangeable Securities is $1,400,000,
the interest only Class ES-X Exchangeable Securities would be created to receive
the remaining $100,000 of interest. The notional amount of such securities would
be calculated by dividing the Annual Interest Amount ($100,000) by the Interest
Rate applicable to Class ES-X Exchangeable Securities (7.00%) to determine the
notional amount ($1,428,571).
Under the terms of this Combination, the Class ES-9 Exchangeable
Securities described in the preceding paragraph might also be exchangeable for
the Class ES-14 Exchangeable Securities. If the Annual Interest Amount of the
Class ES-9 Exchangeable Securities ($1,300,000) is divided by the Interest Rate
on the Class ES-14 Exchangeable Securities (8.00%), the maximum original
principal amount of the Class ES-14 Exchangeable Securities that can be created
is $16,250,000. Since all of the available Annual Interest Amount with respect
to the Class ES-9 Exchangeable Securities would be used to create the Class
ES-14 Exchangeable Securities, principal only Class ES-P Exchangeable Securities
would be created to receive the remainder of the Class ES-9 principal in the
amount of $3,750,000 (calculated by subtracting the Class ES-14 Exchangeable
Securities original principal amount from the Class ES-9 Exchangeable Securities
original principal amount).
The foregoing examples set forth various combinations of Exchangeable
Securities which differ in interest characteristics (i.e., interest only
classes, principal only classes and classes which have principal amounts and
bear interest). In certain Series, a Securityholder may also be able to exchange
its Exchangeable Securities for other Exchangeable Securities that have
different principal payment characteristics. For example, an exchange of two or
more classes of Exchangeable Securities for a single class of Exchangeable
Securities may result in an Exchangeable Security with the aggregate principal
payment characteristics of the multiple classes of Exchangeable Securities for
which it was exchanged. In addition, in certain Series, Exchangeable Securities
may be exchangeable for other Exchangeable Securities with different credit
characteristics. For example, a class that is senior in priority of payment may
be combined with a subordinated class, to create a new class with the aggregate
credit characteristics of the two classes that were combined.
At any given time, a Securityholder's ability to exchange Exchangeable
Securities for other Exchangeable Securities will be limited by a number of
factors. A Securityholder must, at the time of the proposed exchange, own the
class or classes which are permitted to be exchanged in the proportions
necessary in order to effect the desired exchange. A Securityholder that does
not own such class or classes or the necessary amounts of such class or classes
may not be able to obtain the desired class or classes of Exchangeable
Securities. The Securityholder of a needed class may refuse or be unable to sell
at a reasonable price or at any price, or certain classes may have been
purchased and placed into other financial structures. ERISA or other transfer
restrictions may apply to certain of the Exchangeable Securities in a
combination, but not to others. In addition, principal payments and prepayments
will, over time, diminish the amounts available for exchange.
PROCEDURES AND EXCHANGE PROPORTIONS
A Securityholder proposing to effectuate an exchange must notify the
Trustee or follow other procedures as described in the related Prospectus
Supplement. Such notice must be given in writing or by telefax not later than
five business days before the proposed exchange date (which date, subject to the
Trustee's approval, can be any business day other than the first or last
business day of the month) or as otherwise specified in the related Prospectus
Supplement. The notice must include the outstanding principal (or notional
principal) amount of both the securities to be exchanged and the securities to
be received, and the proposed exchange date. Promptly after the Securityholder
has given the required notice, the Trustee will provide instructions for
delivering the securities and the payment of the administrative fee to the
Trustee by wire transfer. A Securityholder's notice becomes irrevocable on the
second business day before the proposed exchange date or as otherwise specified
in the related Prospectus Supplement.
An administrative fee will be payable to the Trustee in connection
with each exchange as specified in the related Prospectus Supplement. Any
exchanges will be subject to the rules, regulations and procedures applicable to
DTC's book-entry securities, in the case of ES Classes issued in book-entry
form.
Where exchange proportions are shown in the related Prospectus
Supplement for classes of Exchangeable Securities, the Issuer will follow the
convention of basing such proportions on the original, rather than on the
outstanding, principal or notional principal amounts of such classes. If such
classes receive principal payments pro rata with each other, the exchange
proportions also will apply to their outstanding principal amounts. If such
classes do not receive principal payments pro rata with each other, an investor
can calculate current exchange proportions for such classes, based on their
outstanding principal amounts, by (i) multiplying the exchange proportion shown
in the related Prospectus Supplement for each such class by its current Class
Factor (as defined below) and (ii) dividing each resulting percentage by the sum
of such percentages. The Trustee will include the Class Factor for each class of
outstanding Exchangeable Securities having a principal amount in the statements
it furnishes to Securityholders in connection with each Distribution Date. The
current Class Factor also will be available to Securityholders upon request from
the Trustee or the Seller as specified in the related Prospectus Supplement. The
"Class Factor" for any month will be a truncated seven-digit decimal which, when
multiplied by the original principal amount of that class, will equal its
remaining principal amount, after giving effect to any payment of (or addition
to) principal to be made on the Distribution Date in the following month. A
Class Factor for each interest only class having a notional principal amount
will be included in the statements the Trustee furnishes to Securityholders in
connection with each Distribution Date and also will be available to
Securityholders upon request from the Trustee or the Seller as specified in the
related Prospectus Supplement. Such a Class Factor will reflect the remaining
notional principal amount of the interest only class in an analogous manner.
The first payment on an Exchangeable Security received in an exchange
transaction will be made on the Distribution Date in the month following the
month of the exchange or as specified in the related Prospectus Supplement. Such
payment will be made to the Securityholder of record as of the applicable record
date.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a Series of Securities or with respect to the assets in the related Trust
Fund. Credit enhancement may be in the form of (i) the subordination of one or
more classes of the Securities of such Series, (ii) the use of a Pool Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, FHA Insurance, VA
Guarantees, Reserve Accounts, a letter of credit, a limited financial guaranty
insurance policy, other third party guarantees, interest rate or other swap
agreements, caps, collars or floors, another method of credit enhancement
described in the related Prospectus Supplement, or the use of a cross-support
feature, or (iii) any combination of the foregoing. In general, any credit
enhancement will not provide protection against all risks of loss and generally
will not guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement, holders of one
or more classes of Securities will bear their allocable share of deficiencies.
If a form of credit enhancement applies to several classes of Securities, and if
principal payments equal to the Current Principal Amounts of certain classes
will be distributed prior to such distributions to other classes, the classes
which receive such distributions at a later time are more likely to bear any
losses which exceed the amount covered by credit enhancement. Coverage under any
credit enhancement generally may be canceled or reduced by the Master Servicer
or the Seller if such cancellation or reduction would not adversely affect the
rating or ratings of the related Securities.
SUBORDINATION
If so specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
classes of Subordinated Securities of a Series will instead be payable to
holders of one or more classes of Senior Securities under the circumstances and
to the extent specified in the related Prospectus Supplement. If specified in
the related Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans will be borne first by
the various classes of Subordinated Securities and thereafter by the various
classes of Senior Securities, in each case under the circumstances and subject
to the limitations specified in the related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Loans over the
lives of the Securities or at any time, the aggregate losses in respect of
defaulted Mortgage Loans which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securityholders that will be distributable to
Senior Securityholders on any Distribution Date may be limited as specified in
the related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Loans or aggregate losses in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Securities or, if applicable, were to
exceed the specified maximum amount, holders of Senior Securities would
experience losses on such Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Securities on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee. If so specified in the related Prospectus Supplement, such deposits may
be made on each Distribution Date, on each Distribution Date for specified
periods or until the balance in the Reserve Account has reached a specified
amount and, following payments from the Reserve Account to holders of Senior
Securities or otherwise, thereafter to the extent necessary to restore the
balance in the Reserve Account to required levels, in each case as specified in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, amounts on deposit in the Reserve Account may be released to the
holders of the class of Securities specified in the related Prospectus
Supplement at the times and under the circumstances specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the same class
of Securities may be Senior Securities with respect to certain types of payments
or certain types of losses or delinquencies and Subordinated Securities with
respect to other types of payment or types of losses or delinquencies. If
specified in the related Prospectus Supplement, various classes of Senior
Securities and Subordinated Securities may themselves be subordinate in their
right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross support mechanism or
otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to a Mortgage Pool
of Single Family Loans or Cooperative Loans, a separate Pool Insurance Policy
will be obtained for the Mortgage Pool and issued by the insurer (the "Pool
Insurer") named in such related Prospectus Supplement. Each Pool Insurance
Policy will, subject to the limitations described below, cover loss by reason of
default in payment on Single Family Loans or Cooperative Loans in the Mortgage
Pool in an amount specified in such Prospectus Supplement. As more fully
described below, the Master Servicer will present claims thereunder to the Pool
Insurer on behalf of itself, the Trustee and the holders of the Securities. The
Mortgage Pool Insurance Policies, however, are not blanket policies against
loss, since claims thereunder may only be made respecting particular defaulted
Mortgage Loans and only upon satisfaction of certain conditions precedent
described below. A Pool Insurance Policy generally will not cover losses due to
a failure to pay or denial of a claim under a Primary Insurance Policy.
In general, each Pool Insurance Policy will provide that no claims may
be validly presented unless (i) any required Primary Insurance Policy is in
effect for the defaulted Mortgage Loan and a claim thereunder has been submitted
and settled; (ii) hazard insurance on the related Mortgaged Property has been
kept in force and real estate taxes and other protection and preservation
expenses have been paid; (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its physical condition (reasonable
wear and tear excepted) at the time of issuance of the policy; and (iv) the
insured has acquired good and merchantable title to the Mortgaged Property free
and clear of liens except certain permitted encumbrances. Upon satisfaction of
these conditions, the Pool Insurer will have the option either (a) to purchase
the Mortgaged Property at a price equal to the principal balance thereof plus
accrued and unpaid interest at the Mortgage Rate to the date of purchase and
certain expenses incurred by the Master Servicer on behalf of the Trustee and
Securityholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Insurance Policy. If any Mortgaged Property
securing a defaulted Mortgage Loan is damaged and proceeds, if any, from the
related hazard insurance policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged Mortgaged Property to a condition
sufficient to permit recovery under the Pool Insurance Policy, the Master
Servicer will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it determines that (i) such restoration will increase
the proceeds to Securityholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) such expenses
will be recoverable by it through proceeds of the sale of the Mortgaged Property
or proceeds of the related Pool Insurance Policy or any related Primary
Insurance Policy.
A Pool Insurance Policy generally will not insure (and many Primary
Insurance Policies do not insure) against loss sustained by reason of a default
arising from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. If
so specified in the Prospectus supplement, an endorsement to the Pool Insurance
Policy, a bond or other credit support may cover fraud in connection with the
origination of Mortgage Loans. If so specified in the related Prospectus
Supplement, a failure of coverage attributable to an event specified in clause
(i) or (ii) above might result in a breach of the related Lender's
representations described above and, in such event, might give rise to an
obligation on the part of such Lender to purchase the defaulted Mortgage Loan if
the breach cannot be cured by such Lender. No Pool Insurance Policy will cover
(and many Primary Insurance Policies do not cover) a claim in respect of a
defaulted Mortgage Loan occurring when the servicer of such Mortgage Loan, at
the time of default or thereafter, was not approved by the applicable insurer.
The original amount of coverage under each Pool Insurance Policy
generally will be reduced over the life of the related Securities by the
aggregate dollar amount of claims paid less the aggregate of the net dollar
amounts realized by the Pool Insurer upon disposition of all foreclosed
properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer as well as accrued interest on
delinquent Mortgage Loans to the date of payment of the claim. Accordingly, if
aggregate net claims paid under any Pool Insurance Policy reach the original
policy limit, coverage under that Pool Insurance Policy will be exhausted and
any further losses will be borne by the Securityholders.
The terms of any pool insurance policy relating to a pool of Contracts
will be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Mortgage Pool and will be
issued by the insurer (the "Special Hazard Insurer") named in such Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described below, protect holders of the related Securities from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located or under a flood
insurance policy if the Mortgaged Property is located in a federally designated
flood area, and (ii) loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies. See "Administration-Hazard
Insurance." Special Hazard Insurance Policies will not cover losses occasioned
by war, civil insurrection, certain governmental action, errors in design,
faulty workmanship or materials (except under certain circumstances), nuclear
reaction, flood (if the Mortgaged Property is located in a federally designated
flood area), chemical contamination and certain other risks. The amount of
coverage under any Special Hazard Insurance Policy will be specified in the
related Prospectus Supplement. Each Special Hazard Insurance Policy will provide
that no claim may be paid unless hazard and, if applicable, flood insurance on
the property securing the Mortgage Loan has been kept in force and other
protection and preservation expenses have been paid.
Subject to the foregoing limitations, each Special Hazard Insurance
Policy will provide that where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been acquired by the insured) and
to the extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
Special Hazard Insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement and certain
expenses incurred by the Master Servicer with respect to such property. If the
unpaid principal balance of a Mortgage Loan plus accrued interest and certain
expenses is paid by the Special Hazard Insurer, the amount of further coverage
under the related Special Hazard Insurance Policy will be reduced by such amount
less any net proceeds from the sale of the property. Any amount paid as the cost
of repair of the property will further reduce coverage by such amount. So long
as a Pool Insurance Policy remains in effect, the payment by the Special Hazard
Insurer of the cost of repair or of the unpaid principal balance of the related
Mortgage Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Securityholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy.
Collection of insurance proceeds under a Pool Insurance Policy is
generally not possible if the underlying property has been damaged and not
restored. A Special Hazard Insurance Policy permits full recovery under a Pool
Insurance Policy relating to the Mortgage Loans backing the Series of Securities
by providing insurance to restore damaged property. Each Agreement will provide
that, if the related Pool Insurance Policy shall have been terminated or been
exhausted through payment of claims, the Master Servicer will be under no
further obligation to maintain such Special Hazard Insurance Policy.
To the extent specified in the related Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Securities of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of the
deposit to the special trust account in lieu thereof relating to such Securities
may be reduced so long as any such reduction will not result in a downgrading of
the rating of such Securities by any such rating agency.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a Bankruptcy Bond
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in such Prospectus Supplement. Each Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition. The required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. To the extent specified
in an applicable Prospectus Supplement, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each
nationally recognized rating agency rating the Securities of the related Series
in the Trust Fund to provide protection in lieu of or in addition to that
provided by a Bankruptcy Bond. See "Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders."
To the extent specified in the related Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Securities of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Bankruptcy Bond. The
amount of any Bankruptcy Bond or of the deposit to the special trust account in
lieu thereof relating to such Securities may be reduced so long as any such
reduction will not result in a downgrading of the rating of such Securities by
any such rating agency.
The terms of any Bankruptcy Bond relating to a pool of Contracts will
be described in the related Prospectus Supplement.
FHA INSURANCE; VA GUARANTEES
Single Family Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Mortgage Loans will be insured
under various FHA programs including the standard FHA 203(b) program to finance
the acquisition of one- to four- family housing units and the FHA 245 graduated
payment mortgage program. These programs generally limit the principal amount
and interest rates of the mortgage loans insured. Mortgage Loans insured by the
FHA generally require a minimum down payment of approximately 5% of the original
principal amount of the loan. No FHA-insured Mortgage Loan relating to a Series
may have an interest rate or original principal amount exceeding the applicable
FHA limits at the time of origination of such loan.
The insurance premiums for Mortgage Loans insured by the FHA are
collected by lenders approved by HUD or by the Master Servicer or any
Sub-Servicers and are paid to the FHA. The regulations governing FHA
single-family mortgage insurance programs provide that insurance benefits are
payable either upon foreclosure (or other acquisition of possession) and
conveyance of the mortgaged premises to HUD or upon assignment of the defaulted
Mortgage Loan to HUD. With respect to a defaulted FHA-insured Mortgage Loan, the
Master Servicer or any Sub-Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Master Servicer or
any Sub-Servicer or HUD, that default was caused by circumstances beyond the
mortgagor's control, the Master Servicer or any Sub- Servicer is expected to
make an effort to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the mortgagor. Such plans
may involve the reduction or suspension of regular mortgage payments for a
specified period, with such payments to be made up on or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up to
or beyond the maturity date. In addition, when a default caused by such
circumstances is accompanied by certain other criteria, HUD may provide relief
by making payments to the Master Servicer or any Sub-Servicer in partial or full
satisfaction of amounts due under the Mortgage Loan (which payments are to be
repaid by the mortgagor to HUD) or by accepting assignment of the loan from the
Master Servicer or any Sub-Servicer. With certain exceptions, at least three
full monthly installments must be due and unpaid under the Mortgage Loan, and
HUD must have rejected any request for relief from the mortgagor before the
Master Servicer or any Sub-Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such debenture
issued in satisfaction of such Mortgage Loan upon default for an amount equal to
the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or Sub-Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Single Family Loan,
bears interest from a date 30 days after the mortgagor's first uncorrected
failure to perform any obligation to make any payment due under the Mortgage
and, upon assignment, from the date of assignment, to the date of payment of the
claim, in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
Mortgage Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended. The Serviceman's Readjustment
Act of 1944, as amended, permits a veteran (or in certain instances the spouse
of a veteran) to obtain a mortgage loan guarantee by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no Mortgage Loan guaranteed by the VA will
have an original principal amount greater than five times the partial VA
guarantee for such Mortgage Loan.
The maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 3703(a), as
amended. As of April, 1998, the maximum guarantee that may be issued by the VA
under a VA-guaranteed mortgage loan of more than $144,000 is the lesser of 25%
of the original principal amount of the mortgage loan and $50,750. The liability
on the guarantee is reduced or increased pro rata with any reduction or increase
in the amount of indebtedness, but in no event will the amount payable on the
guarantee exceed the amount of the original guarantee. The VA may, at its option
and without regard to the guarantee, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA-guaranteed Single Family Loan, the
Master Servicer or Sub-Servicer is, absent exceptional circumstances, authorized
to announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guarantee is submitted after
liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guarantee will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of the Mortgaged Property. The amount payable under the guarantee
may in no event exceed the amount of the original guarantee.
FHA INSURANCE ON MULTIFAMILY LOANS
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to
insure mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for co-insurance of such mortgage loans made under Sections 221(d)(3)
and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the term of such
a mortgage loan may be up to 40 years and the ratio of loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, a dollar amount per apartment unit established from time to time by
HUD or, at the discretion of the Secretary of HUD, 25% of the value of the
property. In general the loan term may not exceed 35 years and a loan to value
ratio of no more than 85% is required for the purchase of a project and 70% for
the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. Such insurance does not cover 100% of the mortgage
loan but is instead subject to certain deductions and certain losses of interest
from the date of the default.
RESERVE AND OTHER ACCOUNTS
If specified in the related Prospectus Supplement, cash, U.S. Treasury
or comparable securities, instruments evidencing ownership of principal or
interest payments thereon, demand notes, certificates of deposit or a
combination thereof in the aggregate amount specified in the related Prospectus
Supplement will be deposited by the Master Servicer or Seller on the date
specified in the related Prospectus Supplement with the Trustee or in one or
more Reserve Accounts established with the Trustee. Such cash and the principal
and interest payments on such other instruments will be used to pay, or to
enhance the likelihood of timely payment of, principal of, and interest on, or,
if so specified in the related Prospectus Supplement, to provide additional
protection against losses in respect of, the assets of the related Trust Fund,
to pay the expenses of the Trust Fund or for such other purposes specified in
the related Prospectus Supplement. Whether or not the Master Servicer or Seller
has any obligation to make such a deposit, certain amounts to which the
Subordinated Securityholders, if any, will otherwise be entitled may instead be
deposited into a Reserve Account from time to time and in the amounts as
specified in the related Prospectus Supplement. Any cash in the Reserve Account
and the proceeds of any other instrument upon maturity will be invested, to the
extent acceptable to the applicable Rating Agency, in obligations of the United
States and certain agencies thereof, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial banks,
certain repurchase agreements of United States government securities with
eligible commercial banks and certain other instruments acceptable to the
applicable Rating Agency ("Permitted Investments"). Instruments held by the
Trustee and/or deposited in the Reserve Account generally will name the Trustee,
in its capacity as trustee for the holders of the Securities, as beneficiary and
generally will be issued by an entity acceptable to the applicable Rating
Agency. Additional information with respect to such instruments will be set
forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for distribution to the holders of Securities for the purposes, in
the manner and at the times specified in the related Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may
include in lieu of some or all of the foregoing or in addition thereto letters
of credit, financial guaranty insurance policies, third party guarantees, U.S.
Government Securities and other arrangements for providing for or maintaining
timely payments or providing additional protection against losses on the assets
included in such Trust Fund, paying administrative expenses, or accomplishing
such other purpose as may be described in the related Prospectus Supplement. The
Trust Fund may include a guaranteed investment contract or reinvestment
agreement pursuant to which funds held in one or more accounts will be invested
at a specified rate. If any class of Securities has a floating interest rate, or
if any of the Mortgage Assets has a floating interest rate, the Trust Fund may
include an interest rate swap contract, an interest rate cap agreement or
similar contract providing limited protection against interest rate risks.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be evidenced
by separate classes of the related Series of Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund. The
Prospectus Supplement for a Series which includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
If specified in the related Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply concurrently to two or
more separate Trust Fund. If applicable, the related Prospectus Supplement will
identify the Trust Fund to which such credit support relates and the manner of
determining the amount of the coverage provided hereby and of the application of
such coverage to the identified Trust Fund.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity of the Securities will be affected by the
amount and timing of principal payments on or in respect of the Mortgage Assets
included in the related Trust Funds, the allocation of available funds to
various Classes of Securities, the Interest Rate for various Classes of
Securities and the purchase price paid for the Securities.
The original terms to maturity of the Mortgage Loans in a given
Mortgage Pool will vary depending upon the type of Mortgage Loans included
therein. Each Prospectus Supplement will contain information with respect to the
type and maturities of the Mortgage Loans in the related Mortgage Pool. Single
Family Loans, Cooperative Loans and Contracts generally may be prepaid without
penalty in full or in part at any time. Multifamily Loans may prohibit
prepayment for a specified period after origination, may prohibit partial
prepayments entirely, and may require the payment of a prepayment penalty upon
prepayment in full or in part.
Conventional Single Family Loans, Cooperative Loans and Contracts
generally will contain due-on-sale provisions permitting the mortgagee or holder
of the Contract to accelerate the maturity of the Mortgage Loan or Contract upon
sale or certain transfers by the mortgagor or obligor of the underlying
Mortgaged Property. As described in the related Prospectus Supplement,
conventional Multifamily Loans may contain due-on-sale provisions, due-on-
encumbrance provisions, or both. Mortgage Loans insured by the FHA, and Single
Family Loans and Contracts partially guaranteed by the VA, are assumable with
the consent of the FHA and the VA, respectively. Thus, the rate of prepayments
on such Mortgage Loans may be lower than that of conventional Mortgage Loans
bearing comparable interest rates. 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 "Administration-
Collection Procedures" and "Legal Aspects of the Mortgage Loans" for a
description of certain provisions of each Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
When a full prepayment is made on a Single Family Loan or Cooperative
Loan, the Mortgagor is charged interest on the principal amount of the Mortgage
Loan so prepaid only for the number of days in the month actually elapsed up to
the date of the prepayment rather than for a full month. Similarly, upon
liquidation of a Mortgage Loan, interest accrues on the principal amount of the
Mortgage Loan only for the number of days in the month actually elapsed up to
the date of liquidation rather than for a full month. The effect of prepayments
in full and liquidations generally will be to reduce the amount of interest
passed through in the following month to holders of Securities because interest
on the principal amount of any Mortgage Loan so prepaid will be paid only to the
date of prepayment or liquidation. In connection with certain Series, as
described in the related Prospectus Supplement, the Master Servicer or a Lender
will be required to use some or all of its servicing compensation to pay
compensating interest to cover such shortfalls. Interest shortfalls also could
result from the application of the Solders' and Sailors' Civil Relief Act of
1940, as amended, as described under "Legal Aspects of the Mortgage
Loans-Soldiers' and Sailors' Civil Relief Act" herein. Partial prepayments in a
given month may be applied to the outstanding principal balances of the Mortgage
Loans so prepaid on the first day of the month of receipt or the month following
receipt. In the latter case, partial prepayments will not reduce the amount of
interest passed through in such month. Prepayment penalties collected with
respect to Multifamily Loans will be distributed to the holders of Securities,
or to other persons entitled thereto, as described in the related Prospectus
Supplement.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or a FASIT or another person specified in the
related Prospectus Supplement may have the option to purchase the assets of a
Trust Fund, thereby effecting earlier retirement of the related Series of
Securities. See "Administration-Termination; Optional Termination." The yield to
investors in a Callable Class will depend on whether and, if so, when a
redemption of such Securities occurs.
The rate of prepayments with respect to conventional mortgage loans
has fluctuated significantly in recent years. In general, if prevailing rates
fall significantly below the Mortgage Rates borne by the Mortgage Loans, such
Mortgage Loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above such Mortgage Rates. Conversely, if
prevailing interest rates rise appreciably above the Mortgage Rates borne by the
Mortgage Loans, such Mortgage Loans are likely to experience a lower prepayment
rate than if prevailing rates remain at or below such Mortgage Rates. However,
there can be no assurance that such will be the case.
Prepayments are influenced by a variety of economic, geographical,
social, tax, legal and additional factors. The rate of prepayment on Single
Family Loans, Cooperative Loans and Contracts may be affected by changes in a
mortgagor's housing needs, job transfers, unemployment, a borrower's net equity
in the mortgage properties, the enforcement of due-on-sale clauses and other
servicing decisions. Adjustable rate mortgage loans, bi-weekly mortgage loans,
graduated payment mortgage loans, growing equity mortgage loans, reverse
mortgage loans, buy-down mortgage loans and mortgage loans with other
characteristics may experience a rate of principal prepayments which is
different from that of fixed rate, monthly pay, fully amortizing mortgage loans.
The rate of prepayment on Multifamily Loans may be affected by other factors,
including Mortgage Loan terms (E.G., the existence of lockout periods,
due-on-sale and due-on-encumbrance clauses and prepayment penalties), relative
economic conditions in the area where the Mortgaged Properties are located, the
quality of management of the Mortgaged Properties and the relative tax benefits
associated with the ownership of income-producing real property.
The timing of payments on the Mortgage Assets may significantly affect
an investor's yield. In general, the earlier a prepayment of principal on the
Mortgage Assets, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Securities will not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments.
The effective yield to Securityholders generally will be slightly
lower than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price, because while interest generally will accrue on each Mortgage
Loan from the first day of the month, the distribution of such interest will not
be made earlier than a specified date in the month following the month of
accrual.
In the case of any Securities purchased at a discount, a slower than
anticipated rate of principal payments could result in an actual yield that is
lower than the anticipated yield. In the case of any Securities purchased at a
premium, a faster than anticipated rate of principal payments could result in an
actual yield that is lower than the anticipated yield. A discount or premium
would be determined in relation to the price at which a Security will yield its
Interest Rate, after giving effect to any payment delay.
Factors other than those identified herein and in the related
Prospectus Supplement could significantly affect principal prepayments at any
time and over the lives of the Securities. The relative contribution of the
various factors affecting prepayment may also vary from time to time. There can
be no assurance as to the rate of payment of principal of the Mortgage Assets at
any time or over the lives of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments) on the yield, weighted average lives and
maturities of such Securities (including, but not limited to, any Exchangeable
Securities in such Series).
ADMINISTRATION
Set forth below is a summary of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. Where particular
provisions or terms used in the Agreements are referred to, such provisions or
terms are as specified in the Agreements. Concurrently with the assignment of
the Trust Assets to the related Trust Fund, the Trustee will execute and deliver
the Securities.
ASSIGNMENT OF MORTGAGE ASSETS
ASSIGNMENT OF THE MORTGAGE LOANS. At the time of issuance of the
Securities of a Series, the Seller will cause the Mortgage Loans comprising the
Trust Fund to be sold and assigned to the Trustee, together with all principal
and interest received by or on behalf of the Seller on or with respect to such
Mortgage Loans after the Cut-off Date, other than principal and interest due on
or before the Cut-off Date and other than any Retained Interest specified in the
related Prospectus Supplement. If Notes are issued in a Series, such assets will
be pledged to the Trustee pursuant to the terms of the Indenture. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Mortgage Loan after application of payments due on the
Cut-off Date, as well as information regarding the Mortgage Rate or APR, the
current scheduled monthly payment of principal and interest, the maturity of the
loan, the Loan-to-Value Ratio at origination and certain other information.
In addition, the Seller generally will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) as to
each Mortgage Loan, among other things, (i) the mortgage note or Contract
endorsed without recourse in blank or to the order of the Trustee, (ii) in the
case of Single Family Loans or Multifamily Loans, the mortgage, deed of trust or
similar instrument (a "Mortgage") with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case the Seller will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was or will be
delivered to such recording office), (iii) an assignment of the Mortgage or
Contract to the Trustee, which assignment will be in recordable form in the case
of a Mortgage assignment, and (iv) such other security documents as may be
specified in the related Prospectus Supplement. In the case of Single Family
Loans or Multifamily Loans, the Seller or Master Servicer generally will
promptly cause the assignments of the related Mortgage Loans to be recorded in
the appropriate public office for real property records, except in the
discretion of the Seller in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such loans against the claim of any subsequent transferee
or any successor to or creditor of the Seller or the originator of such loans.
In the case of Contracts, the Seller or Master Servicer generally will promptly
make or cause to be made an appropriate filing of a UCC-1 financing statement in
the appropriate states to give notice of the Trustee's ownership of the
Contracts.
With respect to any Mortgage Loans which are Cooperative Loans, the
Seller will cause to be delivered to the Trustee (or to the custodian
hereinafter referred to), the related original cooperative note endorsed without
recourse in blank or to the order of the Trustee, the original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing agreement and the relevant stock certificate
and related blank stock powers. The Seller will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review
such Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold such
documents in trust for the benefit of the Securityholders. In general, if any
such document is found to be missing or defective in any material respect, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Seller or in certain circumstances the related Lender, or the Master
Servicer will notify the related Lender. If the Lender or an entity which sold
the Mortgage Loan to the Lender cannot cure the omission or defect within 60
days after receipt of such notice (or such other period as is specified in the
related Prospectus Supplement), the Lender or such entity generally will be
obligated to purchase the related Mortgage Loan from the Trustee at the Purchase
Price. There can be no assurance that a Lender or such entity will fulfill this
purchase obligation. Although the Master Servicer may be obligated to enforce
such obligation to the extent described above under "The Mortgage
Loans-Representations by Lenders; Repurchases," neither the Master Servicer nor
the Seller will be obligated to purchase such Mortgage Loan if the Lender or
such entity defaults on its purchase obligation, unless such breach also
constitutes a breach of the representations or warranties of the Master Servicer
or the Seller, as the case may be. This purchase obligation generally will
constitute the sole remedy available to the Securityholders or the Trustee for
omission of, or a material defect in, a constituent document. Certain rights of
substitution for defective Mortgage Loans may be provided with respect to a
Series in the related Prospectus Supplement.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
ASSIGNMENT OF AGENCY SECURITIES. The Seller will cause Agency
Securities to be registered in the name of the Trustee or its nominee. Each
Agency Security will be identified in a schedule appearing as an exhibit to the
Agreement, which will specify as to each Agency Security the original principal
amount and outstanding principal balance as of the Cut-off Date, the annual
pass-through rate (if any) and the maturity date.
ASSIGNMENT OF PRIVATE MORTGAGE-BACKED SECURITIES. The Seller will
cause Private Mortgage-Backed Securities to be registered in the name of the
Trustee on behalf of the Trust Fund. The Trustee (or the custodian) will have
possession of any certificated Private Mortgage-Backed Securities. The Trustee
generally will not be in possession of or be assignee of record of any
underlying assets for a Private Mortgage-Backed Security. See "The Trust
Fund-Private Mortgage-Backed Securities" herein. Each Private Mortgage-Backed
Security will be identified in a schedule appearing as an exhibit to the related
Agreement which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date, annual pass-through rate or interest
rate and maturity date for each Private Mortgage-Backed Security conveyed to the
Trustee.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO ACCOUNTS
In general, each Master Servicer and Sub-Servicer servicing the
Mortgage Loans will be required to establish and maintain for one or more Series
of Securities a separate account or accounts for the collection of payments on
the related Mortgage Loans (the "Protected Account"), which must be either (i)
maintained with a depository institution the debt obligations of which (or in
the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of such holding company) are rated in one of
the two highest rating categories by each Rating Agency rating the Series of
Securities, (ii) an account or accounts the deposits in which are fully insured
by the FDIC, (iii) an account or accounts the deposits in which are insured by
the FDIC (to the limits established by the FDIC), and the uninsured deposits in
which are invested in Permitted Investments held in the name of the Trustee, or
(iv) an account or accounts otherwise acceptable to each Rating Agency. A
Protected Account may be maintained as an interest bearing account or the funds
held therein may be invested pending each succeeding Distribution Date in
Permitted Investments. The related Master Servicer or Sub-Servicer or its
designee or another person specified in the Prospectus supplement will be
entitled to receive any such interest or other income earned on funds in the
Protected Account as additional compensation and will be obligated to deposit or
deliver for deposit in the Protected Account the amount of any loss immediately
as realized. The Protected Account may be maintained with the Master Servicer or
Sub-Servicer or with a depository institution that is an affiliate of the Master
Servicer or Sub-Servicer, provided it meets the standards set forth above.
Each Master Servicer and Sub-Servicer generally will be required to
deposit or cause to be deposited in the Protected Account for each Trust Fund on
a daily basis the following payments and collections received or advances made
by or on behalf of it subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date and exclusive of any amounts representing Retained
Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, prepayment
penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) to the extent specified in the related Agreement, all proceeds
(net of unreimbursed payments of property taxes, insurance premiums and similar
items ("Insured Expenses") incurred, and unreimbursed advances made, by the
related Master Servicer or Sub-Servicer, if any) of the title insurance
policies, the hazard insurance policies and any Primary Insurance Policies, to
the extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts (net of unreimbursed expenses incurred in connection with liquidation or
foreclosure ("Liquidation Expenses") and unreimbursed advances made, by the
related Master Servicer or Sub-Servicer, if any) received and retained in
connection with the liquidation of defaulted Mortgage Loans, by foreclosure or
otherwise ("Liquidation Proceeds"), together with any net proceeds received with
respect to any properties acquired on behalf of the Securityholders by
foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased as described under "The Mortgage Loans-Representations by Lenders;
Repurchases" or "-Assignment of Mortgage Assets" above;
(v) all payments required to be deposited in the Protected Account
with respect to any deductible clause in any blanket insurance policy described
under "-Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer or
Sub-Servicer in connection with losses realized on investments for the benefit
of the Master Servicer or Sub-Servicer of funds held in any Accounts; and
(vii) all other amounts required to be deposited in the Protected
Account pursuant to the Agreement.
If acceptable to each Rating Agency rating the Series of Securities, a
Protected Account maintained by a Master Servicer or Sub-Servicer may commingle
funds from the Mortgage Loans deposited in the Trust Fund with similar funds
relating to other mortgage loans which are serviced or owned by the Master
Servicer or Sub-Servicer. The Agreement may require that certain payments
related to the Mortgage Assets be transferred from a Protected Account
maintained by a Master Servicer or Sub-Servicer into another account maintained
under conditions acceptable to each Rating Agency.
The Trustee will be required to establish in its name as Trustee for
one or more Series of Securities a trust account or another account acceptable
to each Rating Agency (the "Securities Account"). The Securities Account may be
maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Permitted Investments. If
there is more than one Master Servicer for the rated Series of Securities, there
may be a separate Securities Account or a separate subaccount in a single
Securities Account for funds received from each Master Servicer. The related
Master Servicer or its designee or another person specified in the related
Prospectus Supplement may be entitled to receive any interest or other income
earned on funds in the Securities Account or subaccount of the Securities
Account as additional compensation and, if so entitled, will be obligated to
deposit or deliver for deposit in the Securities Account or subaccount the
amount of any loss immediately as realized. The Trustee will be required to
deposit into the Securities Account on the business day received all funds
received from the Master Servicer for deposit into the Securities Account and
any other amounts required to be deposited into the Securities Account pursuant
to the Agreement. In addition to other purposes specified in the Agreement, the
Trustee will be required to make withdrawals from the Securities Account to make
distributions to Securityholders. If the Series includes one Trust Fund which
contains a beneficial ownership interest in another Trust Fund, funds from the
Trust Assets may be withdrawn from the Securities Account included in the latter
Trust Fund and deposited into another Account included in the former Trust Fund
prior to transmittal to Securityholders with a beneficial ownership interest in
the former Trust Fund. If specified in the related Prospectus Supplement, the
Protected Account and the Securities Account may be combined into a single
Securities Account. With respect to a Series backed by Agency Securities and/or
Private Mortgage-Backed Securities there would only be one or more Securities
Accounts.
SUB-SERVICING BY LENDERS
Each Lender with respect to a Mortgage Loan or any other servicing
entity may act as the Master Servicer or the Sub-Servicer for such Mortgage Loan
pursuant to an agreement (each, a "Sub-Servicing Agreement"), which will not
contain any terms inconsistent with the related Agreement. While in general each
Sub-Servicing Agreement will be a contract solely between the Master Servicer
and the Sub-Servicer, the Agreement pursuant to which a Series of Securities is
issued will provide that, if for any reason the Master Servicer for such Series
of Securities is no longer the Master Servicer of the related Mortgage Loans,
the Trustee or any successor Master Servicer must recognize the Sub- Servicer's
rights and obligations under such Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers. Such Sub-Servicer will
remain obligated, or will be released from its obligations, under the related
Sub- Servicing Agreement, as provided in the related Prospectus Supplement. Each
Sub-Servicer will be required to perform the customary functions of a servicer
of mortgage loans. Such functions generally include collecting payments from
mortgagors or obligors and remitting such collections to the Master Servicer;
maintaining hazard insurance policies as described herein and in the related
Prospectus Supplement, and filing and settling claims thereunder, subject in
certain cases to the right of the Master Servicer to approve in advance any such
settlement; maintaining escrow or impound accounts of mortgagors or obligors for
payment of taxes, insurance and other items required to be paid by the mortgagor
or obligor pursuant to the related Mortgage Loan; processing assumptions or
substitutions, although the Master Servicer is generally required to exercise
due-on-sale clauses to the extent such exercise is permitted by law and would
not adversely affect insurance coverage; attempting to cure delinquencies;
supervising foreclosures; inspecting and managing Mortgaged Properties under
certain circumstances; maintaining accounting records relating to the Mortgage
Loans; and, to the extent specified in the related Prospectus Supplement,
maintaining additional insurance policies or credit support instruments and
filing and settling claims thereunder. A Sub-Servicer will also be obligated to
make advances in respect of delinquent installments of principal and interest on
Mortgage Loans, as described more fully above under "-Payments on Mortgage
Loans; Deposits to Accounts," and in respect of certain taxes and insurance
premiums not paid on a timely basis by mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on the
related Mortgage Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer will generally be entitled to collect
and retain, as part of its servicing compensation, any prepayment or late
charges provided in the mortgage note or related instruments. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under the Agreement. The Master Servicer may purchase the servicing of Mortgage
Loans if the Sub-Servicer elects to release the servicing of such Mortgage Loans
to the Master Servicer. See "-Servicing and Other Compensation and Payment of
Expenses."
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer will be required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan
pursuant to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is earlier terminated by the
Master Servicer or unless servicing is released to the Master Servicer. The
Master Servicer generally may terminate a Sub-Servicing Agreement without cause,
upon written notice to the Sub-Servicer.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement or, upon termination of the Sub-Servicing Agreement, the
Master Servicer may act as servicer of the related Mortgage Loans or enter into
new Sub-Servicing Agreements with other sub-servicers. If the Master Servicer
acts as servicer, it will not assume liability for the representations and
warranties of the Sub-Servicer which it replaces. Each Sub-Servicer must be a
Lender or meet the standards for becoming a Lender or have such servicing
experience as to be otherwise satisfactory to the Master Servicer and the
Seller. The Master Servicer will make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no assurance can be given that such an assumption
will occur. In the event of such an assumption, the Master Servicer may in the
exercise of its business judgment release the terminated Sub-Servicer from
liability in respect of such representations and warranties. Any amendments to a
Sub-Servicing Agreement or new Sub-Servicing Agreements may contain provisions
different from those which are in effect in the original Sub-Servicing
Agreement. However, each Agreement will provide that any such amendment or new
agreement may not be inconsistent with or violate such Agreement.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans and will, consistent with each Agreement and any Pool Insurance
Policy, Primary Insurance Policy, FHA Insurance, VA Guaranty, Special Hazard
Insurance Policy, Bankruptcy Bond or alternative arrangements, follow such
collection procedures as are customary with respect to mortgage loans that are
comparable to the Mortgage Loans. Consistent with the above, the Master Servicer
may, in its discretion, (i) waive any assumption fee, late payment or other
charge in connection with a Mortgage Loan and (ii) to the extent not
inconsistent with the coverage of such Mortgage Loan by a Pool Insurance Policy,
Primary Insurance Policy, FHA Insurance, VA Guaranty, Special Hazard Insurance
Policy, Bankruptcy Bond or alternative arrangements, if applicable, arrange with
a Mortgagor a schedule for the liquidation of delinquencies running for no more
than 125 days after the applicable due date for each payment or such other
period as is specified in the Agreement. Both the Sub-Servicer and the Master
Servicer remain obligated to make advances during any period of such an
arrangement.
In any case in which property securing a conventional Mortgage Loan
has been, or is about to be, conveyed by the mortgagor or obligor, the Master
Servicer generally will, to the extent it has knowledge of such conveyance or
proposed conveyance, exercise or cause to be exercised its rights to accelerate
the maturity of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by applicable law
and will not impair or threaten to impair any recovery under any related Primary
Insurance Policy. If these conditions are not met or if such Mortgage Loan is
insured by the FHA or partially guaranteed by the VA, the Master Servicer will
enter into or cause to be entered into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable for repayment of the Mortgage Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon; provided, however, that the Master Servicer will not enter into such an
agreement if it would jeopardize the tax status of the Trust Fund. Any fee
collected by or on behalf of the Master Servicer for entering into an assumption
agreement will be retained by or on behalf of the Master Servicer as additional
servicing compensation. In the case of Multifamily Loans, the Master Servicer
generally will agree to exercise any right it may have to accelerate the
maturity of a Multifamily Loan to the extent it has knowledge of any further
encumbrance of the related Mortgaged Property effected in violation of any
due-on-encumbrance clause applicable thereto. See "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 "Legal Aspects of the Mortgage
Loans." This approval is usually based on the purchaser's income and net worth
and numerous other factors. The necessity of acquiring such approval could limit
the number of potential purchasers for those shares and otherwise limit the
Trust Fund's ability to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section
216(b)(2)) of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Code Section 216(b)(1) is allowed a deduction
for amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code Section 216(a) to the
corporation under Code Sections 163 and 164. In order for a corporation to
qualify under Code Section 216(b)(1) for its taxable year in which such items
are allowable as a deduction to the corporation, such Section requires, among
other things, that at least 80% of the gross income of the corporation be
derived from its tenant-stockholders (as defined in Code Section 216(b)(2)). By
virtue of this requirement, the status of a corporation for purposes of Code
Section 216(b)(1) must be determined on a year-to-year basis. Consequently,
there can be no assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the event that such
a Cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Code Section 216(a) with respect to those years. In view of the significance of
the tax benefits accorded tenant-stockholders of a corporation that qualifies
under Code Section 216(b)(1), the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
HAZARD INSURANCE
The Master Servicer will require the mortgagor or obligor on each
Single Family Loan, Multifamily Loan or Contract to maintain a hazard insurance
policy providing for no less than the coverage of the standard form of fire
insurance policy with extended coverage customary for the type of Mortgaged
Property in the state in which such Mortgaged Property is located. Such coverage
will be in an amount not less than the replacement value of the improvements or
Manufactured Home securing such Mortgage Loan or the principal balance owing on
such Mortgage Loan, whichever is less. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the mortgagor or
obligor in accordance with the Master Servicer's normal servicing procedures)
will be deposited in the related Protected Account. In the event that the Master
Servicer maintains a blanket policy insuring against hazard losses on all the
Mortgage Loans comprising part of a Trust Fund, it will conclusively be deemed
to have satisfied its obligation relating to the maintenance of hazard
insurance. Such blanket policy may contain a deductible clause, in which case
the Master Servicer will be required to deposit from its own funds into the
related Protected Account the amounts which would have been deposited therein
but for such clause. Any additional insurance coverage for Mortgaged Properties
in a Mortgage Pool of Multifamily Loans will be specified in the related
Prospectus Supplement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements or Manufactured
Home securing a Mortgage Loan by fire, lightning, explosion, smoke, windstorm
and hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Although the policies relating to the
Mortgage Loans may have been underwritten by different insurers under different
state laws in accordance with different applicable forms and therefore may not
contain identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. If the Mortgaged Property
securing a Mortgage Loan is located in a federally designated special flood area
at the time of origination, the Master Servicer will require the mortgagor or
obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the
Mortgage Loans typically contain a clause which in effect requires the insured
at all times to carry insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the insured property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, then the insurer's liability in the event of partial loss
will not exceed the larger of (i) the actual cash value (generally defined as
replacement cost at the time and place of loss, less physical depreciation) of
the improvements damaged or destroyed or (ii) such proportion of the loss,
without deduction for depreciation, as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance the Master Servicer may cause to be
maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, and since improved real estate
generally has appreciated in value over time in the past, the effect of this
requirement in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property. If specified in the
related Prospectus Supplement, a special hazard insurance policy or an
alternative form of credit enhancement will be obtained to insure against
certain of the uninsured risks described above. See "Credit Enhancement-Special
Hazard Insurance Policies."
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
PRIMARY INSURANCE POLICIES. The Master Servicer will be required to
maintain or cause each Sub-Servicer to maintain, as the case may be, in full
force and effect, to the extent specified in the related Prospectus Supplement,
a Primary Insurance Policy with regard to each Single Family Loan for which such
coverage is required. The Master Servicer will be required not to cancel or
refuse to renew any such Primary Insurance Policy in effect at the time of the
initial issuance of a Series of Securities that is required to be kept in force
under the applicable Agreement unless the replacement Primary Insurance Policy
for such canceled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of Securities of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Insurance Policy covering a
Mortgage Loan generally will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Insurance Policy (the "Primary Insurer"), (iv) claim payments
previously made by the Primary Insurer and (v) unpaid premiums.
Primary Insurance Policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary Insurance Policies will not
insure against, and exclude from coverage, a loss sustained by reason of a
default arising from or involving certain matters, including (i) fraud or
negligence in origination or servicing of the Mortgage Loans, including
misrepresentation by the originator, borrower or other persons involved in the
origination of the Mortgage Loan; (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans; (iii)
physical damage to the Mortgaged Property; and (d) the related Master Servicer
not being approved as a servicer by the Primary Insurer.
RECOVERIES UNDER A PRIMARY INSURANCE POLICY. As conditions precedent
to the filing of or payment of a claim under a Primary Insurance Policy covering
a Mortgage Loan, the insured generally will be required to (i) advance or
discharge (a) all hazard insurance policy premiums and (b) as necessary and
approved in advance by the Primary Insurer, (1) real estate property taxes, (2)
all expenses required to maintain the related Mortgaged Property in at least as
good a condition as existed at the effective date of such Primary Insurance
Policy, ordinary wear and tear excepted, (3) Mortgaged Property sales expenses,
(4) any outstanding liens (as defined in such Primary Insurance Policy) on the
Mortgaged Property and (5) foreclosure costs, including court costs and
reasonable attorneys' fees; (ii) in the event of any physical loss or damage to
the Mortgaged Property, have restored and repaired the Mortgaged Property to at
least as good a condition as existed at the effective date of such Primary
Insurance Policy, ordinary wear and tear excepted; and (iii) tender to the
Primary Insurer good and merchantable title to and possession of the Mortgaged
Property.
In those cases in which a Single Family Loan is serviced by a
Sub-Servicer, the Sub-Servicer, on behalf of itself, the Trustee and
Securityholders, will present claims to the Primary Insurer, and all collections
thereunder will be deposited in the Protected Account maintained by the
Sub-Servicer. In all other cases, the Master Servicer, on behalf of itself, the
Trustee and the Securityholders, will present claims to the Primary Insurer
under each Primary Insurance Policy, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. As set forth above, all collections by or on behalf of
the Master Servicer under any Primary Insurance Policy and, when the Mortgaged
Property has not been restored, the hazard insurance policy, are to be deposited
in the Protected Account, subject to withdrawal as heretofore described.
If the Mortgaged Property securing a defaulted Mortgage Loan is
damaged and proceeds, if any, from the related hazard insurance policy are
insufficient to restore the damaged Mortgaged Property to a condition sufficient
to permit recovery under the related Primary Insurance Policy, if any, the
Master Servicer is not required to expend its own funds to restore the damaged
Mortgaged Property unless it determines (i) that such restoration will increase
the proceeds to Securityholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary
Insurance Policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted Mortgage Loan is not covered by a Primary
Insurance Policy, the Master Servicer will be obligated to follow or cause to be
followed such normal practices and procedures as it deems necessary or advisable
to realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property securing the defaulted Mortgage Loan are less than the
principal balance of such Mortgage Loan plus interest accrued thereon that is
payable to Securityholders, the Trust Fund will realize a loss in the amount of
such difference plus the aggregate of expenses incurred by the Master Servicer
in connection with such proceedings and which are reimbursable under the
Agreement.
If the Master Servicer or its designee recovers Insurance Proceeds
which, when added to any related Liquidation Proceeds and after deduction of
certain expenses reimbursable to the Master Servicer, exceed the principal
balance of such Mortgage Loan plus interest accrued thereon that is payable to
Securityholders, the Master Servicer will be entitled to withdraw or retain from
the Protected Account amounts representing its normal servicing compensation
with respect to such Mortgage Loan. In the event that the Master Servicer has
expended its own funds to restore the damaged Mortgaged Property and such funds
have not been reimbursed under the related hazard insurance policy, it will be
entitled to withdraw from the Protected Account out of related Liquidation
Proceeds or Insurance Proceeds an amount equal to such expenses incurred by it,
in which event the Trust Fund may realize a loss up to the amount so charged.
See "Credit Enhancement."
RECOVERIES UNDER FHA INSURANCE AND VA GUARANTEES. The Master Servicer,
on behalf of itself, the Trustee and the Securityholders, will present claims
under any FHA Insurance or VA Guarantees with respect to the Mortgage Loans. See
"Credit Enhancement--FHA Insurance; VA Guarantees."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
A Master Servicer's primary servicing compensation with respect to a
Series of Securities will come from the monthly payment to it, out of each
interest payment on a Mortgage Loan, of an amount equal to the percentage per
annum described in the related Prospectus Supplement of the outstanding
principal balance thereof or from such other source as is specified in the
related Prospectus Supplement. If the Master Servicer's primary compensation is
a percentage of the outstanding principal balance of each Mortgage Loan, such
amounts will decrease as the Mortgage Loans amortize. In addition to primary
compensation, the Master Servicer or the Sub-Servicers generally will be
entitled to retain all assumption fees and late payment charges, to the extent
collected from Mortgagors, and any prepayment penalties and, to the extent
provided in the related Prospectus Supplement, any interest or other income
which may be earned on funds held in any Accounts. Sub-Servicers generally will
receive a portion of the Master Servicer's primary compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, to the extent
specified in the related Agreement, the Master Servicer may pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment in
certain cases of premiums for insurance policies, guarantees, sureties or other
forms of credit enhancement, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Securityholders, and payment of certain other
expenses. The Master Servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of Sub-Servicers and Lenders under certain
limited circumstances. In addition, as indicated in the preceding section, the
Master Servicer will be entitled to reimbursement for certain expenses incurred
by it in connection with any defaulted Mortgage Loan as to which it has
determined that all recoverable Liquidation Proceeds and Insurance Proceeds have
been received.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers, the Audit Program for Mortgages serviced for Freddie Mac or a
program certified by such firm to be comparable, the servicing by or on behalf
of the Master Servicer of mortgage loans, agency securities or private
mortgage-backed securities, under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with such agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Uniform single Audit Program
for Mortgage Bankers, the Audit Program for Mortgages serviced for Freddie Mac
or such comparable program requires it to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of mortgage
loans, agency securities or private mortgage-backed securities by Sub-
Servicers, upon comparable statements for examinations conducted substantially
in compliance with the Uniform Single Audit Program for Mortgage Bankers, the
Audit Program for Mortgages serviced for Freddie Mac or such comparable program
(rendered within one year of such statement) of firms of independent public
accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by an
officer of each Master Servicer to the effect that such Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of each Master Servicer may be obtained by Securityholders of the
related Series without charge upon written request to the Master Servicer at the
address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE SELLER
One or more Master Servicers under each Agreement will be named in the
related Prospectus Supplement. Each entity serving as Master Servicer may have
normal business relationships with the Seller or the Seller's affiliates.
The Agreement will provide that a Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination that
its duties thereunder are no longer permissible under applicable law or as
otherwise specified in the related Prospectus Supplement. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer,
in certain instances, the Seller nor any director, officer, employee, or agent
of the Master Servicer or the Seller will be under any liability to the Trustee,
the related Trust Fund or Securityholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer, the
Seller nor any such person will be protected against any breach of warranties or
representations made in the Agreement or any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, in certain instances, the Seller and any director, officer,
employee or agent of the Master Servicer or the Seller will be entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Agreement or the Securities, other than any loss, liability or expense
related to any specific Mortgage Loan or Mortgage Loans (except any such loss,
liability or expense otherwise reimbursable pursuant to the Agreement) and any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Agreement will provide that neither the Master Servicer nor, in certain
instances, the Seller will be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. The Master Servicer or the Seller may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Securityholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Fund and the Master Servicer or the
Seller, as the case may be, will be entitled to be reimbursed therefor out of
funds otherwise distributable to Securityholders.
Any person into which the Master Servicer may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer is a party, or any person succeeding to the business of the
Master Servicer, will be the successor of the Master Servicer under each
Agreement, provided that such person is qualified to sell mortgage loans to, and
service mortgage loans on behalf of, Fannie Mae or Freddie Mac and further
provided that such merger, consolidation or succession does not adversely affect
the then current rating or ratings of the class or classes of Securities of such
Series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT; MASTER SERVICING
AGREEMENT, "Events of Default" under a Pooling and Servicing Agreement, a Trust
Agreement or a Master Servicing Agreement generally will include (i) any failure
by the Master Servicer to cause to be deposited in the Securities Account any
amount so required to be deposited pursuant to the Agreement, and such failure
continues unremedied for two business days or such other time period as is
specified in the Agreement; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any of its other covenants or
agreements in the Agreement which continues unremedied for 60 days or such other
time period as is specified in the Agreement after the giving of written notice
of such failure to the Master Servicer by the Trustee, or to the Master Servicer
and the Trustee by the holders of Securities of any class evidencing not less
than 25% of the aggregate principal amount or interests ("Percentage Interests")
evidenced by such class; and (iii) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
actions by or on behalf of the Master Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement, the Trust Agreement or Master Servicing Agreement will
permit the Trustee to sell the assets of the Trust Fund in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
In general, so long as an Event of Default under an Agreement remains
unremedied, the Trustee may, and at the direction of holders of Securities
evidencing Percentage Interests aggregating not less than 25% of the principal
of the related Trust Fund and under such circumstances as may be specified in
such Agreement, the Trustee shall, terminate all of the rights and obligations
of the Master Servicer under the Agreement relating to such Trust Fund and in
and to the Mortgage Loans, whereupon the Trustee generally will succeed to all
of the responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a Mortgage Loan servicing institution with a net worth of at least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
In general, no Securityholder, solely by virtue of such holder's
status as a Securityholder, will have any right under any Agreement to institute
any proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Securities of any class of such Series evidencing not less than 25% of the
aggregate Percentage Interest constituting such class have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
INDENTURE. "Events of Default" under the Indenture for each Series of
Notes will include: In general, (i) a default for 30 days or more in the payment
of any principal of or interest on any Note of such Series; (ii) failure to
perform any other covenant of the Trust Fund in the Indenture which continues
for a period of 60 days or such other time period as is specified in the
Indenture after notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement; (iii) any representation or
warranty made by the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within 60 days after notice thereof is given
in accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Seller or the Trust Fund; or (v) any other Event of Default
provided with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the
Securityholders of a majority of the then aggregate outstanding amount of the
Notes of such Series may declare the principal amount (or, if the Notes of that
Series are entitled to payment of principal only, such portion of the principal
amount as may be specified in the related Prospectus Supplement) of all the
Notes of such Series to be due and payable immediately. Such declaration may,
under certain circumstances, be rescinded and annulled by the Securityholders of
a majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for 30 days or more, unless
(a) the Securityholders of 100% of the then aggregate outstanding amount of the
Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of Securityholders of 66-2/3% of the then aggregate
outstanding amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for 30 days or more in the payment
of principal of or interest on the Notes of a Series, the Indenture provides
that the Trustee will have a prior lien on the proceeds of any such liquidation
for unpaid fees and expenses. As a result, upon the occurrence of such an Event
of Default, the amount available for distribution to the Securityholders of
Notes may be less than would otherwise be the case. However, the Trustee may not
institute a proceeding for the enforcement of its lien except in connection with
a proceeding for the enforcement of the lien of the Indenture for the benefit of
the Securityholders of Notes after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due
and payable, as described above, the Securityholder of any such Notes issued at
a discount from par may be entitled to receive no more than an amount equal to
the unpaid principal amount thereof less the amount of such discount which is
unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Securityholders of Notes of such Series, unless such
Securityholders have offered to the Trustee security or indemnity satisfactory
to it against the costs, expenses and liabilities which might be incurred by it
in complying with such request or direction. Subject to such provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority of the then aggregate outstanding amount of the Notes of such
Series shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee with respect to the Notes of such Series, and
the holders of a majority of the then aggregate outstanding amount of the Notes
of such Series may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all the holders of the outstanding Notes of such Series
affected thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Seller and its affiliates. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the applicable Agreement
will be conferred or imposed upon the Trustee and each such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents will have any or all of the rights, powers, duties and obligations of the
Trustee conferred on them by such appointment; provided that the Trustee will
continue to be responsible for its duties and obligations under the Agreement.
In the event a Series includes both Notes and Certificates, a separate Trustee
identified in the related Prospectus Supplement will serve as Trustee for the
Certificates and for the Notes.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any assets or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the
Securityholders or the Master Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Securityholders following an Event of Default. The Trustee is not required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the Agreement, or in the exercise of any
of its rights or powers, if it has reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Seller, resign at any
time, in which event the Seller will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within the period specified in the Agreement after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for appointment of a successor Trustee. The
Trustee may also be removed at any time (i) if the Trustee ceases to be eligible
to continue as such under the Agreement, (ii) if the Trustee becomes insolvent
or (iii) by the Securityholders evidencing over 50% of the aggregate voting
rights of the Securities in the Trust Fund upon written notice to the Trustee
and to the Seller. Any resignation or removal of the Trustee and appointment of
a successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
AMENDMENT
In general, each Agreement may be amended by the parties thereto,
without the consent of any of the Securityholders, (i) to cure any ambiguity;
(ii) to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein; or (iii) to make any other
revisions with respect to matters or questions arising under the Agreement which
are not inconsistent with the provisions thereof, provided that such action will
not adversely affect in any material respect the interests of any
Securityholder. In addition, to the extent provided in the related Agreement, an
Agreement may be amended without the consent of any of the Securityholders, to
change the manner in which the Securities Account, the Protected Account or any
other Accounts are maintained, provided that any such change does not adversely
affect the then current rating on the class or classes of Securities of such
Series that have been rated. In addition, if a REMIC election is made with
respect to a Trust Fund, the related Agreement may be amended to modify,
eliminate or add to any of its provisions to such extent as may be necessary to
maintain the qualification of the related Trust Fund as a REMIC, provided that
the Trustee has received an opinion of counsel to the effect that such action is
necessary or helpful to maintain such qualification. In general, each Agreement
may also be amended by the parties thereto with consent of holders of Securities
of such Series evidencing not less than 51% of the aggregate Percentage
Interests of each class affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement or of modifying in any manner the rights of the holders of the
related Securities; provided, however, that no such amendment may (i) reduce in
any manner the amount of or delay the timing of, payments received on Trust
Assets which are required to be distributed on any Security without the consent
of the holder of such Security, or (ii) reduce the aforesaid percentage of
Securities of any class of holders which are required to consent to any such
amendment without the consent of the holders of all Securities of such class
covered by such Agreement then outstanding. If a REMIC election is made with
respect to a Trust Fund, the Trustee will not be entitled to consent to an
amendment to the related Agreement without having first received an opinion of
counsel to the effect that such amendment will not cause such Trust Fund to fail
to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
The obligations created by each Agreement for a Series of Securities
generally will terminate upon the payment to the related Securityholders of all
amounts held in any Accounts or by the Master Servicer and required to be paid
to them pursuant to such Agreement following the later of (i) the final payment
or other liquidation of the last of the Trust Assets subject thereto or the
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Assets remaining in the Trust Fund and (ii) the
purchase by the Seller, the Master Servicer or other entity specified in the
related Prospectus Supplement including, if REMIC or FASIT treatment has been
elected, by the holder of the residual interest in the REMIC or FASIT (see
"Federal Income Tax Consequences" below), from the related Trust Fund of all of
the remaining Trust Assets and all property acquired in respect of Mortgage
Assets remaining in the Trust Fund.
Any such purchase of Trust Assets and property acquired in respect of
Mortgage Assets evidenced by a Series of Securities will be made at the option
of the Seller or other entity identified in the related Prospectus Supplement,
at a price, and in accordance with the procedures, specified in the related
Prospectus Supplement. Such purchase price may not in all cases equal the entire
unpaid principal and accrued unpaid interest on the Securities that are
outstanding at the time of the optional termination due to the fact that any
component of the purchase price based on existing REO property (i.e. real
property acquired following foreclosure and as to which a realized loss has not
yet been taken) will be equal to the fair market value of such property and not
necessarily the previously outstanding principal balance of the related loan.
There may not be sufficient proceeds to pay off the then current balance of and
accrued unpaid interest on Securities of such Series outstanding. The exercise
of such right will effect early retirement of the Securities, but the right of
the Seller or such other entity to so purchase will generally be subject to the
principal balance of the related Trust Assets being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Trust Assets at the Cut-off Date for the Series. The foregoing is
subject to the provision that if a REMIC or FASIT election is made with respect
to a Trust Fund, any repurchase pursuant to clause (ii) above will be made only
in connection with a "qualified liquidation" of the REMIC or the FASIT within
the meaning of Section 860F(g)(4) of the Code.
LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in
nature, of material 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.
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. The priority of the lien of the mortgage in a Single Family Loan or
Multifamily Loan will be specified in the related Prospectus Supplement.
CONDOMINIUMS. Certain of the Mortgage Loans may be loans secured by
condominium units. The condominium building may be a multi-unit building or
buildings, or a group of buildings whether or not attached to each other,
located on property subject to condominium ownership. Condominium ownership is a
form of ownership of real property wherein each owner is entitled to the
exclusive ownership and possession of his or her individual condominium unit and
also owns a proportionate undivided interest in all parts of the condominium
building (other than the other individual condominium units) and all areas or
facilities, if any, for the common use of the condominium units. The condominium
unit owners appoint or elect the condominium association to govern the affairs
of the condominium.
COOPERATIVES. Certain of the Mortgage Loans may be Cooperative Loans.
The Cooperative (i) owns all the real property that comprises the project,
including the land and the apartment building comprised of separate dwelling
units and common areas or (ii) leases the land generally by a long-term ground
lease and owns the apartment building. The Cooperative is directly responsible
for project management and, in most cases, payment of real estate taxes and
hazard and liability insurance. If there is a blanket mortgage on the property
and/or underlying land, as is generally the case, the Cooperative, as project
mortgagor, is also responsible for meeting these mortgage obligations. A blanket
mortgage is ordinarily incurred by the Cooperative in connection with the
construction or purchase of the Cooperative's apartment building. The interest
of the occupants under proprietary leases or occupancy agreements to which the
Cooperative is a party are generally subordinate to the interest of the holder
of the blanket mortgage in that building. If the Cooperative is unable to meet
the payment obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the Cooperative to
refinance this mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of a Trust Fund including Cooperative Loans,
the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such tenant-stockholder's
pro rata share of the Cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a Cooperative and accompanying rights is financed through
a Cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related Cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and typically
a financing statement covering the proprietary lease or occupancy agreement and
the Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
CONTRACTS. Each Contract evidences both (a) the obligation of the
obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. The
Contracts generally are "chattel paper" as defined in the UCC in effect in the
states in which the Manufactured Homes initially were registered. Pursuant to
the UCC, the rules governing the sale of chattel paper are similar to those
governing the perfection of a security interest in chattel paper. Under the
Agreement, the Seller generally will transfer or cause the transfer of physical
possession of the Contracts to the Trustee or its custodian. In addition the
Seller will make or cause to be made an appropriate filing of a UCC-1 financing
statement in the appropriate states to give notice of the Trustee's ownership of
the Contracts.
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for Manufactured Homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department (or a similar entity) of such state. In the states which
have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law. The Master Servicer generally
will be required to effect such notation or delivery of the required documents
and fees, and to obtain possession of the certificate of title, as appropriate
under the laws of the state in which any Manufactured Home is registered. If the
Master Servicer fails, due to clerical errors or otherwise, to effect such
notation or delivery, or files the security interest under the wrong law (for
example, under a motor vehicle title statute rather than under the UCC, in a few
states), the Trustee may not have a first priority security interest in the
Manufactured Home securing a Contract.
As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a Manufactured Home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, Contracts will contain provisions prohibiting the obligor
from permanently attaching the Manufactured Home to its site. So long as the
obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of the
security interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained by
the Seller and transferred to the Seller.
The Seller will assign or cause to be assigned a security interest in
the Manufactured Homes to the Trustee, on behalf of the Securityholders. In
general, neither the Seller, the Master Servicer nor the Trustee will amend the
certificates of title to identify the Trustee, on behalf of the Securityholders,
as the new secured party and, accordingly, the Seller or the Lender will
continue to be named as the secured party on the certificates of title relating
to the Manufactured Homes. In most states, such assignment is an effective
conveyance of such security interest without amendment of any lien noted on the
related certificate of title and the new secured party succeeds to the Seller's
rights as the secured party. However, in some states there exists a risk that,
in the absence of an amendment to the certificate of title, such assignment of
the security interest might not be held effective against creditors of the
Seller or Lender.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Trustee on
the certificate of title or delivery of the required documents and fees should
be sufficient to protect the Trustee against the rights of subsequent purchasers
of a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the security
interest assigned to the Seller and the Trustee is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for value
of Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee, on behalf of the Securityholders
as the new secured party on the certificate of title that, through fraud or
negligence, the security interest of the Trustee could be released.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to relocate
a Manufactured Home to another state and re-register the Manufactured Home in
such state, and if steps are not taken to re-perfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to re-register a Manufactured Home; accordingly, the
Trustee must surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Master Servicer would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a Manufactured Home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. The Master Servicer will be obligated to take such steps, at the Master
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Seller will obtain the representation of the Lender that it has no knowledge of
any such liens with respect to any Manufactured Home securing a Contract.
However, such liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Securityholders in the event such a lien
arises.
FORECLOSURE/REPOSSESSION
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS. Foreclosure of a deed of
trust is generally accomplished by a non-judicial sale under a specific
provision in the deed of trust which authorizes the trustee to sell the property
at public auction upon any default by the borrower under the terms of the note
or deed of trust. In some states, the trustee must record a notice of default
and send a copy to the borrower-trustor, to any person who has recorded a
request for a copy of any notice of default and notice of sale, to any successor
in interest to the borrower-trustor, to the beneficiary of any junior deed of
trust and to certain other persons. Before such non-judicial sale takes place,
typically a notice of sale must be posted in a public place and published during
a specific period of time in one or more newspapers, posted on the property, and
sent to parties having an interest of record in the property.
In some states, including California, the borrower-trustor has the
right to reinstate the loan at any time following default until shortly before
the trustee's sale. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a reinstatement period, cure
the default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recoverable by a lender.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the
mortgage is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions reflecting
due process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
COOPERATIVE LOANS. The Cooperative shares owned by the tenant-
stockholder and pledged to the lender are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the Cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant- stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant- stockholder is generally
responsible for the deficiency. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws and existing shareholders
and tenants are entitled to remain in the building pursuant to such laws.
CONTRACTS. The Master Servicer on behalf of the Trustee, to the extent
required by the related Agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
the Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self- help" repossession that is "peaceful" (I.E., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, generally varying from 10 to 30 days depending
on the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee would be entitled to be paid out of the sale
proceeds before such proceeds could be applied to the payment of the claims of
unsecured creditors or the holders of subsequently perfected security interests
or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the Manufactured Home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral.
RIGHTS OF REDEMPTION
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS. In some states, after sale
pursuant to a deed of trust or foreclosure of a mortgage, the borrower and
foreclosed junior lienors are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption may occur only
upon payment of the entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has run.
CONTRACTS. While state laws do not usually require notice to be given
debtors prior to repossession, many states do require delivery of a notice of
default and of the debtor's right to cure defaults before repossession. The law
in most states also requires that the debtor be given notice of sale prior to
the resale of the home so that the owner may redeem at or before resale. In
addition, the sale must comply with the requirements of the UCC. Manufactured
Homes are most often resold through private sale.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have adopted statutory prohibitions restricting the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property sold at the foreclosure sale. As a result of these prohibitions, it is
anticipated that in many instances the Master Servicer will not seek deficiency
judgments against defaulting mortgagors. Under the laws applicable in most
states, a creditor is entitled to obtain a deficiency judgment for any
deficiency following possession and resale of a Manufactured Home. However, some
states impose prohibitions or limitations on deficiency judgments in such cases.
Some state statutes may require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
In some states, exceptions to the anti-deficiency statutes are
provided for in certain instances where the value of the lender's security has
been impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Mortgage Loans underlying a Series of Securities and
possible reductions in the aggregate amount of such payments. Some states also
have homestead exemption laws which would protect a principal residence from a
liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
and manufactured housing lenders in connection with the origination, servicing
and enforcement of Single Family Loans, Cooperative Loans and Contracts. These
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These federal and state laws
impose specific statutory liabilities upon lenders who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans or contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder.
Most of the Contracts in a Mortgage Pool will be subject to the
requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related Manufactured Home may assert against the seller of the Manufactured
Home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is successful in asserting any such claim or
defense, and if the Lender had or should have had knowledge of such claim or
defense, the Master Servicer will have the right to require the Lender to
repurchase the Contract because of a breach of its representation and warranty
that no claims or defenses exist which would affect the obligor's obligation to
make the required payments under the Contract.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
DUE-ON-SALE CLAUSES
Each conventional Mortgage Loan generally will contain a due-on-sale
clause which will generally provide that if the mortgagor or obligor sells,
transfers or conveys the Mortgaged Property, the loan or contract may be
accelerated by the mortgagor or secured party. The Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act"), subject to certain
exceptions, preempts state constitutional, statutory and case law prohibiting
the enforcement of due-on-sale clauses. As to loans secured by an owner-occupied
residence (which would include a Manufactured Home), the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Mortgaged Property to
an uncreditworthy person, which could increase the likelihood of default or may
result in a Mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Mortgage Loan.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after
a certain period of time following origination of Single Family Loans,
Cooperative Loans or Contracts with respect to prepayments on loans secured by
liens encumbering owner-occupied residential properties. Since many of the
Mortgaged Properties will be owner- occupied, it is anticipated that prepayment
charges may not be imposed with respect to many of the Single Family Loans,
Cooperative Loans and Contracts. The absence of such a restraint on prepayment,
particularly with respect to fixed rate Single Family Loans, Cooperative Loans
or Contracts having higher Mortgage Rates or APR's, may increase the likelihood
of refinancing or other early retirement of such loans or contracts. Legal
restrictions, if any, on prepayment of Multifamily Loans will be described in
the related Prospectus Supplement.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayment, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels will be included in
any Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's mortgage loan (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the mortgage loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of the Master
Servicer to collect full amounts of interest on certain of the Mortgage Loans.
In general, any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the holders of the Securities. In
addition, the Relief Act imposes limitations which would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mortgage
Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion.
PRODUCT LIABILITY AND RELATED LITIGATION
Certain environmental and product liability claims may be asserted
alleging personal injury or property damage from the existence of certain
chemical substances which may be present in building materials. For example,
formaldehyde and asbestos have been and in some cases are incorporated into many
building materials utilized in manufactured and other housing. As a consequence,
lawsuits may arise from time to time asserting claims against manufacturers or
builders of the housing, suppliers of component parts, and related persons in
the distribution process. Plaintiffs have won such judgments in certain such
lawsuits.
Under the FTC Rule described above, the holder of any Contract secured
by a Manufactured Home with respect to which a product liability claim has been
successfully asserted may be liable to the obligor for the amount paid by the
obligor on the related Contract and may be unable to collect amounts still due
under the Contract. In general, the successful assertion of such claim
constitutes a breach of a representation or warranty of the Lender, and the
Securityholders would suffer a loss only to the extent that (i) the Lender
breached its obligation to repurchase the Contract in the event an obligor is
successful in asserting such a claim, and (ii) the Lender, the Seller or the
Trustee were unsuccessful in asserting any claim of contribution or subrogation
on behalf of the Securityholders against the manufacturer or other persons who
were directly liable to the plaintiff for the damages. Typical products
liability insurance policies held by manufacturers and component suppliers of
manufactured homes may not cover liabilities arising from formaldehyde and
certain other chemicals in manufactured housing, with the result that recoveries
from such manufacturers, suppliers or other persons may be limited to their
corporate assets without the benefit of insurance.
To the extent described in the related Prospectus Supplement, the
Mortgage Loans may include installment sales contracts entered into with the
builders of the homes located on the Mortgaged Properties. The Mortgagors in
some instances may have claims and defenses against the builders which could be
asserted against the Trust Fund.
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Assets
and give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, petroleum
substances (including heating oil and gasoline), radon and other materials which
may affect the property securing the Mortgage Assets. For example, under the
Federal Comprehensive Environmental Response Compensation and Liability Act, as
amended, and possibly under state law in certain states, a secured party which
takes a deed in lieu of foreclosure or purchases a mortgaged property at a
foreclosure sale may become liable in certain circumstances for the costs of a
remedial action ("Cleanup Costs") if hazardous wastes or hazardous substances
have been released or disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such costs could become a liability of the
Trust Fund and reduce the amounts otherwise distributable to the Securityholders
if a Mortgaged Property securing a Mortgage Loan became the property of the
Trust Fund in certain circumstances and if such Cleanup Costs were incurred.
Moreover, certain states by statute impose a priority lien for any Cleanup Costs
incurred by such state on the property that is the subject of such Cleanup Costs
(a "Superlien"). In such states, even prior recorded liens are subordinated to
such Superliens. In these states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth (i) the federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Seller ("Federal Tax Counsel"),
described below regarding the federal income tax status of the entity issuing
the Secuirites and the federal income tax characterization of such Securities,
and (ii) a summary, based on the advice of Federal Tax Counsel, of the material
federal income tax consequences of the purchase, ownership and disposition of
Securities. The summary focuses primarily upon investors who will hold
Securities as "capital assets" (generally, property held for investment) within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"), but much of the discussion is applicable to other investors as
well. Because tax consequences may vary based on the status or tax attributes
and the individual circumstances or special treatment under the income tax laws
of the owner of a Security, prospective investors are urged to consult their own
tax advisers concerning the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of Securities. For purposes
of this tax discussion (except with respect to information reporting, or where
the context indicates otherwise), any reference to the "holder" means the
beneficial owner of a Security.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
The federal income tax consequences with respect to a Series of
Securities to holders will vary depending on whether: (i) an election is made to
treat the Trust Fund (or certain assets of the Trust Fund) relating to a
particular Series of Securities as a real estate mortgage investment conduit
("REMIC") under the Code; (ii) an election is made to treat the Trust Fund (or
certain assets of the Trust Fund) as a financial asset securitization investment
trust ("FASIT") under the Code; (iii) for federal income tax purposes the Trust
Fund is classified as a grantor trust; (iv) for federal income tax purposes the
Trust Fund is classified as a partnership or is disregarded as an entity
separate from its owner; (v) the Securities represent an ownership interest for
federal income tax purposes in some or all of the assets included in the Trust
Fund for a Series and/or (vi) the Securities of a Series are classified as
indebtedness for federal income tax purposes. The Prospectus Supplement for each
Series of Securities will specify how the Securities will be treated for federal
income tax purposes and will discuss whether a REMIC or FASIT election, if any,
will be made with respect to such Series.
REMIC AND FASIT ELECTIONS
Under the Code, an election may be made with respect to each Trust
Fund related to a Series of Securities to treat such Trust Fund or certain
assets of such Trust Fund as a REMIC or a FASIT. The Prospectus Supplement for
each Series of Securities will indicate whether a REMIC or a FASIT election will
be made with respect to the related Trust Fund. To the extent provided in the
Prospectus Supplement for a Series, holders may also have the benefit of a
Reserve Account and of certain agreements (each, a "Yield Supplement Agreement")
under which payment will be made from the Reserve Account or under the Yield
Supplement Agreement in the event that interest accrued on the Mortgage Loans at
their Mortgage Rates is insufficient to pay interest on the Securities of such
Series (a "Basis Risk Shortfall").
REMIC SECURITIES
GENERAL. The term "REMIC Securities" denotes Securities (or the
interests composing Securities) of a Series with respect to which a REMIC
election will be made. If a REMIC election with respect to a Trust Fund is to be
made, the Prospectus Supplement will designate the Securities of such Series or
the interests composing such Securities as "regular interests" ("REMIC Regular
Securities"), which where the context so requires includes a reference to each
interest composing a Security where such interest has been designated as a
regular interest, in lieu of such Securities, in the REMIC (within the meaning
of Section 860G(a)(l) of the Code) or as the REMIC Residual Certificates in the
REMIC (within the meaning of Section 860G(a)(2) of the Code). With respect to
each Series of REMIC Securities, the Trustee will agree in the Agreement to
elect to treat the related Trust Fund or certain assets of such Trust Fund as a
REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of REMIC Securities, Federal Tax
Counsel will deliver its opinion that, with respect to each Series of REMIC
Securities for which a REMIC election is to be made, under then existing law,
and assuming a proper and timely REMIC election and ongoing compliance with the
provisions of the Agreement and applicable provisions of the Code and applicable
Treasury regulations, the related Trust Fund or certain assets of such Trust
Fund will be a REMIC and the REMIC Securities will be considered to evidence
ownership of "regular interests" or "residual interests" within the meaning of
the REMIC provisions of the Code.
ALLOCATION OF PURCHASE PRICE. To the extent provided in the Prospectus
Supplement for a Series, holders of REMIC Regular Securities who are entitled to
payments from the Reserve Account in the event of a Basis Risk Shortfall will be
required to allocate their purchase price between their beneficial ownership
interests in the related REMIC regular interests and Yield Supplement
Agreements, and will be required to report their income realized with respect to
each, calculated taking into account such allocation. In general, such
allocation would be based on the respective fair market values of the REMIC
regular interests and the related Yield Supplement Agreements on the date of
purchase of the related REMIC Regular Security. However, a portion of the
purchase price of a REMIC Regular Security should be allocated to accrued but
unpaid interest. No representation is or will be made as to the fair market
value of the Yield Supplement Agreements or the relative values of the REMIC
regular interests and the Yield Supplement Agreements, upon initial issuance of
the related REMIC Regular Securities or at any time thereafter. Holders of REMIC
Regular Securities are advised to consult their own tax advisors concerning the
determination of such fair market values. Under the applicable Agreement,
holders of applicable REMIC Regular Securities will agree that, for federal
income tax purposes, they will be treated as owners of the respective regular
interests and of the corresponding Yield Supplement Agreement.
STATUS OF REMIC SECURITIES. REMIC Securities will be "real estate
assets" for purposes of Section 856(c)(4)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets") to the extent
that the REMIC's assets are qualifying assets, but not to the extent that the
REMIC's assets consist of Yield Supplement Agreements. However, if at least 95
percent of the REMIC's assets are qualifying assets, then 100 percent of the
REMIC Securities will be qualifying assets. Similarly, income on the REMIC
Securities will be treated as "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the Code, subject
to the limitations of the preceding two sentences. In addition to the Mortgage
Assets, the REMIC's assets will include payments on the Mortgage Assets held
pending distribution to holders of REMIC Securities, amounts in Reserve Accounts
(if any), other credit enhancements (if any), and possibly buydown funds
("Buydown Funds"). The Prospectus Supplement will indicate whether the Mortgage
Assets will be qualifying assets under the foregoing sections of the Code. The
regulations under Sections 860A through 860G of the Code (the "REMIC
Regulations") treat credit enhancements as part of the mortgages or pool of
mortgages to which they relate, and therefore credit enhancements generally
should be qualifying assets. Regulations issued in conjunction with the REMIC
Regulations provide that amounts paid on the Mortgage Assets and held pending
distribution to holders of REMIC Securities ("cash flow investments") will be
treated as qualifying assets. Treasury regulations do not address whether
amounts in a Reserve Account or Buydown Funds would also constitute qualifying
assets. The Prospectus Supplement for each Series will indicate (if applicable)
that it has Buydown Funds. The REMIC Securities will not be "residential loans"
for purposes of the residential loan requirement of Section 593(g)(4)(B) of the
Code.
TIERED REMIC STRUCTURES
For certain Series of Securities, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
Series of Securities, Federal Tax Counsel will deliver its opinion that,
assuming compliance with all provisions of the related Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
Tiered REMICs will each qualify under then existing law as a REMIC and the REMIC
Securities issued by the Tiered REMICs, respectively, will be considered to
evidence ownership of "regular interests" or "residual interests" in the related
REMIC within the meaning of the REMIC provisions of the Code.
Solely for purposes of determining whether the REMIC Securities will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code,
and assets described in Section 7701(a)(19)(C) of the Code, and whether the
income on such Securities is interest described in Section 856(c)(3)(B) of the
Code, the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR SECURITIES
CURRENT INCOME ON REMIC REGULAR SECURITIES-GENERAL. Except as
otherwise indicated herein, the REMIC Regular Securities will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the REMIC on the date of
issuance of the REMIC Regular Securities and not as beneficial interests in the
REMIC or the REMIC's assets. Holders of REMIC Regular Securities who would
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Securities under an accrual method.
Payments of interest on REMIC Regular Securities may be based on a
fixed rate, a variable rate as permitted by the REMIC Regulations, or may
consist of a specified portion of the interest payments on qualified mortgages
where such portion does not vary during the period the REMIC Regular Security is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "--Current Income on
REMIC Regular Securities--Original Issue Discount" and "--Variable Rate REMIC
Regular Securities" below, for a discussion of the definition of a qualified
floating rate for purposes of the OID Regulations. In contrast to the OID
Regulations, for purposes of the REMIC Regulations, a qualified floating rate
does not include any multiple of a qualified floating rate (also excluding
multiples of qualified floating rates that themselves would constitute qualified
floating rates under the OID Regulations), and the characterization of a
variable rate that is subject to a cap, floor or similar restriction as a
qualified floating rate for purposes of the REMIC Regulations will not depend
upon the OID Regulations relating to caps, floors, and similar restrictions. See
"--Current Income on REMIC Regular Securities--Original Issue Discount" and
"--Variable Rate REMIC Regular Securities" below for discussion of the OID
Regulations relating to caps, floors and similar restrictions. A qualified
floating rate, as defined above for purposes of the REMIC Regulations (a "REMIC
qualified floating rate"), qualifies as a variable rate for purposes of the
REMIC Regulations if such REMIC qualified floating rate is set at a "current
rate" as defined in the OID Regulations. In addition, a rate equal to the
highest, lowest or an average of two or more REMIC qualified floating rates
qualifies as a variable rate for REMIC purposes. A REMIC Regular Security may
also have a variable rate based on a weighted average of the interest rates on
some or all of the qualified mortgages held by the REMIC where each qualified
mortgage taken into account has a fixed rate or a variable rate that is
permissible under the REMIC Regulations. Further, a REMIC Regular Security may
have a rate that is the product of a REMIC qualified floating rate or a weighted
average rate and a fixed multiplier, is a constant number of basis points more
or less than a REMIC qualified floating rate or a weighted average rate, or is
the product, plus or minus a constant number of basis points, of a REMIC
qualified floating rate or a weighted average rate and a fixed multiplier. An
otherwise permissible variable rate for a REMIC Regular Security, described
above, will not lose its character as such because it is subject to a floor or a
cap, including a "funds available cap" as that term is defined in the REMIC
Regulations. Lastly, a REMIC Regular Security will be considered as having a
permissible variable rate if it has a fixed or otherwise permissible variable
rate during one or more payment or accrual periods and different fixed or
otherwise permissible variable rates during other payment or accrual periods.
ORIGINAL ISSUE DISCOUNT. REMIC Regular Securities of certain Series
may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Holders of REMIC Regular Securities issued with original
issue discount generally must include original issue discount in gross income
for federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Security be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Securities.
Each Trust Fund will report original issue discount, if any, to the
holders of REMIC Regular Securities based on the OID Regulations. OID
Regulations concerning contingent payment debt instruments do not apply to the
REMIC Regular Securities.
The OID Regulations provide that, in the case of debt instruments such
as REMIC Regular Securities, (i) the amount and rate of accrual of original
issue discount will be calculated based on a reasonable assumed prepayment rate
(the "Prepayment Assumption"), and (ii) adjustments will be made in the amount
and rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular Securities
will be the rate used in pricing the initial offering of the securities. The
Prospectus Supplement for each Series of REMIC Regular Securities will specify
the Prepayment Assumption, but no representation is made that the REMIC Regular
Securities will, in fact, prepay at a rate based on the Prepayment Assumption or
at any other rate.
In general, a REMIC Regular Security will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under "--Payment Lag REMIC Regular
Securities; Initial Period Considerations," and "--Qualified Stated Interest,"
and in the case of certain Variable Rate REMIC Regular Securities (as defined
below) and accrual Securities, the stated redemption price at maturity of a
REMIC Regular Security is its principal amount. The issue price of a REMIC
Regular Security is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the class of REMIC Regular
Securities is sold. The issue price will be reduced if any portion of such price
is allocable to a related Yield Supplement Agreement. Notwithstanding the
general definition of original issue discount, such discount will be considered
to be zero for any REMIC Regular Security on which such discount is less than
0.25% of its stated redemption price at maturity multiplied by its weighted
average life. The weighted average life of a REMIC Regular Security apparently
is computed for purposes of this DE MINIMIS rule as the sum, for all
distributions included in the stated redemption price at maturity of the REMIC
Regular Security, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Closing Date to the
date on which each such distribution is expected to be made, determined under
the Prepayment Assumption, by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the REMIC Regular
Security's stated redemption price at maturity. The OID Regulations provide that
holders will include any DE MINIMIS original issue discount ratably as payments
of stated principal are made on the REMIC Regular Securities.
The holder of a REMIC Regular Security issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Security. In the case of an original holder of a REMIC
Regular Security, the daily portions of original issue discount are determined
first by calculating the portion of the original issue discount that accrued
during each period (an "accrual period") that begins on the day following a
Distribution Date (or in the case of the first such period, begins on the
Closing Date) and ends on the next succeeding Distribution Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Security, if any, in future periods and (B) the distributions
made on the REMIC Regular Security during the accrual period that are included
in such REMIC Regular Security's stated redemption price at maturity, over (ii)
the adjusted issue price of such REMIC Regular Security at the beginning of the
accrual period. The present value of the remaining distributions referred to in
the preceding sentence will be calculated (i) assuming that the REMIC Regular
Securities will be prepaid in future periods at a rate computed in accordance
with the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the REMIC Regular Securities. For these purposes,
the original yield to maturity of the REMIC Regular Securities will be
calculated based on their issue price and assuming that the REMIC Regular
Securities will be prepaid in accordance with the Prepayment Assumption. The
adjusted issue price of a REMIC Regular Security at the beginning of any accrual
period will equal the issue price of such REMIC Regular Security, increased by
the portion of the original issue discount that has accrued during prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Security in prior accrual periods that were included in such REMIC
Regular Security's stated redemption price at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Security in future accrual
periods. 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. However, Treasury regulations do not address this issue.
A subsequent holder that purchases a REMIC Regular Security issued
with original issue discount at a cost that is less than its remaining stated
redemption price at maturity will also generally be required to include in gross
income, for each day on which it holds such REMIC Regular Security, the daily
portions of original issue discount with respect to the REMIC Regular Security,
calculated as described above. However, if (i) the excess of the remaining
stated redemption price at maturity over such cost is less than (ii) the
aggregate amount of such daily portions for all days after the date of purchase
until final retirement of such REMIC Regular Security, then such daily portions
will be reduced proportionately in determining the income of such holder.
QUALIFIED STATED INTEREST. Interest payable on a REMIC Regular
Security which qualifies as "qualified stated interest" for purposes of the OID
Regulations will not be includable in the stated redemption price at maturity of
the REMIC Regular Security. Accordingly, if the interest on a REMIC Regular
Security does not constitute "qualified stated interest," the REMIC Regular
Security will have original issue discount. Interest payments will not qualify
as qualified stated interest unless the interest payments are "unconditionally
payable." The OID Regulations state that interest is unconditionally payable if
reasonable legal remedies exist to compel timely payment, or the debt instrument
otherwise provides terms and conditions that make the likelihood of late payment
(other than a late payment that occurs within a reasonable grace period) or
nonpayment of interest a remote contingency, as defined in the OID Regulations.
Treasury regulations do not address whether the terms and conditions of the
Mortgage Assets underlying the REMIC Regular Securities or the terms and
conditions of the REMIC Regular Securities are considered when determining
whether the likelihood of late payment or nonpayment of interest is a remote
contingency. Any terms or conditions that do not reflect arm's length dealing or
that the holder does not intend to enforce are not considered.
PREMIUM. A purchaser of a REMIC Regular Security that purchases such
REMIC Regular Security at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Security at a premium, and may, under Section 171 of the Code, elect to amortize
such premium under a constant yield method over the life of the REMIC Regular
Security. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Security for this purpose. Except as
provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Security.
PAYMENT LAG REMIC REGULAR SECURITIES; INITIAL PERIOD CONSIDERATIONS.
Certain REMIC Regular Securities will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues prior
to the Closing Date may be treated under the OID Regulations either (i) as part
of the issue price and the stated redemption price at maturity of the REMIC
Regular Securities or (ii) as not included in the issue price or the stated
redemption price. The OID Regulations provide a special application of the DE
MINIMIS rule for debt instruments with long first accrual periods where the
interest payable for the first period is at a rate which is effectively less
than that which applies in all other periods. In such cases, for the sole
purpose of determining whether original issue discount is DE MINIMIS, the OID
Regulations provide that the stated redemption price is equal to the
instrument's issue price plus the greater of the amount of foregone interest or
the excess (if any) of the instrument's stated principal amount over its issue
price.
VARIABLE RATE REMIC REGULAR SECURITIES. Under the OID Regulations,
REMIC Regular Securities paying interest at a variable rate (a "Variable Rate
REMIC Regular Security") are subject to special rules. A Variable Rate REMIC
Regular Security will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Security by more than a specified DE MINIMIS
amount; (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate; and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except as provided in (i), above.
Because the OID Regulations relating to contingent payment debt instruments do
not apply to REMIC regular interests, principal payments on the REMIC Regular
Securities should not be considered contingent for this purpose.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Security is denominated. A multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate for
purposes of the OID Regulations. However, a variable rate equal to (i) the
product of a qualified floating rate and a fixed multiple that is greater than
0.65 but not more than 1.35 or (ii) the product of a qualified floating rate and
a fixed multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Rate REMIC Regular Security
will be treated as a single qualified floating rate (a "Presumed Single
Qualified Floating Rate"). Two or more qualified floating rates with values
within 25 basis points of each other as determined on the Variable Rate REMIC
Regular Security's issue date will be conclusively presumed to be a Presumed
Single Qualified Floating Rate. Notwithstanding the foregoing, a variable rate
that would otherwise constitute a qualified floating rate, but which is subject
to one or more restrictions such as a cap or floor, will not be a qualified
floating rate for purposes of the OID Regulations unless the restriction is
fixed throughout the term of the Variable Rate REMIC Regular Security or the
restriction is not reasonably expected as of the issue date to significantly
affect the yield of the Variable Rate REMIC Regular Security.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the Internal Revenue Service in the future. An interest rate on a
REMIC Regular Security that is the weighted average of the interest rates on
some or all of the qualified mortgages held by the REMIC should constitute an
objective rate. Despite the foregoing, a variable rate of interest on a Variable
Rate REMIC Regular Security will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half of
the Variable Rate REMIC Regular Security's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Variable Rate REMIC Regular Security's term. Further, an
objective rate does not include a rate that is based on information that is
within the control of the issuer (or a party related to the issuer) or that is
unique to the circumstances of the issuer (or a party related to the issuer). An
objective rate will qualify as a "qualified inverse floating rate" if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Security provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Security's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a "Presumed Single Variable Rate"). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Security's issue
date, the variable rate will be conclusively presumed to approximate the fixed
rate.
For Variable Rate REMIC Regular Securities that qualify as a "variable
rate debt instrument" under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a "Single Variable Rate REMIC Regular Security"), original issue discount
is computed as described above in "--Current Income on REMIC Regular
Securities--Original Issue Discount" based on the following: (i) stated interest
on the Single Variable Rate REMIC Regular Security which is unconditionally
payable in cash or property (other than debt instruments of the issuer) at least
annually will constitute qualified stated interest; (ii) by assuming that the
variable rate on the Single Variable Rate REMIC Security is a fixed rate equal
to: (a) in the case of a Single Variable Rate REMIC Regular Security with a
qualified floating rate or a qualified inverse floating rate, the value, as of
the issue date, of the qualified floating rate or the qualified inverse floating
rate or (b) in the case of a Single Variable Rate REMIC Regular Security with an
objective rate (other than a qualified inverse floating rate), a fixed rate
which reflects the reasonably expected yield for such Single Variable Rate REMIC
Regular Security; and (iii) the qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
under the assumed fixed rate described in (ii), above.
In general, any Variable Rate REMIC Regular Security other than a
Single Variable Rate REMIC Regular Security(a "Multiple Variable Rate REMIC
Regular Security") that qualifies as a "variable rate debt instrument" will be
converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Security. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Security be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Security with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Multiple Variable
Rate REMIC Regular Security's issue date. Any objective rate (other than a
qualified inverse floating rate) provided for under the terms of the Multiple
Variable Rate REMIC Regular Security is converted into a fixed rate that
reflects the yield that is reasonably expected for the Multiple Variable Rate
REMIC Regular Security. (A Multiple Variable Rate REMIC Regular Security may not
bear more than one objective rate.) In the case of a Multiple Variable Rate
REMIC Regular Security that qualifies as a "variable rate debt instrument" and
provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Multiple Variable Rate REMIC Regular Security provides for
a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate REMIC
Regular Security as of the Multiple Variable Rate REMIC Regular Security's issue
date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Multiple Variable Rate REMIC Regular Security is then
converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate REMIC Regular Security is converted
into an "equivalent" fixed rate debt instrument pursuant to the foregoing rules,
the amounts of original issue discount and qualified stated interest, if any,
are determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described above in "--Current Income on REMIC Regular
Securities--Original Issue Discount." A holder of the Multiple Variable Rate
REMIC Regular Security will account for such original issue discount and
qualified stated interest as if the holder held the "equivalent" fixed rate debt
instrument. In each accrual period, appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Multiple Variable Rate REMIC Regular Security during the accrual
period.
If a Variable Rate REMIC Regular Security does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Security would be treated as a contingent payment debt
obligation. The manner in which a Variable Rate REMIC Regular Security would be
taxed if such REMIC Regular Security were treated as a contingent payment debt
obligation is not governed by the OID Regulations relating to contingent payment
debt obligations which do not apply to REMIC regular interests and Treasury
regulations do not otherwise address this point.
INTEREST-ONLY REMIC REGULAR SECURITIES. The Trust Fund intends to
report income from interest-only REMIC Regular Securities to the Internal
Revenue Service and to holders of interest-only REMIC Regular Securities based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Securities will be treated as having original
issue discount.
MARKET DISCOUNT. A holder that acquires a REMIC Regular Security at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the holder of a REMIC Regular Security will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Security that has accrued but has not previously been includable
in income, and will recognize ordinary income to that extent. In general terms,
unless Treasury regulations when issued provide otherwise, market discount on a
REMIC Regular Security may be treated, at the election of the holder of the
REMIC Regular Security, as accruing either (i) under a constant yield method,
taking into account the Prepayment Assumption, or (ii) in proportion to accruals
of original issue discount (or, if there is no original issue discount, in
proportion to stated interest at the Interest Rate).
In addition, a holder may be required to defer deductions for a
portion of the holder's interest expense on any debt incurred or continued to
purchase or carry a REMIC Regular Security purchased with market discount. The
deferred portion of any interest deduction would not exceed the portion of the
market discount on the REMIC Regular Security that accrues during the taxable
year in which such interest would otherwise be deductible and, in general, would
be deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Security. The
Code requires that information necessary to compute accruals of market discount
be reported periodically to the Internal Revenue Service and to certain
categories of holders of REMIC Regular Securities.
Notwithstanding the above rules, market discount on a REMIC Regular
Security will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular Security
multiplied by its weighted average remaining life. Weighted average remaining
life presumably is calculated in a manner similar to weighted average life
(described above under "--Current Income on REMIC Regular Securities--Original
Issue Discount"), taking into account distributions (including prepayments)
prior to the date of acquisition of such REMIC Regular Security by the
subsequent purchaser. If market discount on a REMIC Regular Security is treated
as zero under this rule, the actual amount of such discount must be allocated to
the remaining principal distributions on such REMIC Regular Security in
proportion to the amounts of such principal distributions, and when each such
distribution is made, gain equal to the discount, if any, allocated to the
distribution will be recognized.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD RULES. The OID
Regulations provide that the holder of a debt instrument issued after April 4,
1994 may elect to include in gross income all interest that accrues on such debt
instrument using the constant yield method. For purposes of this election,
interest includes stated interest, original issue discount, and market discount,
as adjusted to account for any premium. Holders of REMIC Regular Securities
should consult their own tax advisors regarding the availability or advisability
of such an election.
SINGLE-CLASS REMICS. In the case of "single-class REMICs," certain
expenses of the REMIC will be allocated to the holders of the REMIC Regular
Securities. The deductibility of such expenses may be subject to certain
limitations. See "--Deductibility of Trust Fund Expenses" below.
SALES OF REMIC REGULAR SECURITIES. If a REMIC Regular Security is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Security. A holder's adjusted basis in a REMIC Regular Security generally equals
the cost of the REMIC Regular Security to the holder, increased by income
reported by the holder with respect to the REMIC Regular Security and reduced
(but not below zero) by distributions on the REMIC Regular Security received by
the holder and by amortized premium. Except as indicated in the next two
paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Security is held as a capital asset.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the seller's income with respect to the REMIC Regular Security had
income accrued thereon at a rate equal to 110% of "the applicable federal rate"
(generally, an average of current yields on Treasury securities), determined as
of the date of purchase of the REMIC Regular Security, over (ii) the amount
actually includable in the seller's income. In addition, gain recognized on the
sale of a REMIC Regular Security by a seller who purchased the REMIC Regular
Security at a market discount would be taxable as ordinary income in an amount
not exceeding the portion of such discount that accrued during the period the
REMIC Regular Security was held by such seller, reduced by any market discount
includable in income under the rules described above under "--Current Income on
REMIC Regular Securities--Market Discount."
REMIC Regular Securities will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized
from a sale of a REMIC Regular Security by a bank or other financial institution
to which such section applies would be ordinary income or loss.
TERMINATION. The REMIC will terminate, if not earlier, shortly
following the REMIC's receipt of the final payment in respect of the underlying
qualified mortgages. The last distribution on a REMIC Regular Security should be
treated as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a holder of a REMIC Regular Security of a Series will have a
separate contractual right to payments under a Yield Supplement Agreement, and
the tax treatment of such payments, if any, will be addressed in the related
Prospectus Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a holder of a REMIC Residual Certificate must be
treated as ordinary income or loss as the case may be. Income from residual
interests is "portfolio income" which cannot be offset by "passive activity
losses" in the hands of individuals or other persons subject to the passive loss
rules. The Code also provides that all residual interests must be issued on the
REMIC's startup day and designated as such. For this purpose, "startup day"
means the day on which the REMIC issues all of its regular and residual
interests, and under the REMIC Regulations may, in the case of a REMIC to which
property is contributed over a period of up to ten consecutive days, be any day
designated by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the
amounts taken into account by holders of REMIC Residual Certificates, is
determined in the same manner as in the case of an individual, with certain
exceptions. The accrual method of accounting must be used and the taxable year
of the REMIC must be the calendar year. The basis of property contributed to the
REMIC in exchange for regular or residual interests is its fair market value
immediately after the transfer. The REMIC Regulations determine the fair market
value of the contributed property by deeming it equal to the aggregate issue
prices of all regular and residual interests in the REMIC.
A REMIC Regular Security will be considered indebtedness of the REMIC.
Market discount on any of the Mortgage Assets held by the REMIC must be included
in the income of the REMIC as it accrues, rather than being included in income
only upon sale of the Mortgage Assets or as principal on the Mortgage Assets is
paid. The REMIC is not entitled to any personal exemptions or to deductions for
taxes paid to foreign countries and U.S. possessions, charitable contributions
or net operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a "prohibited transaction"
is disregarded. See "--Prohibited Transactions."
As previously discussed, the timing of recognition of negative
original issue discount, if any, on a REMIC Regular Security is uncertain. As a
result, the timing of recognition of the related REMIC taxable income is also
uncertain. The related REMIC taxable income may be recognized when the adjusted
issue price of such REMIC Regular Security would exceed the maximum amount of
future payments with respect to such REMIC Regular Security. However, Treasury
regulations do not address this issue.
A REMIC Residual Certificate has a tax basis in its holder's hands
that is distinct from the REMIC's basis in its assets. The tax basis of a REMIC
Residual Certificate in its holder's hands will be its cost (I.E., the purchase
price of the REMIC Residual Certificate), and will be reduced (but not below
zero) by the holder's share of cash distributions and losses and increased by
its share of taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC
Residual Certificate in any quarter may not exceed the holder's basis in its
REMIC Residual Certificate. Any excess losses may be carried forward
indefinitely to future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce its share of the
REMIC's taxable income.
MISMATCHING OF INCOME AND DEDUCTIONS. The taxable income recognized by
the holder of a REMIC Residual Certificate in any taxable year will be affected
by, among other factors, the relationship between the timing of recognition of
interest and discount income (or deductions for amortization of premium) with
respect to qualified mortgages, on the one hand, and the timing of deductions
for interest (including original issue discount) on the REMIC Regular
Securities, on the other. In the case of multiple classes of REMIC Regular
Securities issued at different yields, and having different weighted average
lives, taxable income recognized by the holders of REMIC Residual Certificates
may be greater than cash flow in earlier years of the REMIC (with a
corresponding taxable loss or less taxable income than cash flow in later
years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Securities, will increase over time as the shorter term, lower yielding
classes of REMIC Regular Securities are paid, whereas interest income from the
Mortgage Assets may not increase over time as a percentage of the outstanding
principal amount of the Mortgage Assets.
In the case of Tiered REMICs, the OID Regulations provide that the
regular interests in the REMIC which directly owns the Mortgage Assets (the
"Lower Tier REMIC") will be treated as a single debt instrument for purposes of
the original issue discount provisions. Therefore, the Trust Fund will calculate
the taxable income of Tiered REMICs by treating the Lower Tier REMIC regular
interests as a single debt instrument.
EXCESS INCLUSIONS. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to certain special rules. The excess
inclusions with respect to a REMIC Residual Certificate are equal to the excess,
if any, of its share of REMIC taxable income for the quarterly period over the
sum of the daily accruals for such quarterly period. The daily accrual for any
day on which the REMIC Residual Certificate is held is determined by allocating
to each day in a quarter its allocable share of the product of (A) 120% of the
long-term applicable federal rate (for quarterly compounding) that would have
applied to the REMIC Residual Certificates (if they were debt instruments) on
the closing date under Section 1274(d)(1) and (B) of the Code the adjusted issue
price of such REMIC Residual Certificates at the beginning of a quarterly
period. For this purpose, the adjusted issue price of such REMIC Residual
Certificate at the beginning of a quarterly period is the issue price of such
Securities plus the amount of the daily accruals of REMIC taxable income for all
prior quarters, decreased by any distributions made with respect to such
Securities prior to the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be
offset by other deductions, including net operating loss carryforwards, on a
holder's return.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular taxable
income computed without regard to the rule that taxable income cannot be less
than the amount of excess inclusions, (ii) the alternative minimum taxable
income of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions. While
these provisions are generally effective for tax years beginning after December
31, 1986, a taxpayer may elect to have these provisions apply only with respect
to tax years beginning after August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization
subject to the tax on unrelated business income imposed by Section 511 of the
Code, the excess inclusions will be treated as unrelated business taxable income
of such holder for purposes of Section 511 of the Code. In addition, the Code
provides that under Treasury regulations, if a real estate investment trust
("REIT") owns a REMIC Residual Certificate, to the extent excess inclusions of
the REIT exceed its real estate investment trust taxable income (excluding net
capital gains), the excess inclusions would be allocated among the shareholders
of the REIT in proportion to the dividends received by the shareholders from the
REIT. Excess inclusions derived by regulated investment companies ("RICs"),
common trust funds, and subchapter T cooperatives must be allocated to the
shareholders of such entities using rules similar to those applicable to REITs.
The Internal Revenue Service has not yet adopted or proposed such regulations as
to REITs, RICs, or similar entities. A life insurance company cannot adjust its
reserve with respect to variable contracts to the extent of any excess
inclusion, except as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations. This authority has not been exercised to
date.
PROHIBITED TRANSACTIONS. A REMIC is subject to tax at a rate of 100
percent on any net income it derives from "prohibited transactions." In general,
"prohibited transaction" means the disposition of a qualified mortgage other
than pursuant to specified exceptions, the receipt of income as compensation for
services, the receipt of income from a source other than a qualified mortgage or
certain other permitted investments, or gain from the disposition of an asset
representing a temporary investment of payments on the qualified mortgages
pending distribution on the REMIC Securities. In addition, a tax is imposed on a
REMIC equal to 100 percent of the value of certain property contributed to the
REMIC after its "startup day." No REMIC in which interests are offered hereunder
will accept contributions that would cause it to be subject to such tax. This
provision will not affect a REMIC's ability in accordance with the Agreement to
accept substitute Mortgage Assets or to sell defective Mortgage Assets.
A REMIC is subject to a tax (deductible from its income) on any "net
income from foreclosure property" (determined in accordance with Section
857(b)(4)(B) of the Code as if the REMIC were a REIT).
The related Prospectus Supplement will indicate whether any tax
described in the two preceding paragraphs that may be imposed on a Trust Fund
initially would be borne by the REMIC Residual Certificates in the related REMIC
rather than by the REMIC Regular Securities.
DEALERS' ABILITY TO MARK TO MARKET REMIC RESIDUAL CERTIFICATES.
Treasury regulations provide that all REMIC Residual Certificates acquired on or
after January 4, 1995 are not securities and cannot be marked to market pursuant
to Section 475 of the Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
TAX ON DISPOSITION OF REMIC RESIDUAL CERTIFICATES. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Section 582(c) of the Code, the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although the tax treatment with respect to a REMIC Residual Certificate
that has unrecovered basis after all funds of the Trust Fund have been
distributed is not addressed in Treasury regulations, under general tax
principles, the holder would be entitled to claim a loss in the amount of the
unrecovered basis.
The Code provides that, except as provided in Treasury regulations
(which have not yet been issued), if a holder sells a REMIC Residual Certificate
and acquires the same or other REMIC Residual Certificates, residual interests
in another REMIC, or any similar interests in a "taxable mortgage pool" (as
defined in Section 7701(i) of the Code) during the period beginning six months
before, and ending six months after, the date of such sale, such sale will be
subject to the "wash sale" rules of Section 1091 of the Code. In that event, any
loss realized by the seller on the sale generally will not be currently
deductible.
A tax is imposed on the transfer of any residual interest in a REMIC
to a "disqualified organization." The tax is imposed on the transferor, or,
where the transfer is made through an agent of the disqualified organization, on
the agent. "Disqualified organizations" include for this purpose the United
States, any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions for periods after such transfer with respect to the interest
transferred multiplied by the highest corporate rate of tax. The transferor (or
agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
TREATMENT OF PAYMENTS TO A TRANSFEREE IN CONSIDERATION OF TRANSFER OF
A REMIC RESIDUAL CERTIFICATE. The preamble to the REMIC Regulations indicates
that the Internal Revenue Service is considering the appropriate federal income
tax consequences of any considertaion paid to a transferee on a transfer of an
interest in a REMIC Residual Certificate and has requested comments on this
issue from tax practitioners. A transferee of such an interest should consult
its own tax advisors.
RESTRICTIONS ON TRANSFER; HOLDING BY PASS-THROUGH ENTITIES. An entity
or segregated pool of assets cannot qualify as a REMIC absent reasonable
arrangements designed to ensure that (1) residual interests in such entity or
segregated pool are not held by disqualified organizations and (2) information
necessary to calculate the tax due on transfers to disqualified organizations
(I.E., a computation of the present value of the excess inclusions) is made
available by the REMIC. The governing instruments of a Trust Fund will contain
provisions designed to ensure the foregoing, and any transferee of a REMIC
Residual Certificate must execute and deliver an affidavit stating that neither
the transferee nor any person for whose account such transferee is acquiring the
REMIC Residual Certificate is a disqualified organization. In addition, as to
the requirement that reasonable arrangements be made to ensure that disqualified
organizations do not hold a residual interest in the REMIC, the REMIC
Regulations require that notice of the prohibition be provided either through a
legend on the certificate that evidences ownership, or through a conspicuous
statement in the prospectus or other offering document used to offer the
residual interest for sale. As to the requirement that sufficient information be
made available to calculate the tax on transfers to disqualified organizations
(or the tax, discussed below, on pass-through entities, interests in which are
held by disqualified organizations), the REMIC Regulations further require that
such information also be provided to the Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass- through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass- through entity" against the gross amount of ordinary income of the
entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
For taxable years beginning after December 31, 1997, all partners of
certain "electing large partnerships" having 100 or more number of partners will
be treated as disqualified organizations for purposes of the tax imposed on
pass-through entities if such partnerships hold residual interests in a REMIC.
In addition, 70 percent of an electing large partnership's miscellaneous
itemized deductions will be disallowed, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
will not be subject to the 2 percent floor applicable to individual partners.
See "--Deductibility of Trust Fund Expenses" below.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer (1) the present value of
the expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate, and (2)
the transferor reasonably expects that for each anticipated excess inclusion,
the transferee will receive distributions from the REMIC, at or after the time
at which taxes on such excess inclusion accrue, sufficient to pay the taxes
thereon. A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known (had "improper knowledge") that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. A
transferor will be presumed not to have improper knowledge if (i) the transferor
conducts, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
came due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future, and (ii) the
transferee represents to the transferor that (A) the transferee understands that
it might incur tax liabilities in excess of any cash received with respect to
the residual interest and (B) the transferee intends to pay the taxes associated
with owning the residual interest as they come due. Any transferee of a REMIC
Residual Certificate must execute and deliver to the transferor an affidavit
containing the representations described in (ii) above. A different formulation
of this rule applies to transfers of REMIC Residual Certificates by or to
foreign transferees. See "--Foreign Investors in REMIC Securities" below.
DEDUCTIBILITY OF TRUST FUND EXPENSES
A holder of REMIC Securities that is an individual, estate or trust
will be subject to the limitation with respect to certain itemized deductions
described in Section 67 of the Code, to the extent that such deductions, in the
aggregate, do not exceed two percent of the holder's adjusted gross income, and
such holder may not be able to deduct such fees and expenses to any extent in
computing such holder's alternative minimum tax liability. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the "applicable amount" ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) will be reduced by the
lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee, and administrative fees paid to the Master Servicer of the
Mortgage Assets. These deductions will be allocated entirely to the holders of
the REMIC Residual Certificates in the case of REMIC Trust Funds with multiple
classes of REMIC Regular Securities that do not pay their principal amounts
ratably. As a result, the REMIC will report additional taxable income to holders
of REMIC Residual Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding an interest in such
REMIC Residual Certificates may have taxable income in excess of the cash
received. In the case of a "single-class REMIC," the expenses will be allocated,
under Treasury regulations, among the holders of the REMIC Regular Securities
and the REMIC Residual Certificates on a daily basis in proportion to the
relative amounts of income accruing to each holder on that day. In the case of a
holder of a REMIC Regular Security who is an individual or a "pass-through
interest holder" (including certain pass-through entities, but not including
REITs), the deductibility of such expenses will be subject to the limitations
described above. The reduction or disallowance of these deductions may have a
significant impact on the yield of REMIC Regular Securities to such a holder. In
general terms, a single-class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
which is structured with the principal purpose of avoiding the single-class
REMIC rules.
FOREIGN INVESTORS IN REMIC SECURITIES
REMIC REGULAR SECURITIES. Except as discussed below, a holder of a
REMIC Regular Security who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Security, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Security under penalties of perjury, certifying that the
holder of the REMIC Regular Security is not a United States person and providing
the name and address of the holder, (ii) the holder is not a "10-percent
shareholder" within the meaning of Section 871(h)(3)(B) of the Code, which could
be interpreted to apply to a holder of a REMIC Regular Security who holds a
direct or indirect 10 percent interest in the REMIC Residual Certificates, (iii)
the holder is not a "controlled foreign corporation" (as defined in the Code)
related to the REMIC or related to a 10 percent holder of a residual interest in
the REMIC, and (iv) the holder is not engaged in a United States trade or
business, or otherwise subject to federal income tax as a result of any direct
or indirect connection to the United States other than through its ownership of
a REMIC Regular Security. For these purposes, the term "United States person"
means (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate whose income
is includable in gross income for United States federal income taxation
regardless of its source, and (iv) a trust for which one or more United States
fiduciaries have the authority to control all substantial decisions and for
which a court of the United States can exercise primary supervision over the
trust's administration. For years beginning before January 1, 1997, the term
"United States person" shall include a trust whose income is includible in gross
income for United States federal income taxation regardless of source, in lieu
of trusts described in (iv) above, unless the trust elects to have its United
States status determined under the criteria set forth in (iv) above for tax
years ending after August 20, 1996. Recently issued Treasury regulations (the
"Final Withholding Regulations"), which are generally effective with respect to
payments made after December 31, 1999, consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. All holders
should consult their tax advisers regarding the application of the Final
Withholding Regulations.
REMIC RESIDUAL CERTIFICATES. The Conference Report to the Tax Reform
Act of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "--Foreign Investors in REMIC Securities--REMIC
Regular Securities") or to the extent a tax treaty reduces or eliminates the
tax. Treasury regulations provide that amounts paid with respect to residual
interests qualify as portfolio interest only if interest on the qualified
mortgages held by the REMIC qualifies as portfolio interest. Generally, interest
on the Mortgage Assets held by a Trust Fund will not qualify as portfolio
interest, although interest on the Private Mortgage-Backed Securities, other
pass-through certificates, or REMIC regular interests held by a Trust Fund may
qualify. In any case, a holder of a REMIC Residual Certificate will not be
entitled to the portfolio interest exception from the 30% withholding tax (or to
any treaty exemption or rate reduction) for that portion of a payment that
constitutes excess inclusions. Generally, the withholding tax will be imposed
when REMIC gross income is paid or distributed to the holder of a residual
interest or there is a disposition of the residual interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Mortgage Assets from 50 percent of the Prepayment Assumption to 200
percent of the Prepayment Assumption. A transfer by a foreign transferor to a
domestic transferee will likewise be disregarded under the REMIC Regulations if
the transfer would have the effect of allowing the foreign transferor to avoid
the tax on accrued excess inclusions.
BACKUP WITHHOLDING ON REMIC SECURITIES
Distributions made on the REMIC Securities and proceeds from the sale
of REMIC Securities to or through certain brokers may be subject to a "backup"
withholding tax of 31 percent of "reportable payments" (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Securities complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Securities
would be refunded by the Internal Revenue Service or allowable as a credit
against the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust Fund (Form 1066 and
Schedules Q thereto) must be filed as if the Trust Fund were a partnership for
federal income tax purposes. Information on Schedule Q must be provided to
holders of REMIC Residual Certificates with respect to every calendar quarter.
Each holder of a REMIC Residual Certificate will be required to treat items on
its federal income tax returns consistently with their treatment on the Trust
Fund's information returns unless the holder either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from an incorrect schedule received from the Trust Fund. The Trust Fund also
will be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination of any adjustments to,
among other things, items of REMIC taxable income by the Internal Revenue
Service. Holders of REMIC Residual Certificates will have certain rights and
obligations with respect to any administrative or judicial proceedings involving
the Internal Revenue Service. Under the Code and Regulations, a REMIC generally
is required to designate a tax matters person. Generally, subject to various
limitations, the tax matters person has authority to act on behalf of the REMIC
and the holders of the REMIC Residual Certificates in connection with
administrative determinations and judicial review respecting returns of taxable
income of the REMIC. Treasury regulations exempt from certain of these
procedural rules REMICs having no more than one residual interest holder.
The Prospectus Supplement will indicate whether the Trustee, its
designee or some other party will act as the tax matters person for each REMIC.
Each holder of a REMIC Residual Certificate, by the acceptance of its interest
in the REMIC Residual Certificate, agrees that the Trustee or its designee will
act as the holder's fiduciary in the performance of any duties required of the
holder in the event that the holder is the tax matters person.
FASIT SECURITIES
If a FASIT election with respect to a Trust Fund is to be made, the
Prospectus Supplement will designate the Securities of such Series or the
interests composing such Securities as "regular interests" ("FASIT Regular
Securities") which, where the context so requires, includes a reference to each
interest composing a Security where such interest has been designated as a
regular interest, in lieu of such Securities, in the FASIT (within the meaning
of Section 860L(b)(1)(A) of the Code) or an "ownership interest" ("FASIT
Ownership Certificate") in the FASIT (within the meaning of Section 860L(b)(2)
of the Code). Each class of FASIT Regular Securities which are "high- yield
interests" within the meaning of Section 860L(b)(1)(B) of the Code ("High-Yield
Interests") will be identified as such in the Prospectus Supplement. The term
"FASIT Securities" denotes Securities (or the interests composing Securities) of
a Series with respect to which a FASIT election will be made.
With respect to each Series of FASIT Securities, the Trustee will
agree in the Agreement to elect to treat the related Trust Fund or certain
assets of such Trust Fund as a FASIT. Qualification as a FASIT requires ongoing
compliance with certain conditions which are generally described below. Upon the
issuance of each Series of FASIT Securities, Federal Tax Counsel will deliver
its opinion that, with respect to each Series of FASIT Securities for which a
FASIT election is to be made, under then existing law, and assuming a proper and
timely FASIT election and ongoing compliance with the provisions of the
Agreement and applicable provisions of the Code and applicable Treasury
regulations, if any, the related Trust Fund or certain assets of such Trust Fund
will be a FASIT and the FASIT Securities will be considered to evidence
ownership of "regular interests" or an "ownership interest" within the meaning
of the FASIT provisions of the Code.
QUALIFICATION AS A FASIT
The following is a general description of the requirements under the
applicable provisions of Sections 860H through 860L of the Code for the Trust
Fund or certain assets of each Trust Fund to qualify as a FASIT. Treasury
regulations have not yet been proposed or issued with respect to FASITs. A FASIT
must fulfill an assets test, which requires that substantially all the assets of
the FASIT, as of the close of the third calendar month beginning after the
Startup Day and at all times thereafter, must consist of cash or cash
equivalents, certain permitted debt instruments (other than debt instruments
issued by the holder of the FASIT Ownership Certificate or a related party) and
hedges (including contracts to acquire hedges), foreclosure property and regular
interests in another FASIT or in a REMIC. By analogy to the REMIC provisions, it
appears that the "substantially all" requirements should be met if at all times
the aggregate adjusted basis of the nonqualified assets is less than one percent
of the aggregate adjusted basis of all the FASIT's assets. The FASIT Ownership
Certificate and "High-Yield Interests" (described below) may be held only by
certain fully taxable, domestic corporations ("eligible corporations" described
below). The Agreement for each Trust Fund will provide that no legal or
beneficial interests in the FASIT Ownership Certificate or in any Class of FASIT
Regular Securities which the Seller determines to be a High-Yield Interest may
be transferred or registered unless certain conditions, designed to prevent
violation of this requirement, are met.
For purposes of the assets test, permitted debt instruments must bear
interest, if any, at a fixed or qualified variable rate. Permitted hedges
include interest rate or foreign currency notional principal contracts, letters
of credit, insurance, guarantees of payment default and similar instruments as
provided in regulations, and which are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on interests issued
by the FASIT. Foreclosure property is real property acquired by the FASIT in
connection with the default or imminent default of a qualified mortgage,
provided the Seller had no knowledge or reason to know as of the date such asset
was acquired by the FASIT that such a default had occurred or would occur.
Foreclosure property may generally not be held beyond the close of the third
taxable year after the taxable year in which the FASIT acquired such property,
with one extension available from the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a
FASIT also must meet the following requirements. All of the interests in a FASIT
must be: (i) one or more classes of FASIT regular interests or (ii) a single
FASIT ownership interest. A FASIT regular interest is an interest that is issued
on or after the Startup Day with fixed terms, is designated as a FASIT regular
interest, and (i) unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), (ii) provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or on a qualified variable rate that would be permitted
under the REMIC Regulations, (iii) has a stated maturity of generally not longer
than 30 years, (iv) has an issue price not greater than 125% of its stated
principal amount, and (v) has a yield to maturity not greater than 5 percentage
points higher that the related applicable federal rate (as defined in Section
1274(d) of the Code). A FASIT regular interest that is described in the
preceding sentence except that it fails to meet one or more of requirements (i),
(ii) (iv) or (v) is a "High-Yield Interest." In order for a FASIT to issue a
High-Yield Interest that fails requirement (ii), such High-Yield Interest must
consist of a specified, nonvarying portion of the interest payments on the
permitted assets (as provided in the REMIC rules). A FASIT ownership interest is
an interest in a FASIT other than a regular interest that is issued on the
Startup Day, is designated a FASIT ownership interest and is held by an
"eligible corporation". An "eligible corporation" is a taxable C corporation
which is not a RIC, REIT, REMIC or cooperative and, therefore, would not include
tax-exempt entities (including pension funds).
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as a FASIT during any taxable year, the
entity or applicable portion thereof will not be treated as a FASIT thereafter.
In this event, any entity that holds Mortgage Assets and is the obligor with
respect to debt obligations with two or more maturities may be treated as a
separate taxable mortgage pool (I.E, as an association taxable as a corporation;
see "-- Tax Characterization of the Trust as a Partnership--Taxable Mortgage
Pools."), and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history of the FASIT provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all FASIT regular interests and their reissuance. If the resulting interests
would be treated as equity under general tax principles, cancellation of debt
income may result.
TIERED FASIT STRUCTURES
For certain Series of Securities, two or more separate elections may
be made to treat designated portions of the related Trust Fund as FASITs
("Tiered FASITs") for federal income tax purposes. Upon the issuance of any such
Series of Securities, Federal Tax Counsel will deliver its opinion that,
assuming compliance with all provisions of the related Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
Tiered FASITs will each qualify under then existing law as a FASIT and the FASIT
Securities issued by the Tiered FASITs, respectively, will be considered to
evidence ownership of "regular interests" or "ownership interests" in the
related FASIT within the meaning of the FASIT provisions of the Code.
Solely for purposes of determining whether the FASIT Regular
Securities will be "real estate assets" within the meaning of Section
856(c)(4)(A) of the Code, and assets described in Section 7701(a)(19)(C) of the
Code, and whether the income on such Securities is interest described in Section
856(c)(3)(B) of the Code, the Tiered FASITs will be treated as one FASIT.
FASIT REGULAR SECURITIES
CURRENT INCOME ON FASIT REGULAR SECURITIES-GENERAL. Except as
otherwise indicated herein, the FASIT Regular Securities will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the FASIT on the date of
issuance of the FASIT Regular Securities and not as beneficial interests in the
FASIT or the FASIT's assets. Holders of FASIT Regular Securities who would
otherwise report income under a cash method of accounting will be required to
report income with respect to FASIT Regular Securities under an accrual method.
As FASIT Regular Securities will be treated as debt instruments, they
are subject to the same original issue discount, premium and market discount
provisions that apply to REMIC regular interests and which are described above
in "--REMIC Regular Securities--Current Income on REMIC Regular
Securities--Original Issue Discount," "--Premium" and "--Market Discount,"
except that those FASIT Regular Securities which are High-Yield Interests are
subject to additional provisions set forth below.
HIGH-YIELD INTERESTS. The taxable income of the holder of any
High-Yield Interest for any tax year will in no event be less than the sum of
that holder's taxable income determined solely with respect to that interest
(including gains and losses from sales and exchanges of those interests) and the
"excess inclusions," if any, as defined under the REMIC rules relating to REMIC
Residual Certificates for such tax year (see "REMIC Residual
Certificates--Excess Inclusions"). Therefore, holders of High-Yield Interests
may not use net operating losses to offset any FASIT income derived from the
High-Yield Interest. This rule is coordinated with the rule that limits a
taxpayer's ability to offset REMIC excess inclusion income against net operating
losses. Any net operating loss carryover is computed by disregarding any income
from the disallowed loss. For purposes of the alternative minimum tax, the
taxable income of the holder of any High-Yield Interest is determined without
regard to the above rules with respect to net operating losses. However, the
alternative minimum taxable income of the holder of any High-Yield Interest may
not be less than the holder's taxable income from the FASIT. In addition, the
alternative tax net operating loss deduction is computed without regard to any
increase in taxable income to the holder referred to above. For purposes of
these rules, all members of an affiliated group filing a consolidated return
will be treated as one taxpayer.
A transfer of a High-Yield Interest to a "disqualified holder" is not
recognized for income tax purposes. A "disqualified holder" is any holder other
than a FASIT or an "eligible corporation" (described above). The transferor will
continue to be taxed on the income from the High-Yield Interest, and the
disqualified holder will not include in its income earnings (other than gain)
from the High-Yield Interest, unless the transferee provides the transferor with
an affidavit that the transferee is not a disqualified holder or the Internal
Revenue Service determines that the High- Yield Interest is no longer held by a
disqualified holder and a corporate tax has been paid on the income from the
High-Yield Interest while it was held by a disqualified holder. Under this rule,
no High-Yield Interests will be treated as issued where the FASIT directly
issues these interests to a disqualified holder other than certain securities
dealers.
An excise tax computed at the highest corporate income tax rate is
imposed on a securities dealer (in addition to other taxes) if it ceases to be a
dealer in securities or subsequently holds the High-Yield Interest for
investment. A securities dealer will not be treated as having changed his intent
for holding High-Yield Interests to investment for the first 31 days after it
acquires the interests unless the holding is a part of a plan to avoid the
restriction on the holding of High-Yield Interests by disqualified holders.
Where a pass-through entity, other than a FASIT, issues either debt or
equity interests that are supported (i.e., secured by FASIT regular interests
and those interests bear a yield to maturity greater than that held on the FASIT
regular interests or the applicable federal rate plus 5 percentage points), then
an excise tax is imposed on the pass-through entity at a rate equal to the
highest corporate income tax rate on the income of any holder of that instrument
attributable to the FASIT regular interests, unless the pass-through entity did
not issue the debt or equity with the principal purpose of avoiding the rule
that High-Yield Interests not be owned by disqualified holders.
SALE OF FASIT REGULAR SECURITIES. If a FASIT Regular Security is sold,
the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the FASIT Regular
Security. A holder's adjusted basis in a FASIT Regular Security generally equals
the cost of the FASIT Regular Security to the holder, increased by income
reported by the holder with respect to the FASIT Regular Security and reduced
(but not below zero) by distributions on the FASIT Regular Security received by
the holder and by amortized premium. Any such gain or loss generally will be
capital gain or loss, provided the FASIT Regular Security is held as a capital
asset.
FASIT Regular Securities will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized
from a sale of a FASIT Regular Security by a bank or other financial institution
to which such section applies would be ordinary income or loss.
TERMINATION. The FASIT will terminate, if not earlier, shortly
following the FASIT's receipt of the final payment in respect of the underlying
qualified mortgages. The last distribution on a FASIT Regular Security should be
treated as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a holder of a FASIT Regular Security of a Series will have a
separate contractual right to payments under a Yield Supplement Agreement (which
may require an allocation of the purchase price between the FASIT Regular
Securities and the Yield Supplement Agreements) and the tax treatment of such
payments, if any, will be addressed in the related Prospectus Supplement.
FASIT OWNERSHIP CERTIFICATE
GENERALLY. All assets, liabilities and items of income, gain,
deduction loss and credit of a FASIT are treated as assets, liabilities and
items of income, gain, deduction, loss and credit of the holder of the FASIT
Ownership Certificate (the "FASIT Owner") in determining the FASIT Owner's
taxable income. The FASIT Owner does not take into account any item of income,
gain or deduction allocable to prohibited transactions as discussed below and
must treat tax-exempt interest accrued by the FASIT as ordinary income. The
FASIT Owner must use the constant yield method, applied under an accrual method
of accounting, in determining all interest, original issue discount, market
discount and premium deductions with respect to debt instruments held by the
FASIT. Like the holder of a High-Yield Interest, the FASIT Owner is not allowed
to offset any net taxable income derived from its FASIT Ownership Certificate
(including gains and losses from sales and exchanges of such Security) with
losses, including net operating losses. See above discussion under "--FASIT
Regular Securities--Income on FASIT Regular Securities--High-Yield Interests."
NET INCOME FROM PROHIBITED TRANSACTIONS. The FASIT Owner is required
to pay a tax equal to 100 percent of the net income derived from prohibited
transactions. Prohibited transactions include (i) the receipt of income from an
asset that is not a permitted asset; (ii) the disposition of a permitted asset,
other than a permitted disposition as described below; (iii) the receipt of
income derived from any loan originated by the FASIT; and (iv) compensation for
services (other than any fee for a waiver, amendment or consent with respect to
permitted assets, other than foreclosure property). A permitted disposition of a
permitted asset includes a disposition pursuant to the complete liquidation of
any class of regular interests, even if the FASIT itself is not liquidated.
Further, a disposition of a permitted debt instrument is not a prohibited
transaction if the disposition is (i) incident to the foreclosure, default or
imminent default of the instrument; (ii) pursuant to the bankruptcy or
insolvency of the FASIT; (iii) pursuant to a qualified liquidation; (iv)
required to prevent default on a FASIT regular interest where the threatened
default is attributable to a default on one or more debt instruments held by the
FASIT; (v) to facilitate a clean-up call or (vi) to substitute one permitted
debt instrument for another or to reduce overcollateralization of the FASIT by
distributing a debt instrument contributed by the holder of the ownership
interest to such holder (but only if a principal purpose of acquiring the debt
instrument which is disposed of was not the recognition of gain (or the
reduction of loss) as a result of an increase in the market value of the debt
instrument after its acquisition by the FASIT.
TAX ON DISPOSITION OF FASIT OWNERSHIP CERTIFICATE. The sale of a FASIT
Ownership Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the holder's adjusted
basis in the FASIT Ownership Certificate.
If the seller of a FASIT Ownership Certificate held the FASIT
Ownership Certificate as a capital asset, the gain or loss generally will be
capital gain or loss. However, under Section 582(c) of the Code, the sale of a
FASIT Ownership Certificate by certain banks and other financial institutions
will be considered a sale of property other than a capital asset, resulting in
ordinary income or loss. The tax treatment with respect to a FASIT Ownership
Certificate that has unrecovered basis after all funds of the Trust Fund have
been distributed has not been addressed in Treasury regulations, but the holder
presumably would be entitled to claim a loss in the amount of the unrecovered
basis.
The Code provides that, except as provided in Treasury regulations
(which have not been issued), if a holder sells a FASIT Ownership Certificate
and acquires the same or other FASIT Ownership Certificates in another FASIT or
any similar interests in a "taxable mortgage pool" (see "--Tax Characterization
of the Trust as a Partnership--Taxable Mortgage Pools" below) during the period
beginning six months before, and ending six months after, the date of such sale,
such sale will be subject to the "wash sales" rules of Section 1091 of the Code.
In that event, any loss realized by the seller on the sale generally will not be
currently deductible.
STATUS OF FASIT SECURITIES. The FASIT Regular Securities (but not
FASIT Ownership Certificates) will be "real estate assets" for purposes of
Section 856(c)(4)(A) of the Code and assets described in Section 7701(a)(19)(C)
of the Code (assets qualifying under one or both of those sections, applying
each section separately, "qualifying assets") to the extent that the FASIT's
assets are qualifying assets, but not to the extent that the FASIT's assets
consist of Yield Supplement Agreements. However, if at least 95 percent of the
FASIT's assets are qualifying assets, then 100 percent of the FASIT Securities
will be qualifying assets. Similarly, income on the FASIT Securities will be
treated as "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code, subject to the
limitations of the preceding two sentences. In addition to Mortgage Assets, the
Fasit's assets will include payments on the Mortgage Assets held pending
distribution to holders of FASIT Securities, amounts in Reserve Accounts (if
any), other credit enhancements (if any), and possibly buydown funds ("Buydown
Funds"). The related Prospectus Supplement will indicate whether the Mortgage
Assets will be qualifying assets under the foregoing sections of the Code. The
REMIC regulations treat credit enhancements as part of the mortgage or pool of
mortgages to which they relate and, therefore, by analogy to the REMIC
Regulations, credit enhancements generally should be qualifying assets.
Similarly, by analogy to the REMIC Regulations, amounts paid on the Mortgage
Assets and held pending distribution to holders of FASIT Securities ("cash flow
investments") should be treated as qualifying assets. Whether amounts in a
Reserve Account or Buydown Funds would also constitute qualifying assets has not
been addressed in Treasury regulations. The Prospectus Supplement for each
Series will indicate (if applicable) that it has Buydown Funds. The FASIT
Securities will not be "residential loans" for purposes of the residential loan
requirement of Section 593(g)(4)(B) of the Code.
FOREIGN INVESTORS IN FASIT SECURITIES. FASIT Regular Securities are
subject to the same United States income tax and withholding tax rules as those
that apply to a REMIC Regular Security as described in "Foreign Investors in
REMIC Securities" and "Backup Withholding on REMIC Securities" herein.
FASIT Ownership Certificates and FASIT Regular Securities which are
High-Yield Interests may not be sold or transferred to holders who are not U.S.
persons, and such securities will be subject to transfer restrictions as
described in the Agreement for the Series.
GRANTOR TRUSTS
The discussion under this heading applies only to a Series of
Securities with respect to which neither a REMIC nor a FASIT election is made
("Non-Electing Securities") and which are issued by a grantor trust.
TAX STATUS OF THE TRUST FUND. Upon the issuance of each Series of
Non-Electing Securities, Federal Tax Counsel will deliver its opinion that,
under then current law, assuming compliance with the Agreement, the related
Trust Fund will be classified for federal income tax purposes as a grantor trust
and not as an association taxable as a corporation or a taxable mortgage pool
(see"--Tax Characterization of the Trust as a Partnership-- Taxable Mortgage
Pools"). Accordingly, each holder of a Non-Electing Security will be treated for
federal income tax purposes as the owner of an undivided interest in the
Mortgage Assets included in the Trust Fund. As further described below, each
holder of a Non-Electing Security therefore must report on its federal income
tax return the gross income from the portion of the Mortgage Assets that is
allocable to such Non-Electing Security and may deduct the portion of the
expenses incurred by the Trust Fund that is allocable to such Non-Electing
Security, at the same time and to the same extent as such items would be
reported by such holder if it had purchased and held directly such interest in
the Mortgage Assets and received directly its share of the payments on the
Mortgage Assets and incurred directly its share of expenses incurred by the
Trust Fund when those amounts are received or incurred by the Trust Fund.
A holder of a Non-Electing Security that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds two percent of such holder's adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the "applicable amount" ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) will be reduced by the
lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. A holder of a Non-Electing Security
that is not a corporation cannot deduct such expenses for purposes of the
alternative minimum tax (if applicable). Such deductions will include servicing,
guarantee and administrative fees paid to the servicer of the Mortgage Assets.
As a result, individuals, estates, or trusts holding Non-Electing Securities may
have taxable income in excess of the cash received.
STATUS OF THE NON-ELECTING SECURITIES. The Non-Electing Securities
generally will be "real estate assets" for purposes of Section 856(c)(4)(A) of
the Code and "loans... secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and interest income on the
Non-Electing Securities generally will be "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. However, the Non-Electing Securities may not be qualifying assets under
the foregoing sections of the Code to the extent that the Trust Fund's assets
include Buydown Funds, amounts in a Reserve Account, or payments on mortgages
held pending distribution to holders. The Non-Electing Securities should not be
"residential loans made by the taxpayer" for purposes of the residential loan
requirement of Section 593(g)(4)(B) of the Code.
TAXATION OF NON-ELECTING SECURITIES UNDER STRIPPED BOND RULES. The
federal income tax treatment of the Non-Electing Securities will depend on
whether they are subject to the rules of section 1286 of the Code (the "stripped
bond rules"). The Non-Electing Securities will be subject to those rules if
stripped interest-only Securities are issued. In addition, whether or not
stripped interest-only Securities are issued, the Internal Revenue Service may
contend that the stripped bond rules apply on the ground that the Master
Servicer's servicing fee, or other amounts, if any, paid to (or retained by) the
Master Servicer or its affiliates, as specified in the applicable Prospectus
Supplement, represent greater than an arm's length consideration for servicing
the Mortgage Assets. In Revenue Ruling 91-46, the Internal Revenue Service
concluded that retained interest in excess of reasonable compensation for
servicing is treated as a "stripped coupon" under the rules of Section 1286 of
the Code.
If interest retained for the Master Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Non-Electing Securities will
either be subject to the original issue discount rules or the market discount
rules. A holder of a Non-Electing Securities will account for any discount on
the Non-Electing Security (other than an interest treated as a "stripped
coupon") as market discount rather than original issue discount if either (i)
the amount of original issue discount with respect to the Non-Electing Security
was treated as zero under the original issue discount DE MINIMIS rule when the
Non-Electing Security was stripped or (ii) no more than 100 basis points
(including any amount of servicing in excess of reasonable servicing) is
stripped off from the Mortgage Assets. If neither of the above exceptions
applies, the original issue discount rules will apply to the Non-Electing
Securities. See "--REMIC Regular Securities--Current Income on REMIC Regular
Securities--Original Issue Discount and --Market Discount" above.
If the original issue discount rules apply, the holder of a
Non-Electing Security (whether a cash or accrual method taxpayer) will be
required to report interest income from the Non-Electing Security in each
taxable year equal to the income that accrues on the Non-Electing Security in
that year calculated under a constant yield method based on the yield of the
Non-Electing Security (or, possibly, the yield of each Mortgage Loan underlying
such Non- Electing Security) to such holder. Such yield would be computed at the
rate that, if used in discounting the holder's share of the payments on the
Mortgage Assets, would cause the present value of those payments to equal the
price at which the holder purchased the Non-Electing Security. The Taxpayer
Relief Act of 1997 amended the original issue discount provisions to provide
that for "any pool of debt instruments, the yield on which may be affected by
reason of prepayments," original issue discount shall be accrued based on a
prepayment assumption determined in a manner prescribed by forthcoming
regulations. This might require the use of the pricing prepayment assumption
instead of the prepayment assumptions used in the underlying transactions. The
Prospectus Supplement for each Series of Non- Electing Securities will describe
the prepayment assumption that will be used for this purpose, but no
representation is made that the Mortgage Assets will prepay at that rate or at
any other rate.
In the case of a Non-Electing Security acquired at a price equal to
the principal amount of the Mortgage Assets allocable to the Non-Electing
Security, the use of a reasonable prepayment assumption generally would not have
any significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Non-Electing Security acquired at a discount
or premium (that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Non-Electing
Security acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Non-Electing
Security and the portion of the adjusted basis of the Non-Electing Security (see
"Sales of Non-Electing Securities" below) that is allocable to the Mortgage
Loan.
Non-Electing Securities of certain Series ("Variable Rate Non-Electing
Securities") may provide for an Interest Rate based on the weighted average of
the interest rates of the Mortgage Assets held by the Trust Fund, which interest
rates may be fixed or variable. In the case of a Variable Rate Non-Electing
Security that is subject to the original issue discount rules, the daily
portions of original issue discount generally will be calculated in the same
manner as discussed above except the principles discussed in "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Original Issue
Discount--Variable Rate REMIC Regular Securities" will be applied.
TAXATION OF NON-ELECTING SECURITIES IF STRIPPED BOND RULES DO NOT
APPLY. If the stripped bond rules do not apply to a Non-Electing Security, then
the holder will be required to include in income its share of the interest
payments on the Mortgage Assets in accordance with its tax accounting method. In
addition, if the holder purchased the Non-Electing Security at a discount or
premium, the holder will be required to account for such discount or premium in
the manner described below, as if it had purchased the Mortgage Assets directly.
The treatment of any discount will depend on whether the discount with respect
to the Mortgage Assets is original issue discount as defined in the Code and, in
the case of discount other than original issue discount, whether such other
discount exceeds a DE MINIMIS amount. In the case of original issue discount,
the holder (whether a cash or accrual method taxpayer) will be required to
report as additional interest income in each month the portion of such discount
that accrues in that month, calculated based on a constant yield method. In
general it is not anticipated that the amount of original issue discount to be
accrued in each month, if any, will be significant relative to the interest paid
currently on the Mortgage Assets. However, original issue discount could arise
with respect to a Mortgage Loan ("ARM") that provides for interest at a rate
equal to the sum of an index of market interest rates and a fixed number. The
original issue discount for ARMs generally will be determined under the
principals discussed in "--REMIC Regular Securities--Current Income on REMIC
Regular Securities--Original Issue Discount" and "--Variable Rate REMIC Regular
Securities."
If discount on the Mortgage Assets other than original issue discount
exceeds a DE MINIMIS amount (described below), the holder will also generally be
required to include in income in each month the amount of such discount accrued
through such month and not previously included in income, but limited, with
respect to the portion of such discount allocable to any Mortgage Loan, to the
amount of principal on such Mortgage Loan received by the Trust Fund in that
month. Because the Mortgage Assets will provide for monthly principal payments,
such discount may be required to be included in income at a rate that is not
significantly slower (and, under certain circumstances, faster) than the rate at
which such discount accrues (and therefore at a rate not significantly slower
than the rate at which such discount would be included in income if it were
original issue discount). The holder may elect to accrue such discount under a
constant yield method based on the yield of the Non-Electing Security to such
holder. In the absence of such an election, it may be necessary to accrue such
discount under a more rapid straight-line method. Under the DE MINIMIS rule,
market discount with respect to a Non-Electing Security will be considered to be
zero if it is less than the product of (i) 0.25% of the principal amount of the
Mortgage Assets allocable to the Non-Electing Security and (ii) the weighted
average life (determined using complete years) of the Mortgage Assets remaining
at the time of purchase of the Non-Electing Security. See "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Market Discount."
If a holder purchases a Non-Electing Security at a premium, such holder
may elect under Section 171 of the Code to amortize, as an offset to interest
income, the portion of such premium that is allocable to a Mortgage Loan under a
constant yield method based on the yield of the Mortgage Loan to such holder,
provided that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that date should be
allocated among the principal payments on the Mortgage Loan and allowed as an
ordinary deduction as principal payments are made or, perhaps, upon termination.
Treasury regulations do not address whether the foregoing adjustments
for discount or premium would be made based on the scheduled payments on the
Mortgage Assets or taking account of a reasonable prepayment assumption.
If a Mortgage Loan is prepaid in full, the holder of a Non-Electing
Security acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Non-Electing Security and the
portion of the adjusted basis of the Non-Electing Security (see "Sales of
Non-Electing Securities" below) that is allocable to the Mortgage Loan.
SALES OF NON-ELECTING SECURITIES. A holder that sells a Non-Electing
Security will recognize gain or loss equal to the difference between the amount
realized in the sale and its adjusted basis in the Non-Electing Security. In
general, such adjusted basis will equal the holder's cost for the Non-Electing
Security, increased by the amount of any income previously reported with respect
to the Non-Electing Security and decreased by the amount of any losses
previously reported with respect to the Non-Electing Security and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-Electing Security were
held as capital assets, except that, for a Non-Electing Security to which the
stripped bond rules do not apply and that was acquired with more than a DE
MINIMIS amount of discount other than original issue discount (see "Taxation of
Non-Electing Securities if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-
Electing Security and that was not previously included in income.
FOREIGN INVESTORS. A holder of a Non-Electing Security who is not a
"United States person" (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-Electing Security will not be subject to United
States income or withholding tax in respect of payments of interest or original
issue discount on a Non-Electing Security to the extent attributable to Mortgage
Assets that were originated after July 18, 1984, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-Electing
Security under penalties of perjury, certifying that such holder is not a United
States person and providing the name and address of such holder). Recently
issued Treasury regulations (the "Final Withholding Regulations"), which are
generally effective with respect to payments made after December 31, 1999,
consolidate and modify the current certification requirements and means by which
a holder may claim exemption from United States federal income tax withholding
and provide certain presumptions regarding the status of holders when payments
to the holders cannot be reliably associated with appropriate documentation
provided to the payor. All holders should consult their tax advisers regarding
the application of the Final Withholding Regulations. Interest or original issue
discount on a Non- Electing Security attributable to Mortgage Assets that were
originated prior to July 19, 1984 will be subject to a 30% withholding tax
(unless such tax is reduced or eliminated by an applicable tax treaty). For
these purposes, the term "United States person" means a citizen or a resident of
the United States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source, and a trust for which one or
more United States fiduciaries have the authority to control all substantial
decisions and for which a court of the United States can exercise primary
supervision over the trust's administration. For years beginning before January
1, 1997, the term "United States person" shall include a trust whose income is
includible in gross income for United States federal income taxation regardless
of source, in lieu of trusts just described, unless the trust elects to have its
United States status determined under the criteria described in the previous
sentence for tax years ending after August 20, 1996.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
If a Trust Fund is intended to be a partnership for federal income tax
purposes the applicable Agreement will provide that the nature of the income of
the Trust Fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the Securities will
be structured as a private placement under an IRS safe harbor, so that the Trust
Fund will not be characterized as a publicly traded partnership taxable as a
corporation, and that no action will be taken that is inconsistent with the
treatment of the Trust Fund as a partnership (such as election to treat the
Trust Fund as a corporation for federal income tax purposes). If, however, the
Trust Fund has a single owner for federal income tax purposes, it will be
treated as a division of its owner and as such will be disregarded as an entity
separate from its owner for federal income tax purposes, assuming no election
will be made to treat the Trust Fund as a corporation for federal income tax
purposes.
TAXABLE MORTGAGE POOLS. Certain entities classified as "taxable
mortgage pools" are subject to corporate level tax on their net income. A
"taxable mortgage pool" is generally defined as an entity that meets the
following requirements: (i) the entity is not a REMIC or a FASIT, (ii)
substantially all of the assets of the entity are debt obligations, and more
than 50 percent of such debt obligations consists of real estate mortgages (or
interests therein), (iii) the entity is the obligor under debt obligations with
two or more maturities, and (iv) payments on the debt obligations on which the
entity is the obligor bear a relationship to the payments on the debt
obligations which the entity holds as assets. With respect to requirement (iii),
the Code authorizes the IRS to provide by regulations that equity interests may
be treated as debt for purposes of determining whether there are two or more
maturities. If the Trust Fund were treated as a taxable mortgage pool, it would
be ineligible to file consolidated returns with any other corporation and could
be liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Federal Tax Counsel will
deliver its opinion for a Trust Fund which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
that the Trust Fund will not be a taxable mortgage pool. This opinion will be
based on the assumption that the terms of the related Agreement and related
documents will be complied with, and on Federal Tax Counsel's conclusion that
either the number of classes of debt obligations issued be the Trust Fund, or
the nature of the assets held by the Trust Fund will exempt the Trust Fund from
treatment as a taxable mortgage pool.
TAX CONSEQUENCES TO HOLDERS OF DEBT SECURITIES ISSUED BY A PARTNERSHIP
GENERAL. Certain Non-Electing Securities ("Debt Securities") may be
issued with the intention to treat them, for federal income tax purposes, either
as (i) nonrecourse debt of the Seller secured by the related Mortgage Assets, in
which case the related Trust Fund will constitute only a security device which
constitutes a collateral arrangement for the issuance of secured debt and not an
entity for federal income tax purposes or (ii) debt of a partnership, in which
case the related Trust Fund will constitute a partnership for federal income tax
purposes, and Federal Tax Counsel will deliver its opinion that, for federal
income tax purposes, assuming compliance with all the provisions of the related
Indenture, (i) Debt Securities will be characterized as debt issued by, and not
equity in, the related Trust Fund and (ii) the related Trust Fund will not be
characterized as an association (or publicly traded partnership within the
meaning of Code Section 7704) taxable as a corporation or as a taxable mortgage
pool. Since different criteria are used to determine the non-tax accounting
treatment of the issuance of Debt Securities, however, the Seller expects to
treat such transactions, for financial accounting purposes, as a transfer of an
ownership interest in the related Mortgage Assets to the related Trust Fund and
not as the issuance of debt obligations. In this regard, it should be noted that
the IRS has issued a notice stating that, upon examination, it will scrutinize
instruments treated as debt for federal income tax purposes but as equity for
regulatory, rating agency or financial accounting purposes to determine if their
purported status as debt for federal income tax purposes is appropriate.
Assuming, as Federal Tax Counsel advises, that Debt Securities will be treated
as indebtedness for federal income tax purposes, holders of Debt Securities,
using their method of tax accounting, will follow the federal income tax
treatment hereinafter described.
ORIGINAL ISSUE DISCOUNT. If interest payments on the Debt Securities
may, in the event of certain shortfalls, be deferred for periods exceeding one
year, it is likely that the Debt Securities will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. As a result, interest payments may not be considered "qualified stated
interest" payments.
In general, a holder of a Debt Security having original issue discount
must include original issue discount in ordinary income as it accrues in advance
of receipt of the cash attributable to the discount, regardless of the method of
accounting otherwise used. The amount of original issue discount on a Debt
Security will be computed generally as described under "--REMIC Regular
Securities--Current Income on REMIC Regular Securities--Original Issue Discount"
and "--Variable Rate Regular Securities." The Seller intends to report any
information required with respect to the Debt Securities based on the OID
Regulations.
MARKET DISCOUNT. A purchaser of a Debt Security may be subject to the
market discount rules of Code Sections 1276 through 1278. In general, "market
discount" is the amount by which the stated redemption price at maturity (or, in
the case of a Debt Security issued with original issue discount, the adjusted
issue price) of the Debt Security exceeds the purchaser's basis in a Debt
Security. The holder of a Debt Security that has market discount generally will
be required to include accrued market discount in ordinary income to the extent
payments includible in the stated redemption price at maturity of such Debt
Security are received. The amount of market discount on a Debt Security will be
computed generally as described under "--REMIC Regular Securities--Current
Income on REMIC Regular Securities--Market Discount."
PREMIUM. A Debt Security purchased at a cost greater than its
currently outstanding stated redemption price at maturity is considered to be
purchased at a premium. A holder of a Debt Security which holds a Debt Security
as a "capital asset" within the meaning of Section 1221 of the Code may elect
under Section 171 of the Code to amortize the premium under the constant
interest method. That election will apply to all premium obligations that the
holder of a Debt Security acquires on or after the first day of the taxable year
for which the election is made, unless the IRS permits the revocation of the
election. In addition, it appears that the same rules that apply to the accrual
of market discount on installment obligations are intended to apply in
amortizing premium on installment obligations such as the Debt Securities. The
treatment of premium incurred upon the purchase of a Debt Security will be
determined generally as described above under "--REMIC Regular
Securities--Premium."
SALE OR EXCHANGE OF DEBT SECURITIES. If a holder of a Debt Security
sells or exchanges a Debt Security, the holder of a Debt Security will recognize
gain or loss equal to the difference, if any, between the amount received and
the holder of a Debt Security's adjusted basis in the Debt Security. The
adjusted basis in the Debt Security generally will equal its initial cost,
increased by any original issue discount or market discount previously included
in the seller's gross income with respect to the Debt Security and reduced by
the payments previously received on the Debt Security, other than payments of
qualified stated interest, and by any amortized premium.
In general, except as described above with respect to market discount,
and except for certain financial institutions subject to Code Section 582(c),
any gain or loss on the sale or exchange of a Debt Security recognized by an
investor who holds the Debt Security as a capital asset (within the meaning of
Code Section 1221), will be capital gain or loss and will be long-term or
short-term depending on whether the Debt Security has been held for more than
one year. For corporate taxpayers, there is no preferential rate afforded to
long-term capital gains. For individual taxpayers, net capital gains are subject
to varying tax rates depending upon the holding period of the Debt Securities.
BACKUP WITHHOLDING. Holders of Debt Securities will be subject to
backup withholding rules identical to those applicable to REMIC Regular
Securities. See "--REMIC Regular Securities--Backup Withholding on REMIC
Securities."
TAX TREATMENT OF FOREIGN INVESTORS. Holders of Debt Securities who are
foreign investors will be subject to taxation in the same manner as foreign
holders of REMIC Regular Securities. See"--REMIC Regular Securities-- Foreign
Investors in REMIC Securities."
TAX CONSEQUENCES TO HOLDERS OF NOTES ISSUED BY A PARTNERSHIP
The Trust Fund will agree, and the holders of Notes will agree by
their purchase of Notes, to treat the Notes as debt for federal income tax
purposes. If the related Prospectus Supplement indicates that one or more
Classes of Notes are to be treated as debt for federal income tax purposes,
Federal Tax Counsel will advise the Seller that the Notes will be classified as
debt for federal income tax purposes. If, contrary to the opinion of Federal Tax
Counsel, the IRS successfully asserted that one or more of the Notes did not
represent debt for federal income tax purposes, the Notes might be treated as
equity interests in the Trust Fund. If so treated, the Trust Fund would likely
be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
foreign investors generally would be subject to U.S. federal income tax and
federal income tax return filing and withholding requirements, income to certain
tax- exempt entities would be "unrelated business taxable income," and
individual holders might be subject to certain limitations on their ability to
deduct their share of the Trust Fund's expenses.
With respect to those Securities issued as Notes, no regulations,
published rulings or judicial decisions exist that discuss the characterization
for federal income tax purposes of instruments with terms substantially the same
as the Notes. However, if the related Prospectus Supplement indicates that one
or more Classes of Notes are to be treated as debt for federal income tax
purposes, Federal Tax Counsel will deliver its opinion that, for federal income
tax purposes, assuming compliance with all the provisions of the related
Indenture, (i) such Notes will be characterized as debt issued by, and not
equity in, the related Trust Fund and (ii) the related Trust Fund will not be
characterized as an association (or publicly traded partnership within the
meaning of Section 7704 of the Code) taxable as a corporation or as a taxable
mortgage pool. Assuming, as Federal Tax Counsel advises, that Notes are treated
as indebtedness for federal income tax purposes, holders of Notes, using their
method of tax accounting, will follow the same federal income tax treatment as
Debt Securities, as described above under "--Tax Consequences for Holders of
Debt Securities Issued by a Partnership."
For federal income tax purposes, (i) Notes held by a thrift
institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code; (ii) interest on Notes held by
a real estate investment trust will not be treated as "interest on obligations
secured by mortgages on real property or on interests in real property "within
the meaning of Code Section 856(c)(3)(B); (iii) Notes held by a real estate
investment trust will not constitute "real estate assets" or "Government
securities" within the meaning of Section 856(c)(4)(A) of the Code; and (v)
Notes held by a regulated investment company will not constitute "Government
securities" within the meaning of Section 851(b)(3)(A)(i) of the Code.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST FUND AS A PARTNERSHIP. In the case of a Trust
Fund intended to qualify as a partnership for federal income tax purposes, the
Trust Fund and the Seller will agree, and the holders of Certificates will agree
by their purchase of Certificates, to treat the Trust Fund as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership being
the assets held by the Trust Fund, the partners of the partnership being the
holders of Certificates, and the Notes, if any, being debt of the partnership,
or if there is a single holder of Certificates for federal income tax purposes,
to disregard the Trust Fund as an entity separate from the holder of
Certificates.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Generally, provided
such Certificates are issued at or close to face value, any such
characterization would not result in materially adverse tax consequences to
holders of Certificates as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership. The following discussion also assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates have
interest rates which would qualify as contingent interest under the OID
regulations, and that a Series of Securities includes a single Class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each holder of Certificates will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the Trust Fund. The Trust
Fund's income will consist primarily of interest and finance charges earned on
the Mortgage Assets (including appropriate adjustments for market discount, OID
and bond premium) and any gain upon collection or disposition of Mortgage
Assets. The Trust Fund's deductions will consist primarily of interest and OID
accruing with respect to the Notes, servicing and other fees, and losses or
deductions upon collection or disposition of Mortgage Assets.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Agreement). The Agreement will provide, in general, that the holders
of Certificates will be allocated taxable income of the Trust Fund for each
month equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Interest Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust Fund income attributable to
discount on the Mortgage Assets that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (iii) prepayment
premium payable to the holders of Certificates for such month; and (iv) any
other amounts of income payable to the holders of Certificates for such month.
Such allocation will be reduced by any amortization by the Trust Fund of premium
on the Mortgage Assets that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust Fund will be allocated to the Seller. Based on the economic arrangement of
the parties, this approach for allocating Trust Fund income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to holders of Certificates. Moreover, even under the foregoing method of
allocation, holders of Certificates may be allocated income equal to the entire
Interest Rate plus the other items described above even though the Trust Fund
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and holders of Certificates may
become liable for taxes on Trust Fund income even if they have not received cash
from the Trust Fund to pay such taxes. In addition, because tax allocations and
tax reporting will be done on a uniform basis for all holders of Certificates
but holders may be purchasing Certificates at different times and at different
prices, such holders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust
Fund.
If Notes are also issued, all of the taxable income allocated to a
holder of Certificates that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund
(including fees to the Master Servicer but not interest expense) would be
miscellaneous itemized deductions. Such deductions might be disallowed to the
individual in whole or in part and might result in such holder being taxed on an
amount of income that exceeds the amount of cash actually distributed to such
holder over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to holders of Certificates on an aggregate basis. If the IRS
were to require that such calculations be made separately for each Mortgage
Loan, the Trust Fund might be required to incur additional expense but it is
believed that there would not be a material adverse effect on such holders.
DISCOUNT AND PREMIUM. It is believed that the Mortgage Assets will not
have been issued with OID and, therefore, the Trust Fund should not have
original issue discount income. However, the purchase price paid by the Trust
Fund for the Mortgage Assets may be greater or less than the remaining principal
balance of the Mortgage Assets at the time of purchase. If so, the Mortgage Loan
will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Mortgage Loan by Mortgage Loan
basis.)
If the Trust Fund acquires the Mortgage Assets at a market discount or
premium, the Trust Fund will elect to include any such discount in income
currently as it accrues over the life of the Mortgage Assets or to offset any
such premium against interest income on the Mortgage Assets. As indicated above,
a portion of such market discount income or premium deduction may be allocated
to holders of Certificates.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust Fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust Fund are sold or exchanged within
a 12-month period. If such a termination occurs, the Trust Fund will be
considered to distribute its assets to the partners, who would then be treated
as recontributing those assets to the Trust Fund as a new partnership. The Trust
Fund will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the Trust Fund may be
subject to certain tax penalties and may incur additional expenses if it is
required to comply with those requirements. Furthermore, the Trust Fund might
not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates issued by a partnership in an amount equal
to the difference between the amount realized and the seller's tax basis in the
Certificates sold. The tax basis of a holder in a Certificate will generally
equal the holder's cost increased by the holder's share of Trust Fund income
(includible in income) and decreased by any distributions received with respect
to such Certificate. In addition, both the tax basis in the Certificates and the
amount realized on a sale of a Certificate would include the holder's share of
the Notes and other liabilities of the Trust Fund. A holder acquiring
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Certificates, and, upon sale or other disposition of
some of the Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Assets would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust Fund does not expect to have any
other assets that would give rise to such special reporting requirements. Thus,
to avoid those special reporting requirements, the Trust Fund will elect to
include market discount in income as it accrues.
If a holder of Certificates is required to recognize an aggregate
amount of income (not including income attributable to disallowed itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN SELLERS AND TRANSFEREES. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the holders of
Certificates in proportion to the principal amount of Certificates owned by them
as of the close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The legislative history relating to these provisions directs Treasury
to establish a convention for such allocations, but no Treasury regulations have
been issued or proposed. Accordingly, the use of such a monthly convention may
not be permitted. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the holders of Certificates. The
Trust Fund's method of allocation between transferors and transferees may be
revised to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a holder sells its
Certificates at a profit (loss), the purchasing holder will have a higher
(lower) basis in the Certificates than the selling holder had. The tax basis of
the Trust Fund's assets will not be adjusted to reflect that higher (or lower)
basis unless the Trust Fund were to file an election under Section 754 of the
Code. In order to avoid the administrative complexities that would be involved
in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust Fund currently does not intend to
make such election. As a result, holders of Certificates might be allocated a
greater or lesser amount of Trust Fund income than would be appropriate based on
their own purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust Fund and will report each holder's allocable share of items of Trust Fund
income and expense to holders and the IRS on Schedule K-1. The Trust Fund will
provide the Schedule K-1 information to nominees that fail to provide the Trust
Fund with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust Fund or be subject to penalties unless
the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes (i)
the name, address and taxpayer identification number of the nominee and (ii) as
to each beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions that
hold Certificates through a nominee are required to furnish directly to the
Trust Fund information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any such information statement to the Trust Fund. The information
referred to above for any calendar year must be furnished to the Trust Fund on
or before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Trust Fund with the information described above may be
subject to penalties.
The Seller will be designated as the tax matters partner in the
related Agreement and, as such, will be responsible for representing the holders
of Certificates in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the holders of Certificates,
and, under certain circumstances, a holder of Certificates may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of returns of a holder of Certificates
and adjustments of items not related to the income and losses of the Trust Fund.
TAX CONSEQUENCES TO FOREIGN HOLDERS OF CERTIFICATES. There is no clear
authority addressing the issue of whether the Trust Fund would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to foreign investors. Although it is not expected
that the Trust Fund would be engaged in a trade or business in the United States
for such purposes, the Trust Fund will withhold as if it were so engaged in
order to protect the Trust Fund from possible adverse consequences of a failure
to withhold. The Trust Fund expects to withhold pursuant to Section 1446 of the
Code on the portion of its taxable income that is allocable to holders of
Certificates that are foreign investors, as if such income were effectively
connected to a U.S. trade or business, at a rate of 35% for foreign holders that
are taxable as corporations and 39.6% for all other foreign holders. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust Fund to change its withholding procedures.
Each holder of Certificates that is a foreign investor might be
required to file a U.S. individual or corporate income tax return (including, in
the case of a corporation, the branch profits tax) on its share of the Trust
Fund's income. A foreign holder generally would be entitled to file with the IRS
a claim for refund with respect to taxes withheld by the Trust Fund taking the
position that no taxes were due because the Trust Fund was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a holder of
Certificates who is a foreign investor generally will be considered guaranteed
payments to the extent such payments are determined without regard to the income
of the Trust Fund. If these interest payments are properly characterized as
guaranteed payments, then the interest probably will not be considered
"portfolio interest." As a result, holders of Certificates will be subject to
United States federal income tax and withholding tax at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
investor would only be entitled to claim a refund for that portion of the taxes,
if any, in excess of the taxes that should be withheld with respect to the
guaranteed payments.
BACKUP WITHHOLDING. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the holder of Certificates fails to
comply with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code and, if necessary, adequately
demonstrates such status.
TAXATION OF CLASSES OF EXCHANGEABLE SECURITIES
GENERAL
The arrangement pursuant to which the ES Classes of a Series are
created, sold and administered (an "ES Pool") will be classified as a grantor
trust under subpart E, part I of subchapter J of the Code. The interests in the
classes of Securities that have been exchanged for ES Classes will be the assets
of the ES Pool and the ES Classes represent beneficial ownership of these
interests in the classes of Securities.
TAX STATUS
The ES Classes should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A) and assets described in Section
7701(a)(19)(C) of the Code. Original issue discount and interest accruing on ES
Classes should be considered to represent "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. ES Classes will be "qualified mortgages" under Section 860G(a) (3) of the
Code for a REMIC.
TAX ACCOUNTING FOR EXCHANGEABLE SECURITIES
An ES Class represents beneficial ownership of an interest in one or
more classes of Securities on deposit in an Exchangeable Security Trust Fund, as
specified in the applicable Prospectus Supplement. If it represents an interest
in more than one class of Securities, a purchaser must allocate its basis in the
ES Class among the interests in the classes of Securities in accordance with
their relative fair market values as of the time of acquisition. Similarly, on
the sale of such an ES Class, the holder must allocate the amount received on
the sale among the interests in the classes of Securities in accordance with
their relative fair market values as of the time of sale.
The holder of an ES Class must account separately for each interest in
a class of Securities (there may be only one such interest). Where the interest
represents a pro rata portion of a class of Securities, the holder of the ES
Class should account for such interest as described under "--Current Income on
REMIC Regular Securities" above. Where the interest represents beneficial
ownership of a disproportionate part of the principal and interest payments on a
class of Securities (a "Strip"), the holder is treated as owning, pursuant to
Section 1286 of the Code, "stripped bonds" to the extent of its share of
principal payments and "stripped coupons" to the extent of its share of interest
payments on such class of Securities. The Seller intends to treat each Strip as
a single debt instrument for purposes of information reporting. The Internal
Revenue Service, however, could take a different position. For example, the
Internal Revenue Service could contend that a Strip should be treated as a pro
rata part of the class of Securities to the extent that the Strip represents a
pro rata portion thereof, and "stripped bonds" or "stripped coupons" with
respect to the remainder. An investor should consult its tax advisor regarding
this matter.
A holder of an ES Class should calculate original issue discount with
respect to each Strip and include it in ordinary income as it accrues, which may
be prior to the receipt of cash attributable to such income, in accordance with
a constant interest method that takes into account the compounding of interest.
See "--Current Income on REMIC Regular Securities--Original Issue Discount"
above. The holder should determine its yield to maturity based on its purchase
price allocated to the Strip and on a schedule of payments projected using a
prepayment assumption, and then make periodic adjustments to take into account
actual prepayment experience. With respect to a particular holder, Treasury
regulations do not address whether the prepayment assumption used to calculate
original issue discount would be determined at the time of purchase of the Strip
or would be the original prepayment assumption with respect to the related class
of Securities. Further, if the related class of Securities is subject to
redemption as described in the applicable Prospectus Supplement, Treasury
regulations do not address the extent to which such prepayment assumption should
take into account the possibility of the retirement of the Strip concurrently
with the redemption of such class of Securities. An investor should consult its
tax advisor regarding these matters. For purposes of information reporting
relating to original issue discount, the original yield to maturity of the
Strip, determined as of the date of issuance of the Series, will be calculated
based on the original prepayment assumption.
If original issue discount accruing with respect to a Strip, computed
as described above, is negative for any period, the holder is entitled to offset
such amount only against future positive original issue discount accruing from
such Strip, and income is reported in all cases in this manner. Although not
entirely free from doubt, such a holder may be entitled to deduct a loss to the
extent that its remaining basis would exceed the maximum amount of future
payments to which the holder is entitled with respect to such Strip, assuming no
further prepayments of the Mortgages (or, perhaps, assuming prepayments at a
rate equal to the prepayment assumption). Although the issue is not free from
doubt, all or a portion of such loss may be treated as a capital loss if the
Strip is a capital asset in the hands of the holder.
A holder realizes gain or loss on the sale of a Strip in an amount
equal to the difference between the amount realized and its adjusted basis in
such Strip. The holder's adjusted basis generally is equal to the holder's
allocated cost of the Strip, increased by income previously included, and
reduced (but not below zero) by distributions previously received. Except as
described below, any gain or loss on such sale is capital gain or loss if the
holder has held its interest as a capital asset and is long-term if the interest
has been held for the long-term capital gain holding period (more than one
year). Such gain or loss will be ordinary income or loss (i) for a bank or
thrift institution or (ii) to the extent income recognized by the holder is less
than the income that would have been recognized if the yield on such interest
were 110% of the applicable federal rate under Section 1274(d) of the Code.
If a holder exchanges a single ES Class (an "Exchanged ES Class") for
several ES Classes (each, a "Received ES Class") and then sells one of the
Received ES Classes, the sale will subject the investor to the coupon stripping
rules of Section 1286 of the Code. The holder must allocate its basis in the
Exchanged ES Class between the part of such class underlying the Received ES
Class that was sold and the part of the Exchanged ES Class underlying the
Received ES Classes that was retained, in proportion to their relative fair
market values as of the date of such sale. The holder is treated as purchasing
the interest retained for the amount of basis allocated to such interest. The
holder must calculate original issue discount with respect to the retained
interest as described above.
Although the matter is not free from doubt, a holder that acquires in
one transaction a combination of ES Classes that may be exchanged for a single
ES Class that is identical to a class of Securities that is on deposit in the
related Exchangeable Security Trust Fund should be treated as owning the
relevant class of Securities.
EXCHANGES OF EXCHANGEABLE SECURITIES
An exchange of an interest in one or more ES Classes for an interest
in one or more other related ES Classes that are part of the same Combination,
or vice versa, will not be a taxable exchange. After the exchange, the holder is
treated as continuing to own the interests in the class or classes of
Exchangeable Securities that it owned immediately prior to the exchange.
TAX TREATMENT OF FOREIGN INVESTORS
A holder of an ES Class is subject to taxation in the same manner as
foreign holders of REMIC Regular Securities. See "--REMIC Regular
Securities--Investors in REMIC Securities."
BACKUP WITHHOLDING
A holder of an ES Class is subject to backup withholding rules to
those applicable to REMIC Regular Securities. See "--REMIC Regular
Securities--Backup Withholding on REMIC Securities."
REPORTING AND ADMINISTRATIVE MATTERS
Reports will be made to the Internal Revenue Service and to holders of
record of ES Classes that are not excepted from the reporting requirements.
CALLABLE CLASSES
Any amount received in redemption of a class of Securities that is a
Callable Class will be treated under the original issue discount rules and
market discount rules as a distribution with respect to such class of Securities
in the same manner as REMIC Regular Securities. See "--REMIC Regular
Securities--Original Issue Discount" and "--Market Discount."."
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the state
and local income tax consequences of the acquisition, ownership, and disposition
of the Securities. State and local income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
GENERAL. A fiduciary of a pension, profit-sharing, retirement or other
employee benefit plan subject to Title I of ERISA, should consider the fiduciary
standards under ERISA in the context of the plan's particular circumstances
before authorizing an investment of a portion of such plan's assets in the
Securities. Accordingly, pursuant to Section 404 of ERISA, such fiduciary should
consider among other factors (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the applicable diversification requirements; (iii) whether
the investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code (each, a "Plan"), are prohibited from
engaging in a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 of ERISA and excise taxes are imposed upon such
persons by Section 4975 of the Code. The Seller, Bear, Stearns & Co. Inc., each
Master Servicer or other servicer, any Pool Insurer, any Special Hazard Insurer,
the Trustee, and certain of their affiliates might be considered "parties in
interest" or "disqualified persons" with respect to a Plan. If so, the
acquisition, holding or disposition of Securities by or on behalf of such Plan
could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. Furthermore, if
an investing Plan's assets were deemed to include the Mortgage Loans and not
merely an interest in the Securities, transactions occurring in the management
of Mortgage Loans might constitute prohibited transactions and the fiduciary
investment standards of ERISA could apply to the assets of the Trust Fund,
unless an administrative exemption applies.
ERISA CONSIDERATIONS RELATING TO CERTIFICATES. In DOL Regulation
ss.2510.3-101 (the "Plan Asset Regulations"), the U.S. Department of Labor has
defined what constitutes Plan assets for purposes of ERISA and Section 4975 of
the Code. The Regulation provides that if a Plan makes an investment in an
"equity interest" in an entity, the assets of the entity will be considered the
assets of such Plan unless certain exceptions apply. The Seller can give no
assurance that the Securities will qualify for any of the exceptions under the
Regulation. As a result, the Mortgage Loans may be considered the assets of any
Plan which acquires Securities, unless some administrative exemption is
available.
The U.S. Department of Labor has issued an administrative exemption,
Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), which, under certain
conditions, exempts from the application of the prohibited transaction rules of
ERISA and the excise tax provisions of Section 4975 of the Code transactions
involving a Plan in connection with the operation of a "mortgage pool" and the
purchase, sale and holding of "mortgage pool pass- through certificates." A
"mortgage pool" is defined as an investment pool, consisting solely of interest
bearing obligations secured by first or second mortgages or deeds of trust on
single-family residential property, property acquired in foreclosure and
undistributed cash. A "mortgage pool pass-through certificate" is defined as a
certificate which represents a beneficial undivided interest in a mortgage pool
which entitles the holder to pass-through payments of principal and interest
from the Mortgage Loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Seller and
the Trustee maintain a system of insurance or other protection for the Mortgage
Loans and the property securing such Mortgage Loans, and for indemnifying
holders of Certificates against reductions in pass-through payments due to
defaults in loan payments or property damage in an amount at least equal to the
greater of 1% of the aggregate principal balance of the Mortgage Loans, or 1% of
the principal balance of the largest covered pooled Mortgage Loan; (ii) the
Trustee may not be an affiliate of the Seller; and (iii) the payments made to
and retained by the Seller in connection with the Trust Fund, together with all
funds inuring to its benefit for administering the Trust Fund, represent no more
than "adequate consideration" for selling the Mortgage Loans, plus reasonable
compensation for services provided to the Trust Fund.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a
Plan with respect to which the Seller, the Special Hazard Insurer, the Pool
Insurer, the Master Servicer, or other servicer, or the Trustee is a party in
interest if the Plan does not pay more than fair market value for such
Certificate and the rights and interests evidenced by such Certificate are not
subordinated to the rights and interests evidenced by other Certificates of the
same pool. PTCE 83-1 also exempts from the prohibited transaction rules any
transactions in connection with the servicing and operation of the Mortgage
Pool, provided that any payments made to the Master Servicer in connection with
the servicing of the Trust Fund are made in accordance with a binding agreement,
copies of which must be made available to prospective investors.
In the case of any Plan with respect to which the Seller, the Master
Servicer, the Special Hazard Insurer, the Pool Insurer, or the Trustee is a
fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
(i) the initial sale, exchange or transfer of Certificates is expressly approved
by an independent fiduciary who has authority to manage and control those plan
assets being invested in Certificates; (ii) the Plan pays no more for the
Certificates than would be paid in an arm's length transaction; (iii) no
investment management, advisory or underwriting fee, sale commission, or similar
compensation is paid to the Seller with regard to the sale, exchange or transfer
of Certificates to the Plan; (iv) the total value of the Certificates purchased
by such Plan does not exceed 25% of the amount issued; and (v) at least 50% of
the aggregate amount of Certificates is acquired by persons independent of the
Seller, the Trustee, the Master Servicer, and the Special Hazard Insurer or Pool
Insurer.
Before purchasing Certificates, a fiduciary of a Plan should confirm
that the Trust Fund is a "mortgage pool," that the Certificates constitute
"mortgage pool pass-through certificates," and that the conditions set forth in
PTCE 83-1 would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in PTCE 83-1, the Plan
fiduciary should consider the availability of any other prohibited transaction
exemptions. The Plan fiduciary also should consider its general fiduciary
obligations under ERISA in determining whether to purchase any Certificates on
behalf of a Plan.
In addition to PTCE 83-1, the U.S. Department of Labor has issued an
individual exemption, Prohibited Transaction Exemption 90-30 ("PTE 90-30"), to
Bear, Stearns & Co. Inc., which is applicable to Certificates which meet its
requirements whenever Bear, Stearns & Co. Inc. or its affiliate is the sole
underwriter, manager or co- manager of an underwriting syndicate, or is the
selling or placement agent. PTE 90-30 generally exempts certain transactions
from the application of certain of the prohibited transaction provisions of
ERISA and the Code provided that certain conditions set forth in PTE 90-30 are
satisfied. The exempted transactions include certain transactions relating to
the servicing and operation of investment trusts holding assets of the following
general categories: single and multifamily residential or commercial mortgages,
motor vehicle receivables, consumer or commercial receivables and guaranteed
government mortgage pool certificates and the purchase, sale and holding of
mortgage- backed or asset-backed pass-through certificates representing
beneficial ownership interests in the assets of such investment trusts.
PTE 90-30 sets forth seven general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Certificates
to be eligible for exemptive relief thereunder. First, the acquisition of
Certificates by certain Plans must be on terms that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party. Second, the rights and interests evidenced by the Certificates must not
be subordinated to the rights and interests evidenced by other certificates of
the same trust. Third, the Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Services, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA,
Inc. ("Nationally Recognized Rating Agencies"). Fourth, the Trustee cannot be an
affiliate of any member of the "Restricted Group" which consists of any
underwriter as defined in PTE 90-30, the Seller, the Master Servicer, each
servicer, the Pool Insurer, the Special Hazard Insurer and any obligor with
respect to obligations or receivables constituting more than 5% of the aggregate
unamortized principal balance of the obligations or receivables as of the date
of initial issuance of the Certificates. Fifth, the sum of all payments made to
and retained by such underwriters must represent not more than reasonable
compensation for underwriting the Certificates; the sum of all payments made to
and retained by the Seller pursuant to the assignment of the obligations or
receivables to the related Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer and any servicer must represent not more than
reasonable compensation for such person's services under the Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, (i) the investment pool consists only of assets of the type enumerated in
the exemption and which have been included in other investment pools; (ii)
certificates evidencing interests in such other investment pools have been rated
in one of the three highest generic rating categories by one of the Nationally
Recognized Rating Agencies for at least one year prior to a Plan's acquisition
of certificates; and (iii) certificates evidencing interests in such other
investment pools have been purchased by investors other than Plans for at least
one year prior to a Plan's acquisition of certificates. Finally, the investing
Plan must be an accredited investor as defined in Rule 501(a)(1) of Regulation D
of the Commission under the Securities Act of 1933, as amended. The Seller
assumes that only Plans which are accredited investors under the federal
securities laws will be permitted to purchase the Certificates.
If the general conditions of PTE 90-30 are satisfied, such exemption
may provide an exemption from the restrictions imposed by ERISA and the Code in
connection with the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary market of the
Certificates by Plans. However, no exemption is provided from the restrictions
of ERISA for the acquisition or holding of a Certificate on behalf of an
"Excluded Plan" by any person who is a fiduciary with respect to the assets of
such Excluded Plan. For purposes of the Certificates, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group. In addition, each Plan's
investment in each class of Certificates cannot exceed 25% of the outstanding
Certificates in the class, and after the Plan's acquisition of the Certificates,
no more than 25% of the assets over which the fiduciary has investment authority
are invested in Certificates of a trust containing assets which are sold or
serviced by the same entity. Finally, in the case of initial issuance (but not
secondary market transactions), at least 50% of each class of Certificates, and
at least 50% of the aggregate interests in the trust, must be acquired by
persons independent of the Restricted Group.
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to holders of Certificates and having
a principal amount equal to no more than 25% of the total principal amount of
the Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("DOL Pre-Funding Period"), instead of
requiring that all such Loans be either identified or transferred on or before
the Closing Date. The relief is effective for transactions occurring on or after
May 23, 1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to
the total principal amount of the Certificates being offered ("Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ("Additional Loans")
must meet the same terms and conditions for eligibility as the original Loans
used to create the Trust, which terms and conditions have been approved by the
Rating Agency.
(3) The transfer of such Additional Loans to the Trust during the DOL
Pre-Funding Period must not result in the Certificates receiving a lower credit
rating from the Rating Agency upon termination of the DOL Pre- Funding Period
than the rating that was obtained at the time of the initial issuance of the
Certificates by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the "average interest rate") for all of the
Loans in the Trust Fund at the end of the DOL Pre-Funding Period must not be
more than 100 basis points lower than the average interest rate for the Loans
which were transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Additional Loans must be
monitored by an insurer or other credit support provider which is independent of
the Seller; or (ii) an independent accountant retained by the Seller must
provide the Seller with a letter (with copies provided to the Rating Agency, the
Underwriter and the Trustee) stating whether or not the characteristics of the
Additional Loans conform to the characteristics described in the Prospectus,
Prospectus Supplement, Private Placement Memorandum ("Offering Documents")
and/or the Agreement. In preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which were
transferred as of the Closing Date.
(6) The DOL Pre-Funding Period must end no later than three months or
90 days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum level
specified in the Agreement or an event of default occurs under the Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested only in
investments which are permitted by the Rating Agency and (i) are direct
obligations of, or obligations fully guaranteed as to timely payment of
principal and interest by, the United States or any agency or instrumentality
thereof (provided that such obligations are backed by the full faith and credit
of the United States); or (ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by the Rating Agency
("Acceptable Investments").
(8) The Offering Documents must describe: (i) any Pre-Funding Account
and/or Capitalized Interest Account used in connection with a Pre-Funding
Account; (ii) the duration of the DOL Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust Fund; and (iv) that
the amounts remaining in the Pre-Funding Account at the end of the DOL
Pre-Funding Period will be remitted to holders of Certificates (each a as
repayments of principal.
(9) The Agreement must describe the Acceptable Investments for the
Pre-Funding Account and Capitalized Interest Account and, if not disclosed in
the Offering Documents, the terms and conditions for eligibility of the
Additional Loans.
Before purchasing a Certificate in reliance on any of these exemptions
or any other exemption, a fiduciary of a Plan should itself confirm that
requirements set forth in such exemption would be satisfied.
One or more exemptions may be available, with respect to certain
prohibited transactions to which neither PTCE 83-1 nor PTE 90-30 is applicable,
depending in part upon the type of Plan fiduciary making the decision to acquire
Certificates and the circumstances under which such decision is made, including,
but not limited to PTCE 90-1 (regarding investments by insurance company pooled
separate accounts), PTCE 91-38 (regarding investments by bank collective
investments funds), PTCE 84-14 (regarding transactions effected by "qualified
professional asset managers"), PTCE 95-60 (regarding investments by insurance
company general accounts) and PTCE 96-23 (regarding transactions effected by
"in-house asset managers") (collectively, the "Investor Based Exemptions").
However, even if the conditions specified in either of these exemptions are met,
the scope of the relief provided by these exemptions might or might not cover
all acts which might be construed as prohibited transactions.
Each Prospectus Supplement will contain information concerning
considerations relating to ERISA and the Code that are applicable to the related
Certificates.
ERISA CONSIDERATIONS RELATING TO THE NOTES. Under the Plan Asset
Regulations, the assets of the Trust Fund would be treated as plan assets of a
Plan for the purposes of ERISA and the Code only if the Plan acquires an "Equity
Interest" in the Trust Fund and none of the exceptions contained in the Plan
Asset Regulations is applicable. An equity interest is defined under the Plan
Asset Regulations as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Assuming that a Series of Notes is treated as indebtedness without
substantial equity features for purposes of the Plan Asset Regulations, then
such Series of Notes will be eligible for purchase by Plans. However, without
regard to whether a Series of Notes is treated as an "equity interest" for such
purposes, the acquisition or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust Fund or any of
its affiliates is or becomes a party in interest or disqualified person with
respect to such Plan, or in the event that a Note is purchased in the secondary
market and such purchase constitutes a sale or exchange between a Plan and a
party in interest or disqualified person with respect to such Plan. There can be
no assurance that the Trust Fund or any of its affiliates will not be or become
a party in interest or a disqualified person with respect to a Plan that
acquires Notes. However, one or more of the Investor Based Exemptions described
above may apply to any potential prohibited transactions arising as a
consequence of the acquisition, holding and transfer of the Notes.
With respect to those classes of Exchangeable Securities which were
eligible for exemptive relief under PTE 90-30 when purchased, PTE 90-30 would
also cover the acquisition or disposition of such Exchangeable Securities when
the Securityholder exercises its exchange rights. Similarly, with respect to
classes of Securities which were eligible for exemptive relief under PTE 90-30
and were issued as a Callable Class, the exercise of the Call would be covered
under PTE 90-30. However, with respect to classes of Exchangeable Securities and
Callable Classes which were not eligible for exemptive relief under PTE 90-30
when purchased, the exchange, purchase or sale of such securities pursuant to
the exercise of exchange rights or call rights may give rise to prohibited
transactions if a Plan and a party-in-interest with respect to such Plan are
involved in the transaction. However, one or more Investor Based Exemptions
discussed above may be applicable to these transactions.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH SECURITIES.
A governmental plan as defined in Section (32) of ERISA is not subject
to ERISA, or Code Section 4975. However, such governmental plan may be subject
to federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for the availability of any exemptive relief under any Similar Law.
FASIT REGULAR CERTIFICATES WHICH ARE HIGH-YIELD INTERESTS OR FASIT
OWNERSHIP CERTIFICATES ARE NOT ELIGIBLE TO BE ACQUIRED BY A PURCHASER WHICH IS
ACQUIRING SUCH FASIT CERTIFICATES DIRECTLY OR INDIRECTLY FOR, ON BEHALF OF OR
WITH THE ASSETS OF, A PLAN OR A GOVERNMENTAL PLAN.
LEGAL INVESTMENT
SMMEA
The Prospectus Supplement for each Series of Securities will specify
which, if any, of the classes of Securities offered thereby will constitute
"mortgage related securities" for purposes of SMMEA. Any Securities which
constitute mortgage related securities, absent state legislation described
below, will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that under
applicable law obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Under SMMEA, if a state enacted legislation prior
to October 4, 1991 specifically limiting the legal investment authority of any
such entities with respect to "mortgage related securities," the Securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain states adopted legislation which limits the
ability of insurance companies domiciled in these states to purchase
mortgage-related securities, such as the Securities.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with Securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in Securities, and
national banks may purchase Securities for their own account without regard to
the limitations generally applicable to investment securities set forth in 12
U.S.C. ss. 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review the National Credit Union Administration
("NCUA") Letter to Credit Unions No. 96, as modified by Letter to Credit Unions
No. 108, which included guidelines to assist federal credit unions in making
investment decisions for mortgage related securities, and the NCUA's regulation
"Investment and Deposit Activities" (12 C.F.R. Part 703), (whether or not the
class of Securities under consideration for purchase constitutes a "mortgage
related security").
FFIEC POLICY STATEMENT
The Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Comptroller of the Currency and the Office of
Thrift Supervision have adopted the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on Securities Activities (the "Policy
Statement"). Although the National Credit Union Administration has not yet
adopted the Policy Statement, it has adopted other regulations affecting
mortgage-backed securities and is expected to consider adoption of the Policy
Statement. The Policy Statement, among other things, places responsibility on a
depository institution to develop and monitor appropriate policies and
strategies regarding the investment, sale and trading of securities and
restricts an institution's ability to engage in certain types of transactions.
The Policy Statement and any applicable modifications or supplements
thereto should be reviewed prior to the purchase of any Securities by a
depository institution. The summary of the Policy Statement contained herein
does not purport to be complete and should not be relied upon for purposes of
making any regulatory determinations. In addition, any regulator may adopt
modifications or supplements to the Policy Statement or additional restrictions
on the purchase of mortgage-backed or other securities. Investors are urged to
consult their own legal advisors prior to making any determinations with respect
to the Policy Statement or other regulatory requirements.
The Policy Statement provides that a "high-risk mortgage security" is
not suitable as an investment portfolio holding for a depository institution. A
high-risk mortgage security must be reported in the trading account at market
value or as an asset held for sale at the lower of cost or market value and
generally may only be acquired to reduce an institution's interest rate risk.
However, an institution with strong capital and earnings and adequate liquidity
that has a closely supervised trading department is not precluded from acquiring
high-risk mortgage securities for trading purposes.
A depository institution must ascertain and document prior to purchase
and no less frequently than annually thereafter that a nonhigh-risk mortgage
security held for investment remains outside the high-risk category. If an
institution is unable to make these determinations through internal analysis, it
must use information derived from a source that is independent of the party from
whom the product is being purchased. The institution is responsible for ensuring
that the assumptions underlying the analysis and resulting calculations are
reasonable. Reliance on analyses and documentation from a securities dealer or
other outside party without internal analyses by the institution is
unacceptable.
In general, a high-risk mortgage security is a mortgage derivative
product possessing greater price volatility than a benchmark fixed rate 30-year
mortgage-backed pass-through security. Mortgage derivative products include
CMOs, REMICs, CMO and REMIC residuals and stripped mortgage-backed securities. A
mortgage derivative product that, at the time of purchase or at a subsequent
testing date, meets any one of three tests will be considered a high-risk
mortgage security. When the characteristics of a mortgage derivative product are
such that the first two tests cannot be applied (such as interest-only strips),
the mortgage derivative product remains subject to the third test.
The three tests of a high-risk mortgage security are as follows: (i)
the mortgage derivative product has an expected weighted average life greater
than 10.0 years; (ii) the expected weighted average life of the mortgage
derivative product: (a) extends by more than 4.0 years, assuming an immediate
and sustained parallel shift in the yield curve of plus 300 basis points, or (b)
shortens by more than 6.0 years, assuming an immediate and sustained parallel
shift in the yield curve of minus 300 basis points; and (iii) the estimated
change in the price of the mortgage derivative product is more than 17%, due to
an immediate and sustained parallel shift in the yield curve of plus or minus
300 basis points.
When performing the price sensitivity test, the same prepayment
assumptions and same cash flows that were used to estimate average life
sensitivity must be used. The discount rate assumptions should be determined by
(i) assuming that the discount rate for the security equals the yield on a
comparable average life U.S. Treasury security plus a constant spread, (ii)
calculating the spread over Treasury rates from the bid side of the market for
the mortgage derivative product, and (iii) assuming the spread remains constant
when the Treasury curve shifts up or down 300 basis points. Discounting the cash
flows by their respective discount rates estimates a price in the plus or minus
300 basis point environments. The initial price must be determined by the offer
side of the market and used as the base price from which the 17% price
sensitivity test will be measured.
Generally, a floating-rate debt class will not be subject to the
average life and average life sensitivity tests described above if it bears a
rate that, at the time of purchase or at a subsequent testing date, is below the
contractual cap on the instrument. An institution may purchase interest rate
contracts that effectively uncap the instrument. For purposes of the Policy
Statement, a CMO floating-rate debt class is a debt class whose rate adjusts at
least annually on a one-for-one basis with the debt class's index. The index
must be a conventional, widely-used market interest rate index such as the
London Interbank Offered Rate ("LIBOR"). Inverse floating rate debt classes are
not included in the definition of a floating rate debt class.
Securities and other products, whether carried on or off balance sheet
(such as CMO swaps but excluding serv icing assets), having characteristics
similar to those of high-risk mortgage securities, will be subject to the same
super visory treatment as high-risk mortgage securities. Long-maturity holdings
of zero coupon, stripped and deep discount OID products which are
disproportionately large in relation to the total investment portfolio or total
capital of a depository institution are considered an imprudent investment
practice. Long-maturity generally means a remaining maturity exceeding 10 years.
GENERALLY
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Securities, such as residual interests
or stripped mortgage-backed securities. Investors should consult their own legal
advisors in determining whether and to what extent the Securities constitute
legal investments for such investors and comply with any other applicable
requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus
Supplements will be offered in Series. The distribution of the Securities may be
effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Bear, Stearns & Co. Inc. ("Bear,
Stearns"), an affiliate of the Seller, acting as underwriter with other
underwriters, if any, named therein. In such event, the related Prospectus
Supplement may also specify that the underwriters will not be obligated to pay
for any Securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Seller. In connection with the sale of the
Securities, underwriters may receive compensation from the Seller or from
purchasers of the Securities in the form of discounts, concessions or
commissions. The related Prospectus Supplement will describe any such
compensation paid by the Seller.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by Bear, Stearns acting as agent or in some cases
as principal with respect to Securities that it has previously purchased or
agreed to purchase. If Bear, Stearns acts as agent in the sale of Securities,
Bear, Stearns will receive a selling commission with respect to each Series of
Securities, depending on market conditions, expressed as a percentage of the
aggregate principal balance of the Securities sold hereunder as of the Cut-off
Date. The exact percentage for each Series of Securities will be disclosed in
the related Prospectus Supplement. To the extent that Bear, Stearns elects to
purchase Securities as principal, Bear, Stearns may realize losses or profits
based upon the difference between its purchase price and the sales price. The
related Prospectus Supplement with respect to any Series offered other than
through underwriters will contain information regarding the nature of such
offering and any agreements to be entered into between the Seller and purchasers
of Securities of such Series.
The Seller will indemnify Bear, Stearns and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Bear, Stearns and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Bear, Stearns and the Seller may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Seller's Mortgage Loans pending
the sale of such Mortgage Loans or interests therein, including the Securities.
The Seller anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
The legality of the Securities of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Seller by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities and no Trust Fund will engage in any business activities or have any
assets or obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the related Prospectus Supplement that they shall have
been rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
Prospectus Supplement.
Ratings on mortgage-backed securities address the likelihood of
receipt by Securityholders of all distributions on the underlying mortgage loans
or other assets. These ratings address the structural, legal and issuer-related
aspects associated with such Securities, the nature of the underlying mortgage
loans or other assets and the credit quality of the guarantor, if any. Ratings
on mortgage-backed securities do not represent any assessment of the likelihood
of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
Securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped Securities under certain scenarios might fail to recoup
their underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
GLOSSARY
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
TERM PAGE
Accounts..................................................................39
Accrual Class.............................................................48
Accrual Securities........................................................41
Agency Securities......................................................... 1
Annual Interest Amount....................................................48
APR....................................................................... 8
ARM......................................................................106
Available Funds...........................................................41
Bankruptcy Bond...........................................................15
Basis Risk Shortfall......................................................85
Bear, Stearns............................................................124
Buydown Funds........................................................85, 104
Buydown Loans..............................................................6
Call Class................................................................13
Call Securities............................................................1
Callable Class............................................................13
Callable Securities........................................................1
Capitalized Interest Account..............................................11
Cedel.....................................................................44
Certificates...............................................................1
Charter Act...............................................................30
Class Factor..............................................................51
Cleanup Costs.............................................................83
CMO........................................................................9
Code..................................................................17, 84
Collateral Value..........................................................26
Combinations..............................................................47
Commission.................................................................3
Contracts..................................................................1
Cooperative...............................................................45
Cooperative Loans..........................................................1
Cooperatives...............................................................6
Current Principal Amount..................................................41
Cut-off Date..............................................................13
Debt Securities..........................................................108
Definitive Security.......................................................44
Detailed Description......................................................24
Distribution Date.........................................................3
DTC.......................................................................44
Equity Interest..........................................................120
ERISA.....................................................................20
ES Class..................................................................12
Euroclear.................................................................44
Euroclear Operator........................................................45
European Depositaries.....................................................44
Events of Default.....................................................70, 71
Exchangeable Security.....................................................12
Exchangeable Security Trust Fund..........................................47
Exchanged ES Class.......................................................115
Fannie Mae.................................................................1
Fannie Mae Certificates....................................................8
FASIT..................................................................3, 84
FASIT Owner..............................................................103
FASIT Ownership Security..................................................99
FASIT Ownership Security..................................................18
FASIT Regular Securities..............................................18, 99
FASIT Securities..........................................................99
FDIC......................................................................37
Federal Tax Counsel.......................................................84
FHA........................................................................6
FHA Insurance.............................................................39
FHA Loans.................................................................28
FHLMC Act.................................................................31
Floating Rate Class.......................................................48
Freddie Mac................................................................1
Freddie Mac Certificate Group.............................................31
Freddie Mac Certificates...................................................8
FTC Rule..................................................................81
Garn-St Germain Act.......................................................82
GNMA.......................................................................1
GNMA Certificates..........................................................8
GNMA Issuer...............................................................28
Guaranty Agreement........................................................28
High-Yield Interests......................................................99
Holders of Securities.....................................................19
Housing Act...............................................................28
HUD.......................................................................33
Indenture.................................................................39
Insurance Proceeds........................................................62
Insured Expenses.........................................................62
Interest Rate.............................................................13
Inverse Floating Rate Class...............................................48
Investor Based Exemptions................................................120
Lender.....................................................................1
LIBOR....................................................................123
Liquidation Expenses......................................................63
Liquidation Proceeds......................................................63
Loan-to-Value Ratio.......................................................25
Lower Tier REMIC..........................................................94
Manufactured Homes........................................................28
Manufacturer's Invoice Price..............................................26
Master Servicer............................................................1
Master Servicing Agreement................................................26
Mortgage..................................................................61
Mortgage Assets............................................................1
Mortgage Loans.............................................................5
Mortgage Pool..............................................................5
Mortgage Rate..............................................................6
Mortgaged Properties......................................................24
Multifamily Loans..........................................................1
Multiple Variable Rate REMIC Regular Security.............................90
Nationally Recognized Rating Agencies....................................118
NCUA.....................................................................122
Non-Electing Securities...................................................19
Non-REMIC Certificates....................................................19
Notes......................................................................1
OID Regulations...........................................................86
Owners....................................................................44
Participants..............................................................44
Percentage Interests......................................................70
Permitted Investments.....................................................58
Plan.....................................................................117
Plan Asset Regulations...................................................117
Planned Amortization Class................................................48
PMBS Agreement............................................................33
PMBS Issuer................................................................9
PMBS Servicer..............................................................9
PMBS Trustee...............................................................9
Policy Statement.........................................................122
Pool Insurance Policy.....................................................15
Pool Insurer..............................................................53
Pooling and Servicing Agreement..........................................39
Pre-Funded Amount.........................................................11
Pre-Funding Account.......................................................11
Pre-Funding Period........................................................11
Prepayment Assumption.....................................................87
Presumed Single Qualified Floating Rate...................................89
Presumed Single Variable Rate.............................................90
Primary Insurance Policy..................................................24
Primary Insurer...........................................................67
Principal Prepayments.....................................................42
Private Mortgage-Backed Securities.........................................1
Protected Account.........................................................62
PTCE 83-1................................................................117
PTE 90-30................................................................118
Purchase Price............................................................38
Rating Agency.............................................................16
Received ES Class........................................................115
Record Date...............................................................40
Refinance Loan............................................................26
REIT......................................................................94
Relevant Depositary.......................................................44
Relief Act................................................................83
REMIC..................................................................3, 84
REMIC Regular Securities...........................................7, 18, 85
REMIC Regulations....................................................85, 104
REMIC Residual Securities.................................................17
REMIC Securities..........................................................85
Reserve Account............................................................3
Restricted Group.........................................................118
Retained Interest.........................................................39
RICs......................................................................95
Securities.................................................................1
Securities Account........................................................63
Securities Register.......................................................40
Securityholders............................................................1
Seller..................................................................1, 4
Senior Securities.........................................................12
Series.....................................................................1
Single Family Loans........................................................1
Single Variable Rate REMIC Regular Security...............................90
SMMEA.....................................................................17
Special Hazard Insurance Policy...........................................15
Special Hazard Insurer...................................................54
Strip....................................................................114
Subordinated Securities...................................................12
Sub-Servicer..............................................................16
Sub-Servicing Agreement...................................................64
Superlien.................................................................84
Terms and Conditions......................................................46
Tiered FASITs............................................................101
Tiered REMICs.............................................................86
Title V...................................................................82
Trust Agreement...........................................................39
Trust Assets...............................................................1
Trust Fund.................................................................1
Trustee...................................................................39
U.S. Government Securities..............................................1, 5
United States person......................................................98
VA ........................................................................6
VA Guarantees.............................................................39
VA Loans..................................................................28
Variable Rate Non-Electing Securities....................................106
Variable Rate REMIC Regular Security......................................89
Yield Supplement Agreement................................................84
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee.............................. $295.00
Printing and Engraving Expenses................... *
Trustee Fees and Expenses......................... *
Legal Fees and Expenses........................... *
Blue Sky Fees and Expenses........................ *
Accounting Fees and Expenses...................... *
Rating Agency Fees................................ *
Miscellaneous Fees and Expenses................... *
Total Expenses................................ *
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 7 of the form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933.
The Registrant's By-Laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreements, Trust Agreements and Indentures
may provide that no director, officer, employee or agent or the Registrant is
liable to the Trust Fund or the Securityholders, except for such person's own
willful misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. Such agreements may provide
further that, with the exemptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expenses incurred in connection with legal actions relating to such
agreement and the related Securities, other than such expenses relating to
particular Mortgage Loans.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Registrant.*
3.2 By-laws of Registrant.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Certificate (included as part of Exhibit 4.1).*
4.3 Form of Indenture.*
4.4 Form of Note (included as part of Exhibit 4.3).*
4.5 Form of Trust Agreement.*
4.6 Form of Trust Certificate (included as part of Exhibit 4.5).*
5.1 Opinion of Stroock & Stroock & Lavan LLP with respect to legality.
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to federal income
tax matters (contained in Exhibit 5.1).
10.1 Form of Master Servicing Agreement.*
23.1 Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1).
24.1 Power of Attorney.*
25.1 Statement of Eligibility and Qualification of Indenture
Trustee (Form T-1).
- -------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934, as
amended, hat is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(6) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3) of
the Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(7) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Structured Asset
Mortgage Investments Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, it believes that
the securities rating requirement for use of Form S-3 will be met by the time of
sale of the securities and it has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the State of New York on July 23, 1998.
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
By: /S/ JOSEPH T. JURKOWSKI, JR.
--------------------------------
Name: Joseph T. Jurkowski, Jr.
Title: Vice President /
Ass't. Sec'y.
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ JEFFREY J. MAYER Chairman of the Board/Chief July 23, 1998
- ------------------ Executive Office (Principal
Jeffrey J. Mayer Executive Officer), President
and Director
/S/ WILLIAM J. MONTGORIS Secretary/Treasurer (Principal July 23, 1998
- ------------------ Financial and Accounting Officer)
William J. Mortgoris
/S/ PAUL M. FRIEDMAN Vice President/Assistant Secretary July 23, 1998
- --------------- and Director
Paul M. Friedman
<PAGE>
REGISTRATION NO. 333-51279
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBITS
TO
AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
-------------------------
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
(Depositor)
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3633241
(State of incorporation) (I.R.S. Employer Identification Number)
245 PARK AVENUE
NEW YORK, NEWYORK 10167
(212) 272-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
WILLIAM J. MONTGORIS
TREASURER AND SECRETARY
BEAR STEARNS MORTGAGE SECURITIES INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copies to:
LOIS L. WEINROTH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
--------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER EXHIBIT
- -------- --------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Registrant.*
3.2 By-laws of Registrant.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Certificate (included as part of Exhibit 4.1).*
4.3 Form of Indenture.*
4.4 Form of Note (included as part of Exhibit 4.3).*
4.5 Form of Trust Agreement.*
4.6 Form of Trust Certificate (included as part of
Exhibit 4.5).*
5.1 Opinion of Stroock & Stroock & Lavan LLP with respect
to legality.
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect
to federal income tax matters (contained in Exhibit
5.1).
10.1 Form of Master Servicing Agreement.*
23.1 Consent of Stroock & Stroock & Lavan LLP (contained in
Exhibit 5.1).
24.1 Power of Attorney.*
25.1 Statement of Eligibility and Qualification of
Indenture Trustee (Form T-1).
- ---------------------
* Previously filed.
Exhibit 5.1
Opinion and Consent of Stroock & Stroock & Lavan LLP
212-806-5400
July 24, 1998
Structured Assets Mortgage Investments Inc.
245 Park Avenue
New York, New York 10167
Re: STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
REGISTRATION STATEMENT ON FORM S-3
We have acted as counsel for Structured Asset Mortgage Investments Inc.
(the "Company"), in connection with the authorization and issuance from time to
time in one or more series of up to $1,000,000 aggregate principal amount of
Mortgage-Backed Certificates issuable in series (the "Certificates") and/or
Mortgage-Backed Notes issuable in series (the "Notes" and, together with the
Certificates, the "Securities"). A Registration Statement on Form S-3 relating
to the Securities (the "Registration Statement") is being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
As set forth in the Registration Statement, the Securities will be issued from
time to time in series (each, as "Series") by separate trusts (each a "Trust
Fund") established by the Company. The Certificates of each Series will be
issued pursuant to a separate pooling and servicing agreement (each, a "Pooling
and Servicing Agreement") between the Company and an independent trustee, or if
Notes of a Series are issued, the Certificates will be issued pursuant to a
trust agreement (each, a "Trust Agreement") between the Company and an
independent trustee and the Notes will be issued under an indenture (each, an
"Indenture") between the Trust Fund and an independent trustee.
We have examined original or reproduced or certified copies of the
Certificate of Incorporation and By-laws of the Company, records of actions
taken by the Company's Board of Directors, a form of Pooling and Servicing
Agreement, a form of Trust Agreement, a form of Indenture, forms of
Certificates, forms of Notes and the prospectus and the prospectus supplement
(the "Prospectus") forming a part of the Registration Statement and the other
agreements and documents filed as exhibits thereto. We also have examined such
other documents, papers, statutes and authorities as we deem necessary as a
basis for the opinions hereinafter set forth. In our examination of such
material, we have assumed the genuineness of all signatures and the conformity
to original documents of all copies submitted to us as certified or reproduced
copies. We have also assumed for purposes of the opinion given in paragraph 2
below that the Pooling and Servicing Agreement has been, or the Trust Agreement
and the Indenture, as the case may be, have been, duly and validly authorized,
executed and delivered by all parties thereto other than the Company or, in the
case of the Indenture, other than the respective Trust Fund. As to various
matters material to such opinions, we have relied upon the representations and
warranties in each of the form of Pooling and Servicing Agreement, the form of
Trust Agreement and the form of Indenture and statements and certificates of
officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement or a Trust Agreement has been
duly and validly authorized, executed and delivered by the Company, it will
constitute a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms. When an Indenture has been
duly and validly authorized, executed and delivered by the respective Trust
Fund, it will constitute a legal, valid and binding agreement of such Trust Fund
enforceable against such Trust Fund in accordance with its terms.
2. When Securities of a Series issued pursuant to a Pooling and Servicing
Agreement, a Trust Agreement or an Indenture have been duly and validly
authorized by all necessary action on the part of the Company or, in the case of
Securities issued pursuant to an Indenture, on the part of the Trust Fund, and
when executed as specified in, and delivered pursuant to such respective
agreement and when sold as described in the Registration Statement, they will be
validly issued and outstanding and entitled to the benefits of such respective
agreement and, in the case of Certificates, will evidence the entire beneficial
ownership of the applicable Trust Fund and, in the case of Notes, will be
binding debt obligations of the Trust Fund.
3. The statements set forth in the Prospectus under the heading "Federal
Income Tax Consequences," to the extent that they constitute matters of law or
legal conclusions with respect thereto, are correct and are hereby adopted and
confirmed.
In rendering the foregoing opinions, we express no opinion as to laws of
any jurisdiction other than the State of New York and the Federal law of the
United States of America. Our opinions expressed in paragraphs 1 and 2 are
subject to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally and court
decisions with respect thereto, and we express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Prospectus and to the
filing of this opinion as an exhibit to any application made by or on behalf of
the Company or any dealer in connection with the registration of the
Certificates under the securities or blue sky laws of any state or jurisdiction.
In giving such permission, we do not admit hereby that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the General Rules and Regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ STROOCK & STROOCK & LAVAN LLP
Exhibit 25.1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
SIXTH STREET AND MARQUETTE AVENUE 55479
Minneapolis, Minnesota (Zip code)
(Address of principal executive offices)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST ____
(trust to be formed by registrant for each series of
Mortgage-Backed Notes)
(Exact name of obligor as specified in its charter)
DELAWARE NOT YET RECEIVED
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C\O STRUCTURED ASSET MORTGAGE
INVESTMENTS INC. (REGISTRANT)
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(Address of principal executive offices) (Zip code)
-------------------------------------------
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST
MORTGAGE-BACKED NOTES, SERIES ____
------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. GENERAL INFORMATION. Furnish the following information as to
the trustee:
(a) Name and address of each examining or
supervising authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of
this Statement of Eligibility. Trustee incorporates by reference into this Form
T-1 the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of
the trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority
of the trustee to commence business
issued June 28, 1872, by the Comptroller
of the Currency to The Northwestern
National Bank of Minneapolis.*
b. A copy of the certificate of the
Comptroller of the Currency dated
January 2, 1934, approving the
consolidation of The Northwestern
National Bank of Minneapolis and The
Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity
being titled Northwestern National Bank
and Trust Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated
January 12, 1943, as to change of
corporate title of Northwestern National
Bank and Trust Company of Minneapolis to
Northwestern National Bank of
Minneapolis.*
d. A copy of the letter dated May 12, 1983
from the Regional Counsel, Comptroller
of the Currency, acknowledging receipt
of notice of name change effective May
1, 1983 from Northwestern National Bank
of Minneapolis to Norwest Bank
Minneapolis, National Association.*
e. A copy of the letter dated January 4,
1988 from the Administrator of National
Banks for the Comptroller of the
Currency certifying approval of
consolidation and merger effective
January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the
trustee to exercise corporate trust
powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now
in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required
by Section 321(b) of the Act.
Exhibit 7. A copy of the latest report of
condition of the trustee published
pursuant to law or the requirements of
its supervising or examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to Exhibit 25 filed with
registration statement (number 33-66026) of trustee's parent,
Norwest Corporation.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 16th day of June, 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Randall S. Reider
----------------------
Name: Randall S. Reider
Title: Asst. Vice President
<PAGE>
EXHIBIT 6
June 16, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Randall S. Reider
----------------------
Name: Randall S. Reider
Title: Asst. Vice President
<PAGE>
"RC-01.A ","RCFD0081","Cash and Noninterest-bearing Balances ", 1417635
"RC-01.B ","RCFD0071","Interest-bearing Balances ", 5026
"RC-02.A ","RCFD1754","Securities Held-to-Maturity ", 0
"RC-02.B ","RCFD1773","Securities Available-for-sale ", 1180187
"RC-03 ","RCFD1350","Fed Funds Sold & Secs Purchased ", 3693116
"RC-04.A ","RCFD2122","Loans and Leases ", 16323939
"RC-04.B ","RCFD3123","LESS: Allowance for Loan and Lease Lo ", 234528
"RC-04.C ","RCFD3128","LESS: Allocated Transfer Risk Reserve ", 0
"RC-04.D ","RCFD2125","Net Loans & Leases (Total) ", 16089411
"RC-05 ","RCFD3545","Trading Assets ", 134735
"RC-06 ","RCFD2145","Premises and Fixed Assets ", 113952
"RC-07 ","RCFD2150","Other REO ", 6546
"RC-08 ","RCFD2130","Investments in Unconsolidated Subsidi ", 0
"RC-09 ","RCFD2155","Customers' Liability on Acceptances ", 15280
"RC-10 ","RCFD2143","Intangible Assets ", 16382
"RC-11 ","RCFD2160","Other Assets ", 332859
"RC-12 ","RCFD2170","Total Assets ", 23005129
"RC-13.A ","RCON2200","Deposits: Domestic Offices ", 9250580
"RC-13.A.1 ","RCON6631","Domestic Deposits: Noninterest-bearin ", 3977322
"RC-13.A.2 ","RCON6636","Domestic Deposits: Interest-bearing ", 5273258
"RC-13.B ","RCFN2200","Deposits: Foreign Offices ", 3104474
"RC-13.B.1 ","RCFN6631","Foreign Deposits: Noninterest-bearing ", 11419
"RC-13.B.2 ","RCFN6636","Foreign Deposits: Interest-bearing ", 3093055
"RC-14 ","RCFD2800","Fed Funds Purchased & Secs Sold ", 7932130
"RC-15.A ","RCON2840","Demand Notes to US Treasury ", 214353
"RC-15.B ","RCFD3548","Trading Liabilities ", 20111
"RC-16.A ","RCFD2332","Other Borrowed Money: Maturity * 1yr ", 34595
"RC-16.B ","RCFDA547","Other Borrowed Money: Mat. 1-3 YRS ", 4015
"RC-16.C ","RCFDA548","Other Borrowed Money: Maturity ** 3yr ", 203496
"RC-18 ","RCFD2920","Bank's Liability on Acceptances ", 15280
"RC-19 ","RCFD3200","Subordinated Notes and Debentures ", 0
"RC-20 ","RCFD2930","Other Liabilities ", 560023
"RC-21 ","RCFD2948","Total Liabilities ", 21339057
"RC-23 ","RCFD3838","Perpetual Preferred Stock & Surplus ", 0
"RC-24 ","RCFD3230","Common Stock ", 100000
"RC-25 ","RCFD3839","Surplus ", 717166
"RC-26.A ","RCFD3632","Undivided Profits/Capital Reserves ", 830440
"RC-26.B ","RCFD8434","Unrealized holding gain(loss) secur. ", 19106
"RC-27 ","RCFD3284","Foreign Currency Translation Adjustme ", -640
"RC-28 ","RCFD3210","Total Equity Capital ", 1666072
"RC-29 ","RCFD3300","Total Liabs, Pref. Stck, & Equity Cap ", 23005129
"RC-M.1 ","RCFD6724","Auditing method ", 2
"RCA1.A ","RCFD0022","Consolidated Bank: Cash ", 1306512
"RCA1.A.B ","RCON0020","Domestic Offices: Cash Items In Colle ", 1194084
"RCA1.B.B ","RCON0080","Domestic Offices: Cash ", 110697
"RCA2.A.A ","RCFD0083","Consolidated Bank: Due from US Branch ", 0
"RCA2.B ","RCON0082","Domestic Offices: Due from US Deposit ", 93099
"RCA2.B.A ","RCFD0085","Consolidated Bank: Due from Other Dep ", 93179
"RCA3.A.A ","RCFD0073","Consolidated Bank: Due from Foreign U ", 0
"RCA3.B ","RCON0070","Domestic Offices: Due from Foreign Ba ", 4826
"RCA3.B.A ","RCFD0074","Consolidated Bank: Due from Other For ", 7262
"RCA4.A ","RCFD0090","Due from Fed Reserve Banks ", 15708
"RCA4.B ","RCON0090","Domestic Offices: Due from Fed Reserv ", 15453
"RCA5.A ","RCFD0010","Consolidated Bank - Total ", 1422661
"RCA5.B ","RCON0010","Domestic Offices - Total ", 1418159
"RCAM.1 ","RCON0050","Non-Int bearing bals due from US Bnks ", 90145
"RCB1.A ","RCFD0211","Held: Cost: US Treasury Securities ", 0
"RCB1.B ","RCFD0213","Held: Value: US Treasury Securities ", 0
"RCB1.C ","RCFD1286","Sale: Cost: US Treasury Securities ", 573778
"RCB1.D ","RCFD1287","Sale: Value: US Treasury Securities ", 582729
"RCB2.A.A ","RCFD1289","Held: Cost: Obligations US agencies ", 0
"RCB2.A.B ","RCFD1290","Held: Value: Obligations US agencies ", 0
"RCB2.A.C ","RCFD1291","Sale: Cost: Obligations US agencies ", 0
"RCB2.A.D ","RCFD1293","Sale: Value: Obligations US agencies ", 0
"RCB2.B.A ","RCFD1294","Held: Cost: Obligations US sponsored ", 0
"RCB2.B.B ","RCFD1295","Held: Value: Obligations US sponsored ", 0
"RCB2.B.C ","RCFD1297","Sale: Cost: Obligations US sponsored ", 200
"RCB2.B.D ","RCFD1298","Sale: Value: Obligations US sponsored ", 199
"RCB3.A.A ","RCFD1676","Held: Cost: General Obligations ", 0
"RCB3.A.B ","RCFD1677","Held: Value: General Obligations ", 0
"RCB3.A.C ","RCFD1678","Sale: Cost: General Obligations ", 44503
"RCB3.A.D ","RCFD1679","Sale: Value: General Obligations ", 48057
"RCB3.B.A ","RCFD1681","Held: Cost: Revenue Obligations ", 0
"RCB3.B.B ","RCFD1686","Held: Value: Revenue Obligations ", 0
"RCB3.B.C ","RCFD1690","Sale: Cost: Revenue Obligations ", 78698
"RCB3.B.D ","RCFD1691","Sale: Value: Revenue Obligations ", 86700
"RCB3.C.A ","RCFD1694","Held: Cost: Industrial Obligations ", 0
"RCB3.C.B ","RCFD1695","Held: Value: Industrial Obligations ", 0
"RCB3.C.C ","RCFD1696","Sale: Cost: Industrial Obligations ", 4533
"RCB3.C.D ","RCFD1697","Sale: Value: Industrial Obligations ", 5373
"RCB4.A.1.A","RCFD1698","Held: Cost: Security Guaranteed GNMA ", 0
"RCB4.A.1.B","RCFD1699","Held: Value: Security Guaranteed GNMA ", 0
"RCB4.A.1.C","RCFD1701","Sale: Cost: Security Guaranteed GNMA ", 52170
"RCB4.A.1.D","RCFD1702","Sale: Value: Security Guaranteed GNMA ", 53904
"RCB4.A.2.A","RCFD1703","Held: Cost: Security Issued FNMA ", 0
"RCB4.A.2.B","RCFD1705","Held: Value: Security Issued FNMA ", 0
"RCB4.A.2.C","RCFD1706","Sale: Cost: Security Issued FNMA ", 279252
"RCB4.A.2.D","RCFD1707","Sale: Value: Security Issued FNMA ", 287763
"RCB4.A.3.A","RCFD1709","Held: Cost: Other Pass-Through Secs ", 0
"RCB4.A.3.B","RCFD1710","Held: Value: Other Pass-Through Secs ", 0
"RCB4.A.3.C","RCFD1711","Sale: Cost: Other Pass-Through Secs ", 37
"RCB4.A.3.D","RCFD1713","Sale: Value: Other Pass-Through Secs ", 38
"RCB4.B.1.A","RCFD1714","Held: Cost: Issued/Guar. FNMA, Etc. ", 0
"RCB4.B.1.B","RCFD1715","Held: Value: Issued/Guar. FNMA, Etc. ", 0
"RCB4.B.1.C","RCFD1716","Sale: Cost: Issued/Guar. FNMA, Etc. ", 17573
"RCB4.B.1.D","RCFD1717","Sale: Value: Issued/Guar. FNMA, Etc. ", 17392
"RCB4.B.2.A","RCFD1718","Held: Cost: Collateralized MBS -FNMA ", 0
"RCB4.B.2.B","RCFD1719","Held: Value: Collateralized MBS -FNMA ", 0
"RCB4.B.2.C","RCFD1731","Sale: Cost: Collateralized MBS -FNMA ", 0
"RCB4.B.2.D","RCFD1732","Sale: Value: Collateralized MBS -FNMA ", 0
"RCB4.B.3.A","RCFD1733","Held: Cost: All Other MBS ", 0
"RCB4.B.3.B","RCFD1734","Held: Value: All Other MBS ", 0
"RCB4.B.3.C","RCFD1735","Sale: Cost: All Other MBS ", 1663
"RCB4.B.3.D","RCFD1736","Sale: Value: All Other MBS ", 1666
"RCB5.A.A ","RCFD1737","Held: Cost: Other Domestic Debt Sec. ", 0
"RCB5.A.B ","RCFD1738","Held: Value: Other Domestic Debt Sec. ", 0
"RCB5.A.C ","RCFD1739","Sale: Cost: Other Domestic Debt Sec. ", 2763
"RCB5.A.D ","RCFD1741","Sale: Value: Other Domestic Debt Sec. ", 2775
"RCB5.B.A ","RCFD1742","Held: Cost: Foreign Debt Securities ", 0
"RCB5.B.B ","RCFD1743","Held: Value: Foreign Debt Securities ", 0
"RCB5.B.C ","RCFD1744","Sale: Cost: Foreign Debt Securities ", 0
"RCB5.B.D ","RCFD1746","Sale: Value: Foreign Debt Securities ", 0
"RCB6.A.C ","RCFDA510","Sale: Cost: Securities Mutual Funds ", 2912
"RCB6.A.D ","RCFDA511","Sale: Value: Securities Mutual Funds ", 2912
"RCB6.B.C ","RCFD1752","Sale: Cost: Other Equity Securities ", 90679
"RCB6.B.D ","RCFD1753","Sale: Value: Other Equity Securities ", 90679
"RCB7.A ","RCFD1754"," Total Held-to-maturity - Amort Cost ", 0
"RCB7.B ","RCFD1771"," Total Held-to-maturity - Fair Value ", 0
"RCB7.C ","RCFD1772"," Total Avail-for-sale - Amort Cost ", 1148761
"RCB7.D ","RCFD1773"," Total Avail-for-sale - Fair Value ", 1180187
"RCBM.1 ","RCFD0416","Pledged ", 161066
"RCBM.2.A.1","RCFDA549","Memoranda: Non-Mort Debt * 3 MO ", 4262
"RCBM.2.A.2","RCFDA550","Memoranda: Non-Mort Debt 3-12 MO ", 71002
"RCBM.2.A.3","RCFDA551","Memoranda: Non-Mort Debt 1-3 YRS ", 156286
"RCBM.2.A.4","RCFDA552","Memoranda: Non-Mort Debt 3-5 YRS ", 181621
"RCBM.2.A.5","RCFDA553","Memoranda: Non-Mort Debt 5-15 YRS ", 207531
"RCBM.2.A.6","RCFDA554","Memoranda: Non-Mort Debt ** 15 YRS ", 105131
"RCBM.2.B.1","RCFDA555","Memoranda: Mort Pass Thru * 3 MO ", 25992
"RCBM.2.B.2","RCFDA556","Memoranda: Mort Pass Thru 3-12 MO ", 29198
"RCBM.2.B.3","RCFDA557","Memoranda: Mort Pass Thru 1-3 YRS ", 129
"RCBM.2.B.4","RCFDA558","Memoranda: Mort Pass Thru 3-5 YRS ", 891
"RCBM.2.B.5","RCFDA559","Memoranda: Mort Pass Thru 5-15 YRS ", 13705
"RCBM.2.B.6","RCFDA560","Memoranda: Mort Pass Thru ** 15 YRS ", 271790
"RCBM.2.C.1","RCFDA561","Memoranda: Other Mort-backed * 3 YRS ", 19058
"RCBM.2.C.2","RCFDA562","Memoranda: Other Mort-backed ** 3 YRS ", 0
"RCBM.2.D ","RCFDA248","Memoranda: Tot Debt * 1 YR ", 71679
"RCBM.7 ","RCFD1778","Amortized Cost Held Securities Sold ", 0
"RCBM.8.A ","RCFD8780","High Risk Mortgage Secs - Amort Cost ", 37
"RCBM.8.B ","RCFD8781","High Risk Mortgage Secs - Fair Value ", 38
"RCBM.9.A ","RCFD8782","Structured Notes - Amortized Cost ", 200
"RCBM.9.B ","RCFD8783","Structured Notes - Fair Value ", 199
"RCC01.A ","RCFD1410","Consolidated RE Loans ", 10178946
"RCC01.A.B ","RCON1415","Domestic Const/Development Loans ", 71972
"RCC01.B.B ","RCON1420","Domestic Secured by Farmland ", 291
"RCC01.C.1B","RCON1797","Domestic Secured by 1-4 Revolving ", 119552
"RCC01.C.2A","RCON5367","Domestic Secured by 1-4 Other ", 9201497
"RCC01.C.2B","RCON5368","Domestic Secured by 1-4 Other ", 368766
"RCC01.D.B ","RCON1460","Domestic Secured by 5+ ", 56064
"RCC01.E.B ","RCON1480","Domestic Secured by Nonfarm Nonreside ", 360804
"RCC02.A.B ","RCON1505","Domestic to US Coml Banks ", 387518
"RCC02.A1.A","RCFD1506","Consolidated to US Branches of Forei" ", 0
"RCC02.A2.A","RCFD1507","Consolidated to Other US Coml Banks " ", 396869
"RCC02.B.A ","RCFD1517","Consolidated to Other Dep'y in US ", 0
"RCC02.B.B ","RCON1517","Domestic to Other Dep'y in US ", 0
"RCC02.C.B ","RCON1510","Domestic to Foreign Banks ", 79
"RCC02.C1.A","RCFD1513","Consolidated to For Branches US Bank" ", 5216
"RCC02.C2.A","RCFD1516","Consolidated to Foreign Banks " ", 60435
"RCC03.A ","RCFD1590","Consolidated to Farmers ", 18898
"RCC03.B ","RCON1590","Domestic to Farmers ", 18898
"RCC04.A.A ","RCFD1763","Consolidated US Coml ", 3498437
"RCC04.A.B ","RCON1763","Domestic US Coml ", 3498437
"RCC04.B.A ","RCFD1764","Consolidated non-US Coml ", 57949
"RCC04.B.B ","RCON1764","Domestic non-US Coml ", 0
"RCC05.A.A ","RCFD1756","Consolidated Accep's of US Banks ", 0
"RCC05.A.B ","RCON1756","Domestic Accep's of US Bank ", 0
"RCC05.B.A ","RCFD1757","Consolidated Accep's of Foreign Banks ", 2424
"RCC05.B.B ","RCON1757","Domestic Accep's of Foreign Banks ", 2424
"RCC06.A.A ","RCFD2008","Consolidated Credit Cards ", 183051
"RCC06.B ","RCON1975","Domestic Consumer ", 771827
"RCC06.B.A ","RCFD2011","Consolidated Other Consumer ", 589479
"RCC07.A ","RCFD2081","Consolidated Loans to For Govts ", 5000
"RCC07.B ","RCON2081","Domestic Loans to For Govts ", 5000
"RCC08.A ","RCFD2107","Consolidated Obligations US ", 9465
"RCC08.B ","RCON2107","Domestic Obligations US ", 9465
"RCC09.A ","RCFD1563","Consolidated Other ", 538473
"RCC09.A.B ","RCON1545","Domestic Loans for Securities ", 49067
"RCC09.B.B ","RCON1564","Domestic Other ", 489406
"RCC10.A.A ","RCFD2182","Consolidated US Leases ", 780925
"RCC10.B ","RCON2165","Domestic Leases ", 780925
"RCC10.B.A ","RCFD2183","Consolidated For Leases ", 0
"RCC11.A ","RCFD2123","LESS: Consolidated Unearned Income ", 1628
"RCC11.B ","RCON2123","LESS: Domestic Unearned Income ", 842
"RCC12.A ","RCFD2122","Total Loans & Leases (Consolidated) ", 16323939
"RCC12.B ","RCON2122","Total Loans & Leases (Domestic) ", 16191150
"RCCM.2.A1A","RCFD1687","Cons Restruc'd US RE ", 0
"RCCM.2.A2A","RCFD1689","Cons Restruc'd non-US RE ", 0
"RCCM.2.B.A","RCFD8691","Cons Restruc'd - All Other Loan/Lease ", 0
"RCCM.2.C.A","RCFD8692","Cons Restruc'd - Non-U.S. Addressees ", 0
"RCCM.3.A.1","RCONA564","Memo: Loans Secd by Real Est * 3 MO ", 8204723
"RCCM.3.A.2","RCONA565","Memo: Loans Secd by Real Est 3-12 MO ", 387937
"RCCM.3.A.3","RCONA566","Memo: Loans Secd by Real Est 1-3 YRS ", 68464
"RCCM.3.A.4","RCONA567","Memo: Loans Secd by Real Est 3-5 YRS ", 57455
"RCCM.3.A.5","RCONA568","Memo: Loans Secd by Real Est 5-15 YRS ", 330370
"RCCM.3.A.6","RCONA569","Memo: Loans Secd by Real Est ** 15 YRS ", 145918
"RCCM.3.B.1","RCFDA570","Memo: Other Loans/Leases * 3 MO ", 3199218
"RCCM.3.B.2","RCFDA571","Memo: Other Loans/Leases 3-12 MO ", 967131
"RCCM.3.B.3","RCFDA572","Memo: Other Loans/Leases 1-3 YRS ", 1176253
"RCCM.3.B.4","RCFDA573","Memo: Other Loans/Leases 3-5 YRS ", 968090
"RCCM.3.B.5","RCFDA574","Memo: Other Loans/Leases 5-15 YRS ", 692773
"RCCM.3.B.6","RCFDA575","Memo: Other Loans/Leases ** 15 YRS ", 94919
"RCCM.3.C ","RCFDA247","Memo: Tot Remg Loans/Leases * 1 YR ", 11002672
"RCCM.3.D ","RCONA577","Memo: Non-Farm/Res Loans/Leases ** 5YR ", 110739
"RCCM.3.E ","RCFDA578","Memo: Comm/Indust ** 3 YRS ", 1135795
"RCCM.4 ","RCFD2746","Loans to fin. comm. real est., constr ", 0
"RCCM.5 ","RCFD5369","Loans & leases held for sale ", 7945494
"RCCM.6 ","RCON5370","Adj. rate closed-end loans secured ", 1938261
"RCCP2.01 ","RCON6999","YES/NO - RCC01.E & RCC04 **= $ 100,000 ", 0
"RCCP2.02AA","RCON5562","Number of Loans RCC01.E ", 0
"RCCP2.02BA","RCON5563","Number of Loans RCC04 ", 0
"RCCP2.03AA","RCON5564","Number of Loans RCC01.E Orig *= $100K ", 0
"RCCP2.03AB","RCON5565","Amount of Loans RCC01.E Orig *= $100K ", 0
"RCCP2.03BA","RCON5566","# of Loans RCC01.E $100K*Orig*=$250K ", 0
"RCCP2.03BB","RCON5567","$ of Loans RCC01.E $100K*Orig*=$250K ", 0
"RCCP2.03CA","RCON5568","# of Loans RCC01.E $250K * Orig *=$1M ", 0
"RCCP2.03CB","RCON5569","$ of Loans RCC01.E $250K * Orig *=$1M ", 0
"RCCP2.04AA","RCON5570","Number of Loans RCC04 Orig *= $100K ", 0
"RCCP2.04AB","RCON5571","Amount of Loans RCC04 Orig *= $100K ", 0
"RCCP2.04BA","RCON5572","# of Loans RCC04 $100K* Orig *= $250K ", 0
"RCCP2.04BB","RCON5573","$ of Loans RCC04 $100K* Orig *= $250K ", 0
"RCCP2.04CA","RCON5574","# of Loans RCC04 $250K * Orig *= $1M ", 0
"RCCP2.04CB","RCON5575","$ of Loans RCC04 $250K * Orig *= $1M ", 0
"RCCP2.05 ","RCON6860","YES/NO - RCC01.B & RCC03 **= $ 100,000 ", 0
"RCCP2.06AA","RCON5576","Number of Loans RCC01.B ", 0
"RCCP2.06BA","RCON5577","Number of Loans RCC03 ", 0
"RCCP2.07AA","RCON5578","Number of Loans RCC01.B Orig *= $100K ", 0
"RCCP2.07AB","RCON5579","Amount of Loans RCC01.B Orig *= $100K ", 0
"RCCP2.07BA","RCON5580","# of Loans RCC01.B $100K*Orig*=$250K ", 0
"RCCP2.07BB","RCON5581","$ of Loans RCC01.B $100K*Orig*=$250K ", 0
"RCCP2.07CA","RCON5582","# of Loans RCC01.B $250K *Orig*=$500K ", 0
"RCCP2.07CB","RCON5583","$ of Loans RCC01.B $250K *Orig*=$500K ", 0
"RCCP2.08AA","RCON5584","Number of Loans RCC03 - Orig *= $100K ", 0
"RCCP2.08AB","RCON5585","Amount of Loans RCC03 - Orig *= $100K ", 0
"RCCP2.08BA","RCON5586","# of Loans RCC03 - $100K*Orig*=$250K ", 0
"RCCP2.08BB","RCON5587","$ of Loans RCC03 - $100K*Orig*=$250K ", 0
"RCCP2.08CA","RCON5588","# of Loans RCC03 - $250K *Orig*=$500K ", 0
"RCCP2.08CB","RCON5589","$ of Loans RCC03 - $250K *Orig*=$500K ", 0
"RCD01 ","RCON3531","US Treasury securities ", 103953
"RCD02 ","RCON3532","US Govt agency obligations ", 0
"RCD03 ","RCON3533","Securities issued by State and Subdiv ", 0
"RCD04.A ","RCON3534","Pass-through secs by FNMA/FHLMC/GNMA ", 9874
"RCD04.B ","RCON3535","CMOs and REMICs issued by FNMA/FHLMC ", 0
"RCD04.C ","RCON3536","All other mortgage-backed securities ", 0
"RCD05 ","RCON3537","Other debt securities ", 0
"RCD09 ","RCON3541","Other trading assets domestic ", 0
"RCD10 ","RCFN3542","Trading assets foreign ", 0
"RCD11.A ","RCON3543","Gains on rate & contracts domestic ", 20908
"RCD11.B ","RCFN3543","Gains on rate & contracts foreign ", 0
"RCD12 ","RCFD3545","Total Trading Assets ", 134735
"RCD13 ","RCFD3546","Liability for short positions ", 0
"RCD14 ","RCFD3547","Losses on rate & contracts ", 20111
"RCD15 ","RCFD3548","Total trading liabilities ", 20111
"RCE1.1.A ","RCON2201","Private Transaction ", 2930723
"RCE1.1.B ","RCON2240","Private Demand Deposits ", 2814492
"RCE1.1.C ","RCON2346","Private Nontransaction ", 5653416
"RCE1.2.A ","RCON2202","USG Transaction ", 20334
"RCE1.2.B ","RCON2280","USG Demand Deposits ", 20334
"RCE1.2.C ","RCON2520","USG Nontransaction ", 0
"RCE1.3.A ","RCON2203","State/Local Transaction ", 16457
"RCE1.3.B ","RCON2290","State/Local Demand Deposits ", 16370
"RCE1.3.C ","RCON2530","State/Local Nontransaction ", 8729
"RCE1.4.A ","RCON2206","US Coml Banks Transaction ", 579407
"RCE1.4.B ","RCON2310","US Coml Banks Demand Deposits ", 579407
"RCE1.4.C ","RCON2550","US Coml Banks Nontransaction ", 0
"RCE1.5.A ","RCON2207","Other US Dep'y Transaction ", 20329
"RCE1.5.B ","RCON2312","Other US Dep'y Demand Deposits ", 20329
"RCE1.5.C ","RCON2349","Other US Dep'y Nontransaction ", 0
"RCE1.6.A ","RCON2213","For Banks Transaction ", 7750
"RCE1.6.B ","RCON2320","For Banks Demand Deposits ", 7750
"RCE1.6.C ","RCON2236","For Branches US Banks Nontransaction ", 0
"RCE1.7.A ","RCON2216","For Govt Transaction ", 0
"RCE1.7.B ","RCON2300","For Govt Demand Deposits ", 0
"RCE1.7.C ","RCON2377","For Govt Nontransaction ", 0
"RCE1.8.A ","RCON2330","Certified Checks: Transaction ", 13435
"RCE1.8.B ","RCON2330","Certified Checks: Demand ", 13435
"RCE1.9.A ","RCON2215","Total Transaction Accounts ", 3588435
"RCE1.9.B ","RCON2210","Total Demand Deposits ", 3472117
"RCE1.9.C ","RCON2385","Total Nontransaction Accounts ", 5662145
"RCE1.M.1.A","RCON6835","IRA/Keogh ", 490105
"RCE1.M.1.B","RCON2365","Brokered ", 0
"RCE1.M.1.E","RCON5590","Memoranda: Preferred Deposits ", 0
"RCE1.M.1C1","RCON2343","Brokered * $100K ", 0
"RCE1.M.1C2","RCON2344","Brokered Participated to * $100K ", 0
"RCE1.M.1D1","RCONA243","Matur data:denom * 100k,matur*= 1 yr ", 0
"RCE1.M.1D2","RCONA244","Matur data:denom =**100k,matur*= 1 yr ", 0
"RCE1.M.2.B","RCON6648","Memoranda: Time Deposits *$100 000 ", 1577035
"RCE1.M.2.C","RCON2604","Memoranda: Time Deposits **=$100 000 ", 194780
"RCE1.M.2A1","RCON6810","MMDAs ", 1818501
"RCE1.M.2A2","RCON0352","Other Savings ", 2071829
"RCE1.M.3 ","RCON2398","NOW ", 116318
"RCE1.M.5A1","RCONA579","Memo: Time Deps * 100K * 3 MO ", 261983
"RCE1.M.5A2","RCONA580","Memo: Time Deps * 100K 3-12 MO ", 662781
"RCE1.M.5A3","RCONA581","Memo: Time Deps * 100K 1-3 YRS ", 555968
"RCE1.M.5A4","RCONA582","Memo: Time Deps * 100K ** 3 YRS ", 96303
"RCE1.M.5B ","RCONA241","Memo: Time Deps * 100K * 1 YR ", 924764
"RCE1.M.6A1","RCONA584","Memo: Time Deps ** 100K * 3 MO ", 68578
"RCE1.M.6A2","RCONA585","Memo: Time Deps ** 100K 3-12 MO ", 62140
"RCE1.M.6A3","RCONA586","Memo: Time Deps ** 100K 1-3 YRS ", 49815
"RCE1.M.6A4","RCONA587","Memo: Time Deps ** 100K ** 3 YRS ", 14247
"RCE1.M.6B ","RCONA242","Memo: Time Deps ** 100K * 1 YR ", 130718
"RCE2.1 ","RCFN2621","Private ", 462869
"RCE2.2 ","RCFN2623","US Banks ", 2611554
"RCE2.3 ","RCFN2625","For Banks ", 29710
"RCE2.4 ","RCFN2650","For Govts ", 0
"RCE2.5 ","RCFN2330","Certified Checks ", 81
"RCE2.6 ","RCFN2668","Other ", 260
"RCE2.7 ","RCFN2200","Total Deps in Foreign Offices ", 3104474
"RCE2.M.1 ","RCFNA245","Memo:TD with remaining maturity*=1 yr ", 3062182
"RCF1 ","RCFD2164","Income Earned Not Collected Loans ", 53688
"RCF2 ","RCFD2148","Net Deferred Tax Assets ", 0
"RCF3.A ","RCFDA519","Interest Only Strip: Mortgage Loans ", 0
"RCF3.B ","RCFDA520","Interest Only Strip: Other Assets ", 0
"RCF4 ","RCFD2168","Other Assets ", 279171
"RCF4.A ","RCFD3549","Other Assets - Line A ", 84011
"RCF4.B ","RCFD3550","Other Assets - Line B ", 72677
"RCF4.C ","RCFD3551","Other Assets - Line C ", 0
"RCF5 ","RCFD2160"," Total Other Assets ", 332859
"RCFM.1 ","RCFD5610","Memo: Deferred Tax Assets Disallowed ", 0
"RCG1.A ","RCON3645","Expenses Accrued and Unpaid on deposi ", 32233
"RCG1.B ","RCFD3646","Other Expenses Accrued and Unpaid ", 363315
"RCG2 ","RCFD3049","Net Deferred Tax Liabilities ", 149111
"RCG3 ","RCFD3000","Minority Interest in Subsidiaries ", 318
"RCG4 ","RCFD2938","Other Liabilities ", 15046
"RCG4.A ","RCFD3552","Other Liabilities - Line A ", 0
"RCG4.B ","RCFD3553","Other Liabilities - Line B ", 0
"RCG4.C ","RCFD3554","Other Liabilities - Line C ", 0
"RCG5 ","RCFD2930"," Total Other Liabilities ", 560023
"RCH01 ","RCON2155","Customers' Liability on Acceptances ", 7226
"RCH02 ","RCON2920","Bank's Liability on Acceptances ", 7226
"RCH03 ","RCON1350","Fed Funds Sold ", 3693116
"RCH04 ","RCON2800","Fed Funds Purchased ", 7932130
"RCH05 ","RCON3190","Other Borrowed Money ", 242106
"RCH06 ","RCON2163","Net Due from Own For Offices ", 0
"RCH07 ","RCON2941","Net Due to Own For Offices ", 2956185
"RCH08 ","RCON2192"," Total Assets ", 22834849
"RCH09 ","RCON3129"," Total Liabilities ", 18212592
"RCH10 ","RCON1039","US Treasury Securities ", 573778
"RCH11 ","RCON1041","US Government agency obligations ", 200
"RCH12 ","RCON1042","Securities issued by US states/subdiv ", 127734
"RCH13.A.1 ","RCON1043","MBS: Pass-Through: FNMA/FHLMC/GNMA ", 331422
"RCH13.A.2 ","RCON1044","MBS: Pass-Through: Other Pass-Through ", 37
"RCH13.B.1 ","RCON1209","MBS: Other MBS: FNMA/FHLMC/GNMA ", 17573
"RCH13.B.2 ","RCON1280","MBS: Other MBS: All Other MBS ", 0
"RCH14 ","RCON1281","Other Domestic Debt Securities ", 1663
"RCH15 ","RCON1282","Foreign Debt Securities ", 0
"RCH16.A ","RCONA510","Equity Securities: Mutual Fund/Eq Sec ", 2912
"RCH16.B ","RCON1752","Equity Securities: All others ", 90679
"RCH17 ","RCON1374","Total Securities Held and Sale ", 1145998
"RCHM.1 ","RCON3051","Net Due from Own IBF ", 0
"RCHM.2 ","RCON3059","Net Due to Own IBF ", 0
"RCI1 ","RCFN2133"," Total IBF Assets ", 0
"RCI2 ","RCFN2076"," Total IBF Loans/Leases ", 0
"RCI3 ","RCFN2077","IBF Coml/Indl ", 0
"RCI4 ","RCFN2898"," Total IBF Liabilities ", 0
"RCI5 ","RCFN2379","IBF Deposit Liabilities Due to Banks ", 0
"RCI6 ","RCFN2381","Other IBF Deposit Liabilities ", 0
"RCK01 ","RCFD3381","Interest-bearing Balances ", 34788
"RCK02 ","RCFD3382","US Govt/Treasury ", 800460
"RCK03 ","RCFD3383","State/Local Securities ", 127851
"RCK04.A ","RCFD3647","Other debt Securities ", 2776
"RCK04.B ","RCFD3648","Other equity Securities ", 93583
"RCK05 ","RCFD3365","Fed Funds Sold ", 3417831
"RCK06.A.1 ","RCON3360"," Total Loans ", 13561554
"RCK06.A.2 ","RCON3385","RE Loans ", 7742571
"RCK06.A.3 ","RCON3386","Agricultural & Farm Loans ", 17833
"RCK06.A.4 ","RCON3387","Commercial/Industrial Loans ", 4267922
"RCK06.A.5 ","RCON3388","Consumer Loans ", 802573
"RCK06.B ","RCFN3360","Foreign Office Loans ", 154912
"RCK07 ","RCFD3401","Assets Held in Trading Accounts ", 77090
"RCK08 ","RCFD3484","Lease Fin'g Receivables ", 768173
"RCK09 ","RCFD3368"," Total Assets ", 19859517
"RCK10 ","RCON3485","Domestic Transaction Accounts ", 96243
"RCK11.A ","RCON3486","MMDAs ", 1794483
"RCK11.B ","RCON3487","Other Savings ", 1960621
"RCK11.C ","RCONA514","Time Deposits **= $100,000 ", 314236
"RCK11.D ","RCONA529","Time Deposits * $100,000 ", 1587920
"RCK12 ","RCFN3404","Interest-bearing Deposits in For Offi ", 3304050
"RCK13 ","RCFD3353","Fed Funds Purchased ", 5108310
"RCK14 ","RCFD3355","Other Borrowed Money ", 225565
"RCL01.A ","RCFD3814","Unused Commits: Revolv Lines Secured ", 261471
"RCL01.B ","RCFD3815","Unused Commits: Credit Card Lines ", 0
"RCL01.C.1 ","RCFD3816","Unused Commits: Fund loans secured ", 48086
"RCL01.C.2 ","RCFD6550","Unused Commits: Fund loans not secure ", 15170
"RCL01.D ","RCFD3817","Unused Commits: Securities Underwrit ", 0
"RCL01.E ","RCFD3818","Unused Commits: Other Unused Commits ", 4805140
"RCL02 ","RCFD3819","Fincl Standby Letters of Credit ", 992975
"RCL02.A ","RCFD3820","Amount Fincl Standby Letters Conveyed ", 466810
"RCL03 ","RCFD3821","Perfm Standby Letters of Credit ", 83263
"RCL03.A ","RCFD3822","Amount Perfm Standby Letters Conveyed ", 17897
"RCL04 ","RCFD3411","Commercl & Similar Letters of Credit ", 146007
"RCL05 ","RCFD3428","Participations in Acceptncs Conveyed ", 0
"RCL06 ","RCFD3429","Participations in Acceptncs Acquired ", 0
"RCL07 ","RCFD3432","Securities Borrowed ", 4636664
"RCL08 ","RCFD3433","Securities Lent ", 391701
"RCL09.A.1 ","RCFDA521","1-4 Family: Outstanding Balance ", 15509
"RCL09.A.2 ","RCFDA522","1-4 Family: Amount of Recourse ", 15509
"RCL09.B.1 ","RCFDA523","Other Assets: Outstanding Balance ", 0
"RCL09.B.2 ","RCFDA524","Other Assets: Amount of Recourse ", 0
"RCL09.C.1 ","RCFDA249","Sml busns obligations:Outstanding bal ", 0
"RCL09.C.2 ","RCFDA250","Sml busns obligations:retaind recours ", 0
"RCL10.A ","RCFDA534","Credit Derivatives: Guarantor ", 0
"RCL10.B ","RCFDA535","Credit Derivatives: Beneficiary ", 25000
"RCL11 ","RCFD8765","Spot Foreign Exchange Contracts ", 284199
"RCL12 ","RCFD3430","All Other Off-Balance Sheet Liabs ", 0
"RCL12.A ","RCFD3555","Other Off-Balance Sheet Liabilities-A ", 0
"RCL12.B ","RCFD3556","Other Off-Balance Sheet Liabilities-B ", 0
"RCL12.C ","RCFD3557","Other Off-Balance Sheet Liabilities-C ", 0
"RCL12.D ","RCFD3558","Other Off-Balance Sheet Liabilities-D ", 0
"RCL13 ","RCFD5591","All Other Off-Balance Sheet Assets ", 0
"RCL13.A ","RCFD5592","Other Off-Balance Sheet Assets - A ", 0
"RCL13.B ","RCFD5593","Other Off-Balance Sheet Assets - B ", 0
"RCL13.C ","RCFD5594","Other Off-Balance Sheet Assets - C ", 0
"RCL13.D ","RCFD5595","Other Off-Balance Sheet Assets - D ", 0
"RCL14.A.A ","RCFD8693","Int Rate Contracts - Gross Futures ", 225500
"RCL14.A.B ","RCFD8694","Forgn Exch Contracts - Gross Futures ", 0
"RCL14.A.C ","RCFD8695","Equity Contracts - Gross Futures ", 0
"RCL14.A.D ","RCFD8696","Commodity Contracts - Gross Futures ", 0
"RCL14.B.A ","RCFD8697","Int Rate Contracts - Gross Forwards ", 0
"RCL14.B.B ","RCFD8698","Forgn Exch Contracts - Gross Forwards ", 973594
"RCL14.B.C ","RCFD8699","Equity Contracts - Gross Forwards ", 0
"RCL14.B.D ","RCFD8700","Commodity Contracts - Gross Forwards ", 0
"RCL14.C.1A","RCFD8701","Int Rate Contracts - Exchg Trad Wrttn ", 0
"RCL14.C.1B","RCFD8702","Forgn Exch Contracts - Exchg Trad Wrt ", 0
"RCL14.C.1C","RCFD8703","Equity Contracts - Exchg Trad Written ", 0
"RCL14.C.1D","RCFD8704","Commodity Contracts - Exchg Trad Wrtn ", 0
"RCL14.C.2A","RCFD8705","Int Rate Contracts - Exchg Trad Purch ", 0
"RCL14.C.2B","RCFD8706","Forgn Exch Contracts - Exchg Trad Pur ", 0
"RCL14.C.2C","RCFD8707","Equity Contracts - Exchg Trad Purchas ", 0
"RCL14.C.2D","RCFD8708","Commodity Contracts - Exchg Trade Pur ", 0
"RCL14.D.1A","RCFD8709","Int Rate Contracts - OTC Written Optn ", 526475
"RCL14.D.1B","RCFD8710","Forgn Exch Contracts - OTC Wrtn Optns ", 0
"RCL14.D.1C","RCFD8711","Equity Contracts - OTC Written Option ", 0
"RCL14.D.1D","RCFD8712","Commodity Contracts - OTC Written Opt ", 19793
"RCL14.D.2A","RCFD8713","Int Rate Contracts - OTC Purchased Op ", 419243
"RCL14.D.2B","RCFD8714","Forgn Exch Contracts - OTC Purchased ", 0
"RCL14.D.2C","RCFD8715","Equity Contracts - OTC Purchased Optn ", 0
"RCL14.D.2D","RCFD8716","Commodity Contracts - OTC Purch Optn ", 21422
"RCL14.E.A ","RCFD3450","Int Rate Contracts - Gross Swaps ", 4581621
"RCL14.E.B ","RCFD3826","Forgn Exch Contracts - Gross Swaps ", 0
"RCL14.E.C ","RCFD8719","Equity Contracts - Gross Swaps ", 0
"RCL14.E.D ","RCFD8720","Commodity Contracts - Gross Swaps ", 15107
"RCL15.A ","RCFDA126","Int Rate Contracts - Gross Held Trade ", 2291239
"RCL15.B ","RCFDA127","Forgn Exch Contracts - Gross Held Trd ", 973594
"RCL15.C ","RCFD8723","Equity Contracts - Gross Held Trading ", 0
"RCL15.D ","RCFD8724","Commodity Contracts - Gross Held Trad ", 56322
"RCL16.A.A ","RCFD8725","Int Rate Contracts - Marked to Market ", 0
"RCL16.A.B ","RCFD8726","Forgn Exch Contracts - Marked to Mrkt ", 0
"RCL16.A.C ","RCFD8727","Equity Contracts - Marked to Market ", 0
"RCL16.A.D ","RCFD8728","Commodity Contracts - Marked to Mrkt ", 0
"RCL16.B.A ","RCFD8729","Int Rate Contracts - NOT Marked ", 3461600
"RCL16.B.B ","RCFD8730","Forgn Exch Contracts - NOT Marked ", 0
"RCL16.B.C ","RCFD8731","Equity Contracts - NOT Marked ", 0
"RCL16.B.D ","RCFD8732","Commodity Contracts - NOT Marked ", 0
"RCL16.C.A ","RCFDA589","Int Rate Contracts - Bank Pays Fixed ", 375000
"RCL17.A.1A","RCFD8733","Int Rate Contracts Held - Pos Values ", 4867
"RCL17.A.1B","RCFD8734","Forgn Exch Contracts Held - Pos Value ", 14316
"RCL17.A.1C","RCFD8735","Equity Contracts Held - Pos Values ", 0
"RCL17.A.1D","RCFD8736","Commodity Contracts Held - Pos Value ", 1725
"RCL17.A.2A","RCFD8737","Int Rate Contracts Held - Neg Values ", 5052
"RCL17.A.2B","RCFD8738","Forgn Exch Contracts Held - Neg Value ", 13166
"RCL17.A.2C","RCFD8739","Equity Contracts Held - Neg Values ", 0
"RCL17.A.2D","RCFD8740","Commodity Contracts Held - Neg Value ", 1830
"RCL17.B.1A","RCFD8741","Int Rate Contracts Markd- Pos Values ", 0
"RCL17.B.1B","RCFD8742","Forgn Exch Contracts Markd- Pos Value ", 0
"RCL17.B.1C","RCFD8743","Equity Contracts Markd- Pos Values ", 0
"RCL17.B.1D","RCFD8744","Commodity Contracts Markd- Pos Value ", 0
"RCL17.B.2A","RCFD8745","Int Rate Contracts Markd- Neg Values ", 0
"RCL17.B.2B","RCFD8746","Forgn Exch Contracts Markd- Neg Value ", 0
"RCL17.B.2C","RCFD8747","Equity Contracts Markd- Neg Values ", 0
"RCL17.B.2D","RCFD8748","Commodity Contracts Markd- Neg Value ", 0
"RCL17.C.1A","RCFD8749","Int Rate Contracts Not Markd - PosVal ", 76655
"RCL17.C.1B","RCFD8750","Forgn Exch Contracts Not Markd-PosVal ", 0
"RCL17.C.1C","RCFD8751","Equity Contracts Not Markd - PosVal ", 0
"RCL17.C.1D","RCFD8752","Commodity Contracts Not Markd-PosVal ", 0
"RCL17.C.2A","RCFD8753","Int Rate Contracts Not Markd - NegVal ", 1035
"RCL17.C.2B","RCFD8754","Forgn Exch Contracts Not Markd-NegVal ", 0
"RCL17.C.2C","RCFD8755","Equity Contracts Not Markd - NegVal ", 0
"RCL17.C.2D","RCFD8756","Commodity Contracts Not Markd-NegVal ", 0
"RCLM.3 ","RCFD3833","Unused Commitments ** 1 year ", 4592659
"RCLM.3.A ","RCFD3834","Participations in Commitments ** 1 Yr ", 229159
"RCLM.4 ","RCFD3377","Standby Letters of Credit - Non-U.S. ", 475
"RCLM.5.A ","RCFD2741","Con Inst Lns w/o recourse - Prv Autos ", 0
"RCLM.5.B ","RCFD2742","Con Inst Lns w/o recourse - Crd Cards ", 0
"RCLM.5.C ","RCFD2743","Con Inst Lns w/o recourse - All other ", 0
"RCM1.A ","RCFD6164","Credit to Executives/Principals ", 6495
"RCM1.B ","RCFD6165","Number of Execs Who Borrowed $500K/5% ", 3
"RCM10.A ","RCON6441","Mutual Fund: Money Market Funds ", 79979
"RCM10.B ","RCON8427","Mutual Fund: Equity Securities ", 0
"RCM10.C ","RCON8428","Mutual Fund: Debt Securities ", 0
"RCM10.D ","RCON8429","Mutual Fund: Other Mutual Funds ", 51935
"RCM10.E ","RCON8430","Mutual Fund: Annuities ", 11598
"RCM10.F ","RCON8784","Mutual Fund: Sales of Proprietary ", 90019
"RCM11 ","RCFDA525","Net Unamortized Gains (Sched RC) ", -22177
"RCM12 ","RCFDA526","Assets Netted Against (Sched RC) ", 0
"RCM13 ","RCFDA591","Outstanding Principal Bal Serviced ", 0
"RCM2 ","RCFD3405","Fed Funds Sold -- Foreign Banks ", 2090250
"RCM4.A ","RCFD5500","O/S Bal Mortgages Serviced - GNMA ", 0
"RCM4.B.1 ","RCFD5501","O/S Bal Morts Serviced-FHLMC w/ recou ", 0
"RCM4.B.2 ","RCFD5502","O/S Bal Morts Serviced-FHLMC w/o rec ", 0
"RCM4.C.1 ","RCFD5503","O/S Bal Morts Serviced-FNMA Reg optn ", 0
"RCM4.C.2 ","RCFD5504","O/S Bal Morts Serviced-FNMA Spec optn ", 0
"RCM4.D ","RCFD5505","O/S Bal Morts Serviced-All other ", 446436
"RCM5.A ","RCFD2103","Customers' Liability on Acceptances: ", 10619
"RCM5.B ","RCFD2104","Customers' Liability on Acceptances: ", 4661
"RCM6.A ","RCFD3164","Mtge Servicing Rights ", 0
"RCM6.A.1 ","RCFDA590","Mort Serv Rights - Est Fair Value ", 0
"RCM6.B.1 ","RCFD5506","Other Intangible ", 0
"RCM6.B.2 ","RCFD5507","Other Intangible - All Other ", 318
"RCM6.C ","RCFD3163","Goodwill ", 16064
"RCM6.D ","RCFD2143","Total Intangible Assets ", 16382
"RCM6.E ","RCFD6442","Intangible Assets Grandfathered ", 0
"RCM7 ","RCFD3295","Mandatory Convertible Debt Dedictated ", 0
"RCM8.A.1 ","RCFD5372","Othr Real Estate - Direct & Indirect ", 0
"RCM8.A.2.A","RCON5508","Othr Real Estate - All other Real Est ", 0
"RCM8.A.2.B","RCON5509","Othr Real Estate - Farmland ", 0
"RCM8.A.2.C","RCON5510","Othr Real Estate - 1-4 Family Residnt ", 6546
"RCM8.A.2.D","RCON5511","Othr Real Estate - Multifamily Resid ", 0
"RCM8.A.2.E","RCON5512","Othr Real Estate - Nonfarm Nonresiden ", 0
"RCM8.A.2.F","RCFN5513","Othr Real Estate - In Foreign Offices ", 0
"RCM8.A.3 ","RCFD2150","Othr Real Estate - Total ", 6546
"RCM8.B.1 ","RCFD5374","Inves - Direct & Indirect invest R/E ", 0
"RCM8.B.2 ","RCFD5375","Inves - All othr invest unconsol subs ", 0
"RCM8.B.3 ","RCFD2130","Investmnts in unconsold subs - Total ", 0
"RCM9 ","RCFD3778","Noncumulative Perpetual Preferred Stk ", 0
"RCMM.1 ","RCFD3836","Interbank Holdings: Reciprocal DEC ", 0
"RCN1.A.A ","RCFD1245","RE US: 30-89 Days ", 30611
"RCN1.A.B ","RCFD1246","RE US: 90+ Days ", 1552
"RCN1.A.C ","RCFD1247","RE US: Nonaccrual ", 8042
"RCN1.B.A ","RCFD1248","RE non-US: 30-89 Days ", 0
"RCN1.B.B ","RCFD1249","RE non-US: 90+ Days ", 0
"RCN1.B.C ","RCFD1250","RE non-US: Nonaccrual ", 0
"RCN10.A ","RCFD5612","Loans/Leases US Guaranteed-30-89 Days ", 1025
"RCN10.A.A ","RCFD5615","Loans/Leases Guaranteed: 30-89 Days ", 694
"RCN10.A.B ","RCFD5616","Loans/Leases Guaranteed: 30-89 Days ", 46
"RCN10.A.C ","RCFD5617","Loans/Leases Guaranteed: 30-89 Days ", 496
"RCN10.B ","RCFD5613","Loans/Leases US Guaranteed- 90+ Days ", 48
"RCN10.C ","RCFD5614","Loans/Leases US Guaranteed-Nonaccrual ", 673
"RCN2.A.A ","RCFD5377","Loans US Deps: US Banks: 30-89 Days ", 0
"RCN2.A.B ","RCFD5378","Loans US Deps: US Banks: 90+ Days ", 0
"RCN2.A.C ","RCFD5379","Loans US Deps: US Banks: Nonaccrual ", 0
"RCN2.B.A ","RCFD5380","Loans US Deps: Foreign: 30-89 Days ", 0
"RCN2.B.B ","RCFD5381","Loans US Deps: Foreign: 90+ Days ", 0
"RCN2.B.C ","RCFD5382","Loans US Deps: Foreign: Nonaccrual ", 0
"RCN3.A ","RCFD1594","Ag US: 30-89 Days ", 0
"RCN3.B ","RCFD1597","Ag US: 90+ Days ", 22
"RCN3.C ","RCFD1583","Ag US: Nonaccrual ", 0
"RCN4.A.A ","RCFD1251","Coml/Indl US: 30-89 Days ", 34181
"RCN4.A.B ","RCFD1252","Coml/Indl US: 90+ Days ", 49
"RCN4.A.C ","RCFD1253","Coml/Indl US: Nonaccrual ", 13765
"RCN4.B.A ","RCFD1254","Coml/Indl non-US: 30-89 Days ", 0
"RCN4.B.B ","RCFD1255","Coml/Indl non-US: 90+ Days ", 0
"RCN4.B.C ","RCFD1256","Coml/Indl non-US: Nonaccrual ", 0
"RCN5.A.A ","RCFD5383","Consumer: Credit Cards: 30-89 Days ", 2296
"RCN5.A.B ","RCFD5384","Consumer: Credit Cards: 90+ Days ", 0
"RCN5.A.C ","RCFD5385","Consumer: Credit Cards: Nonaccrual ", 0
"RCN5.B.A ","RCFD5386","Consumer: Other: 30-89 Days ", 19181
"RCN5.B.B ","RCFD5387","Consumer: Other: 90+ Days ", 1689
"RCN5.B.C ","RCFD5388","Consumer: Other: Nonaccrual ", 108
"RCN6.A ","RCFD5389","Foreign: 30-89 Days ", 0
"RCN6.B ","RCFD5390","Foreign: 90+ Days ", 0
"RCN6.C ","RCFD5391","Foreign: Nonaccrual ", 0
"RCN7.A ","RCFD5459","Other: 30-89 Days ", 31445
"RCN7.B ","RCFD5460","Other: 90+ Days ", 0
"RCN7.C ","RCFD5461","Other: Nonaccrual ", 140
"RCN8.A.A ","RCFD1257","Leases US: 30-89 Days ", 0
"RCN8.A.B ","RCFD1258","Leases US: 90+ Days ", 0
"RCN8.A.C ","RCFD1259","Leases US: Nonacrual ", 10261
"RCN8.B.A ","RCFD1271","Leases non-US: 30-89 Days ", 0
"RCN8.B.B ","RCFD1272","Leases non-US: 90+ Days ", 0
"RCN8.B.C ","RCFD1791","Leases non-US: Nonaccrual ", 0
"RCN9.A ","RCFD3505","Debt Securities: 30-89 Days ", 0
"RCN9.B ","RCFD3506","Debt Securities: 90+ Days ", 0
"RCN9.C ","RCFD3507","Debt Securities: Nonaccrual ", 0
"RCNM.1.A ","RCFD1658","Restruc'd Loans: 30-89 Days ", 0
"RCNM.1.B ","RCFD1659","Restruc'd Loans: 90+ Days ", 0
"RCNM.1.C ","RCFD1661","restruc'd Loans: Nonaccrual ", 0
"RCNM.2.A ","RCFD6558","Comm Real Estate Loans: 30-89 Days ", 0
"RCNM.2.B ","RCFD6559","Comm Real Estate Loans: 90+ Days ", 0
"RCNM.2.C ","RCFD6560","Comm Real Estate Loans: Nonaccrual ", 0
"RCNM.3.AA ","RCON2759","Secured Loans - Const: 30-89 Days ", 1325
"RCNM.3.AB ","RCON2769","Secured Loans - Const: 90+ Days ", 0
"RCNM.3.AC ","RCON3492","Secured Loans - Const: Nonaccrual ", 358
"RCNM.3.BA ","RCON3493","Secured Loans - Farmland: 30-89 Days ", 0
"RCNM.3.BB ","RCON3494","Secured Loans - Farmland: 90+ Days ", 0
"RCNM.3.BC ","RCON3495","Secured Loans - Farmland: Nonaccrual ", 0
"RCNM.3.C1A","RCON5398","Secd Loans 1-4 Fam-Revol: 30-89 Days ", 2128
"RCNM.3.C1B","RCON5399","Secd Loans 1-4 Fam-Revol: 90+ Days ", 509
"RCNM.3.C1C","RCON5400","Secd Loans 1-4 Fam-Revol: Nonaccrual ", 0
"RCNM.3.C2A","RCON5401","Secd Loans 1-4 Fam-Other: 30-89 Days ", 19332
"RCNM.3.C2B","RCON5402","Secd Loans 1-4 Fam-Other: 90+ Days ", 1043
"RCNM.3.C2C","RCON5403","Secd Loans 1-4 Fam-Other: Nonaccrual ", 6630
"RCNM.3.DA ","RCON3499","Secured Loans - Multifam: 30-89 Days ", 1609
"RCNM.3.DB ","RCON3500","Secured Loans - Multifam: 90+ Days ", 0
"RCNM.3.DC ","RCON3501","Secured Loans - Multifam: Nonaccrual ", 0
"RCNM.3.EA ","RCON3502","Secured Loans - Non Farm: 30-89 Days ", 6217
"RCNM.3.EB ","RCON3503","Secured Loans - Non Farm: 90+ Days ", 0
"RCNM.3.EC ","RCON3504","Secured Loans - Non Farm: Nonaccrual ", 1054
"RCNM.4.AA ","RCFD3522","Rate/Contract: Book Value: 30-89 Days ", 0
"RCNM.4.AB ","RCFD3528","Rate/Contract: Book Value: 90+ Days ", 0
"RCNM.4.BA ","RCFD3529","Rate/Contract: Replacement:30-89 Days ", 0
"RCNM.4.BB ","RCFD3530","Rate/Contract: Replacement: 90+ Days ", 0
"RCO1.A ","RCON0030","Unposted Debits ", 0
"RCO1.B.1 ","RCON0031","Unposted Debits: Demand ", 0
"RCO1.B.2 ","RCON0032","Unposted Debits: Time/Savings ", 0
"RCO10 ","RCON8432","Deposit Institution Invest. Contracts ", 0
"RCO11.A ","RCON8785","Reciprocal Demand Bals - Savings Asc. ", 0
"RCO11.B ","RCONA181","Reciprocal Demand Bals - Foreign Brch ", 0
"RCO11.C ","RCONA182","Reciprocal Demand Bals - Cash Items ", 0
"RCO12.A ","RCONA527","Amt of Assets Netted agst Dem Deps ", 0
"RCO12.B ","RCONA528","Amt of Assets Netted agst Tim/Svg Dep ", 0
"RCO2.A ","RCON3510","Unposted Credits ", 0
"RCO2.B.1 ","RCON3512","Unposted Credits: Demand ", 0
"RCO2.B.2 ","RCON3514","Unposted Credits: Time/Savings ", 0
"RCO3 ","RCON3520","Uninvested Trust Fund Cash ", 0
"RCO4.A ","RCON2211","Demand Deposits of Unconsolidaed Subs ", 29309
"RCO4.B ","RCON2351"," Time/Savings Deposits of Unconsolida ", 0
"RCO4.C ","RCON5514","Int accrued/unpaid on deps of con sub ", 0
"RCO5.A ","RCON2229","Demand Deposits: Insured Branches ", 0
"RCO5.B ","RCON2383"," Time/Savings Deposits: Insured Branc ", 0
"RCO5.C ","RCON5515","Int accrued/unpaid on deps in ins brc ", 0
"RCO6.A ","RCON2314","Pass-through Reserve Balances: Demand ", 0
"RCO6.B ","RCON2315","Pass-through-Reserve Balances: Time/S ", 0
"RCO7.A ","RCON5516","Unamortized premiums ", 50197
"RCO7.B ","RCON5517","Unamortized discounts ", 0
"RCO8.A.1 ","RCONA531","OAKAR: Total Deposits Purchased ", 0
"RCO8.A.2 ","RCONA532","OAKAR: Amt of Purchased Deposits ", 0
"RCO8.B ","RCONA533","OAKAR: Total Deposits Sold ", 0
"RCOM.1.A.1","RCON2702","Amount of Deposit Accounts * $100K ", 5121273
"RCOM.1.A.2","RCON3779","(June Only) Number of Deposit Accts * ", 0
"RCOM.1.B.1","RCON2710","Amount of Deposit Accounts ** $100K ", 4129307
"RCOM.1.B.2","RCON2722","Number of Deposit Accounts ** $100K ", 6601
"RCOM.2.A ","RCON6861","Yes/No: Bank has a better method/proc ", 0
"RCOM.2.B ","RCON5597","If YES: Uninsured Deposits Amount ", 0
"RCOM.3 ","RCONA545","Cert No of consolidated inst. ", 0
"RCR1 ","RCFD6056","Do You Meet Capital Requirements? Y/N ", 0
"RCR2.A ","RCFDA515","Subord Debt & Int Term Prfrd Stock ", 0
"RCR2.B ","RCFDA516","Other Limited-Life cap Instr ", 0
"RCR3.A1 ","RCFD8274","Regulatory capt ratios:Tier 1 Capital ", 1630903
"RCR3.A2 ","RCFD8275","Regulatory capt ratios:Tier 2 Capital ", 197145
"RCR3.A3 ","RCFD1395","Regulatory capt ratios:Tier 3 Capital ", 0
"RCR3.B ","RCFD3792","Regulatory capt ratios:Total RB Captl ", 1828048
"RCR3.C ","RCFDA222","Regulatory capt ratios:Excess allownc ", 37383
"RCR3.D1 ","RCFDA223","Regulatory capt ratios:Risk-wtd assts ", 15734237
"RCR3.D2 ","RCFD1651","Regulatory capt ratios:Mrkt Risk-eqiv ", 0
"RCR3.E ","RCFD1727","Regulatory capt ratios:Max Cont Dolr ", 0
"RCR3.F ","RCFDA224","Regulatory capt ratios:Avrg tot assts ", 19831340
"RCR4.A ","RCFD5163"," 00 % Risk assets recorded on Bal Sht ", 891971
"RCR4.B ","RCFD3796"," 00 % Risk: Credit Equiv Off-Balance ", 0
"RCR5.A ","RCFD5165"," 20 % Risk assets recorded on Bal Sht ", 6711828
"RCR5.B ","RCFD3801"," 20 % Risk: Credit Equiv Off-Balance ", 993910
"RCR6.A ","RCFD3802"," 50 % Risk: Assets On Balance Sheet ", 8195492
"RCR6.B ","RCFD3803"," 50 % Risk: Credit Equiv Off-Balance ", 171298
"RCR7.A ","RCFD3804","100 % Risk: Assets On Balance Sheet ", 7386355
"RCR7.B ","RCFD3805","100 % Risk: Credit Equiv Off-Balance ", 2660722
"RCR8 ","RCFD3806","On-Balance Sheet Values Excluded From ", 54011
"RCR9 ","RCFD3807","Total Assets Recorded On Balnce Sheet ", 23239657
"RCRM.01 ","RCFD8764","Credit Exp - Off-Bal Sheet Derivative ", 21330
"RCRM.02.AA","RCFD3809","Derivative Int Rate Contracts * 1 YR ", 856389
"RCRM.02.AB","RCFD8766","Derivative Int Rate Contracts 1-5 YRS ", 3832120
"RCRM.02.AC","RCFD8767","Derivative Int Rate Contracts ** 5 YRS ", 287356
"RCRM.02.BA","RCFD3812","Derivative Fgn Exch Contracts * 1 YR ", 937147
"RCRM.02.BB","RCFD8769","Derivative Fgn Exch Contracts 1-5 YRS ", 14761
"RCRM.02.BC","RCFD8770","Derivative Fgn Exch Contracts ** 5 YRS ", 0
"RCRM.02.CA","RCFD8771","Derivative Gold Contracts * 1 YR ", 0
"RCRM.02.CB","RCFD8772","Derivative Gold Contracts 1-5 YRS ", 0
"RCRM.02.CC","RCFD8773","Derivative Gold Contracts ** 5 YRS ", 0
"RCRM.02.DA","RCFD8774","Derivative P Metals Contracts * 1 YR ", 0
"RCRM.02.DB","RCFD8775","Derivative P Metals Contracts 1-5 YRS ", 0
"RCRM.02.DC","RCFD8776","Derivative P Metals Contracts ** 5 YRS ", 0
"RCRM.02.EA","RCFD8777","Derivative Commodity Contrcts * 1 YR ", 33538
"RCRM.02.EB","RCFD8778","Derivative Commodity Contrcts 1-5 YRS ", 2991
"RCRM.02.EC","RCFD8779","Derivative Commodity Contrcts ** 5 YRS ", 0
"RCRM.02.FA","RCFDA000","Derivative Equity Contracts * 1 YR ", 0
"RCRM.02.FB","RCFDA001","Derivative Equity Contracts 1-5 YRS ", 0
"RCRM.02.FC","RCFDA002","Derivative Equity Contracts ** 5 YRS ", 0
"RCTXT.YN ","RCON9117","Send me paper copies of CR? Y/N ", 0
"RCX01.A ","RCFD3561","Number Of Loans To Executive Officers ", 4
"RCX01.B ","RCFD3562","Amount Of Loans To Executive Officers ", 2775
"RCX01.C1 ","RCFD7701","Start Rate (####.##%) Loans To Execs. ", 7.75%
"RCX01.C2 ","RCFD7702","Top Rate (####.##%) Loans To Execs. ", 10.50%
"RI-01.A.1A","RIAD4011","RE Loans ", 138265
"RI-01.A.1B","RIAD4019","Loans to Dep'y Inst's ", 4430
"RI-01.A.1C","RIAD4024","Ag/Farmer Loans ", 276
"RI-01.A.1D","RIAD4012","Coml/Indl Loans ", 82783
"RI-01.A.1E","RIAD4026","Acceptances ", 74
"RI-01.A.1G","RIAD4056","Loans to For Govts ", 0
"RI-01.A.1I","RIAD4058","Other Domestic Loans ", 178
"RI-01.A.2 ","RIAD4059","For Loans ", 2748
"RI-01.A1F1","RIAD4054","Credit Cards ", 5711
"RI-01.A1F2","RIAD4055","Other Consumer ", 10275
"RI-01.A1H1","RIAD4503","Taxable State/Local Obligations ", 3
"RI-01.A1H2","RIAD4504","Exempt State/Local Obligations ", 190
"RI-01.B.1 ","RIAD4505","Taxable Leases ", 12242
"RI-01.B.2 ","RIAD4307","Exempt Leases ", 0
"RI-01.C.1 ","RIAD4105","Domestic Interest on Balances Due ", 28
"RI-01.C.2 ","RIAD4106","For Interest on Balances due ", 451
"RI-01.D.1 ","RIAD4027","US Govt/Treasury Securities ", 13801
"RI-01.D.2A","RIAD4506","Taxable State/Local Securities ", 18
"RI-01.D.2B","RIAD4507","Exempt State/Local Securities ", 1969
"RI-01.D.3 ","RIAD3657","Other Domestic Debt securities ", 71
"RI-01.D.4 ","RIAD3658","Foreign Debt Securities ", 0
"RI-01.D.5 ","RIAD3659","Equity Securities (incl mutual funds) ", 1479
"RI-01.E ","RIAD4069","Interest on Trading Assets ", 1219
"RI-01.F ","RIAD4020","Interest on Fed Funds Sold Etc ", 47714
"RI-01.G ","RIAD4107","Total Interest Income ", 323925
"RI-02.A.1A","RIAD4508"," Transaction Accounts ", 584
"RI-02.A.2 ","RIAD4172","Interest on For Deposits ", 44729
"RI-02.A1B1","RIAD4509","MMDAs ", 1102
"RI-02.A1B2","RIAD4511","Other Savings ", 4778
"RI-02.A1B3","RIADA517","Int Exp: Time Deposits **=$100,000 ", 2272
"RI-02.A1B4","RIADA518","Int Exp: Time Deposits *$100,000 ", 21894
"RI-02.B ","RIAD4180","Fed Funds Purchased Etc ", 67832
"RI-02.C ","RIAD4185","Interest on Demand Notes to US Treasu ", 6365
"RI-02.E ","RIAD4200","Interest on Subordinated Notes/Debent ", 0
"RI-02.F ","RIAD4073","Total Interest Expense ", 149556
"RI-03 ","RIAD4074","Net Interest Income ", 174369
"RI-04.A ","RIAD4230","Provision for Loan and Lease Losses ", 10366
"RI-04.B ","RIAD4243","Provision for Allocated Transfer Risk ", 0
"RI-05.A ","RIAD4070","Income from Fiduciary Activities ", 66804
"RI-05.B ","RIAD4080","Service Charges on Deposit Accounts ", 18969
"RI-05.C ","RIADA220","Trading Revenue ", 11819
"RI-05.F.1 ","RIAD5407","Other Noninterest Income - Fee Income ", 31142
"RI-05.F.2 ","RIAD5408","Other Noninterest Income - All Other ", 34322
"RI-05.G ","RIAD4079","Total Noninterest Income ", 163056
"RI-06.A ","RIAD3521","Gain/Loss Sec Held to Maturities ", 0
"RI-06.B ","RIAD3196","Gain/Loss Sec Available-for-sale ", 526
"RI-07.A ","RIAD4135","Salaries and Benefits ", 78508
"RI-07.B ","RIAD4217","Expense on Premises/Fixed Assets ", 19179
"RI-07.C ","RIAD4092","Other Noninterest Expensze ", 107852
"RI-07.D ","RIAD4093","Total Noninterest Expense ", 205539
"RI-08 ","RIAD4301","Income (loss) Before Income Taxes ", 122046
"RI-09 ","RIAD4302","Income Taxes ", 47852
"RI-10 ","RIAD4300","Income (loss) Before Extraordinary ", 74194
"RI-11 ","RIAD4320","Extraordinary/Adj/ Net Of Taxes ", 0
"RI-12 ","RIAD4340","Net Income (loss) ", 74194
"RI-M.1 ","RIAD4513","Interest Expense on Exempt After 8/7/ ", 1
"RI-M.10 ","RIADA251","Memo:Credit losses on off-balnc sheet ", 0
"RI-M.11 ","RIADA530","Does Bank have Subchapter-S Y/N ", 0
"RI-M.12 ","RIAD4772","Deferred Portion of Appl Inc Tax ", 0
"RI-M.2 ","RIAD8431","Memoranda: Income Sale Mutuals ", 429
"RI-M.5 ","RIAD4150","Number of Employees on Payroll ", 4615
"RI-M.8.A ","RIAD8757","Memoranda: Trading Rev - Interest ", 7881
"RI-M.8.B ","RIAD8758","Memoranda: Trading Rev - Foreign Exch ", 3809
"RI-M.8.C ","RIAD8759","Memoranda: Trading Rev - Equity/Index ", 0
"RI-M.8.D ","RIAD8760","Memoranda: Trading Rev - Commodity ", 129
"RI-M.9.A ","RIAD8761","Memoranda: Impact - Interest Income ", -1118
"RI-M.9.B ","RIAD8762","Memoranda: Impact - Interest Expense ", 12906
"RI-M.9.C ","RIAD8763","Memoranda: Impact - Other Allocations ", -8
"RIA01 ","RIAD3215"," Total Equity on Dec 31 prev year-end ", 1592327
"RIA02 ","RIAD3216","Equity Adjustments ", 0
"RIA03 ","RIAD3217","Amended Balance Previous Year ", 1592327
"RIA04 ","RIAD4340","Net Income/Loss ", 74194
"RIA05 ","RIAD4346","Sale/Conversion of Stock ", 0
"RIA06 ","RIAD4356","Changes Incident to Combinations ", 0
"RIA07 ","RIAD4470","LESS: Cash Dividends on preferred ", 0
"RIA08 ","RIAD4460","LESS: Cash Dividends on common ", 0
"RIA09 ","RIAD4411","Changes in Accounting Principles ", 0
"RIA10 ","RIAD4412","Corrections of Accounting Errors ", 0
"RIA11 ","RIAD8433","Net Unrealized Holding Avail Forsale ", -432
"RIA12 ","RIAD4414","Foreign Currency Translation Adjustme ", -17
"RIA13 ","RIAD4415","Other Parent BHC Transactions ", 0
"RIA14 ","RIAD3210","Total Equity Capital End Of Cur. Per. ", 1666072
"RIB1.1.A.A","RIAD4651","RE Loans: US: Charge-Offs ", 373
"RIB1.1.A.B","RIAD4661","RE Loans: US: Recoveries ", 334
"RIB1.1.B.A","RIAD4652","RE Loans: non-US: Charge-Offs ", 0
"RIB1.1.B.B","RIAD4662","RE Loans: non-US: Recoveries ", 0
"RIB1.2.A.A","RIAD4653","Loans to US Banks: Charge-Offs ", 0
"RIB1.2.A.B","RIAD4663","Loans to US Banks: Recoveries ", 0
"RIB1.2.B.A","RIAD4654","Loans to For Banks: Charge-Offs ", 0
"RIB1.2.B.B","RIAD4664","Loans to For Banks: Recoveries ", 0
"RIB1.3.A ","RIAD4655","Ag/Farm Loans: Charge-Offs ", 0
"RIB1.3.B ","RIAD4665","Ag/Farm Loans: Recoveries ", 0
"RIB1.4.A.A","RIAD4645","Coml/Indl Loans US: Charge-Offs ", 194
"RIB1.4.A.B","RIAD4617","Coml/Indl Loans US: Recoveries ", 1027
"RIB1.4.B.A","RIAD4646","Coml/Indl Loans non-US: Charge-Offs ", 0
"RIB1.4.B.B","RIAD4618","Coml/Indl Loans non-US: recoveries ", 0
"RIB1.5.A.A","RIAD4656","Credit Cards: Charge-Offs ", 0
"RIB1.5.A.B","RIAD4666","Credits Cards: Recoveries ", 97
"RIB1.5.B.A","RIAD4657","Other Consumer Charge-Offs ", 2362
"RIB1.5.B.B","RIAD4667","Other Consumer: Recoveries ", 1271
"RIB1.6.A ","RIAD4643","Loans to For Govts: Charge-Offs ", 0
"RIB1.6.B ","RIAD4627","Loans to For Govts: Recoveries ", 2
"RIB1.7.A ","RIAD4644","Other Loans: Charge-Offs ", 0
"RIB1.7.B ","RIAD4628","Other Loans: Recoveries ", 0
"RIB1.8.A.A","RIAD4658","Leases US: Charge-Offs ", 1032
"RIB1.8.A.B","RIAD4668","Leases US: Recovereies ", 99
"RIB1.8.B.A","RIAD4659","Leases non-US: Chatge-Offs ", 0
"RIB1.8.B.B","RIAD4669","Leases non-US: Recoveries ", 0
"RIB1.9.A ","RIAD4635"," Total Charge-offs (year-to-date) ", 3961
"RIB1.9.B ","RIAD4605"," Total Recoveries (year-to-date) ", 2830
"RIB1.M.4.A","RIAD5409","Memo: Charge-offs: Loans to fin comm. ", 0
"RIB1.M.4.B","RIAD5410","Memo: Recoveries: Loans to fin commcl ", 0
"RIB1.M.5AA","RIAD3582","Memo: Charge-offs: Loans sec construc ", 0
"RIB1.M.5AB","RIAD3583","Memo: Recoveries: Loans sec construct ", 3
"RIB1.M.5BA","RIAD3584","Memo: Charge-offs: Loans sec farmland ", 0
"RIB1.M.5BB","RIAD3585","Memo: Recoveries: Loans sec farmland ", 0
"RIB1.M.5DA","RIAD3588","Memo: Charge-offs: Loans sec multifam ", 0
"RIB1.M.5DB","RIAD3589","Memo: Recoveries: Loans sec multifaml ", 0
"RIB1.M.5EA","RIAD3590","Memo: Charge-offs: Loans sec nonfarm ", 22
"RIB1.M.5EB","RIAD3591","Memo: Recoveries: Loans sec nonfarm ", 317
"RIB1.M5C1A","RIAD5411","Memo: Charge-offs: Revolv loans 1-4 r ", 0
"RIB1.M5C1B","RIAD5412","Memo: Recoveries: Revolv loans 1-4 rs ", 0
"RIB1.M5C2A","RIAD5413","Memo: Charge-offs: Other loans 1-4 rs ", 350
"RIB1.M5C2B","RIAD5414","Memo: Recoveries: Other loans 1-4 res ", 14
"RIB2.01 ","RIAD3124","Allowance for Loan/Lease: Dec 31 ", 225295
"RIB2.02 ","RIAD2419","Recoveries (Loan/Lease) ", 2830
"RIB2.03 ","RIAD2432","LESS: Charge-Offs (Loan/Lease) ", 3961
"RIB2.04 ","RIAD4230","Provision (Loan/Lease) ", 10366
"RIB2.05 ","RIAD4815","Adjustments (Loan/Lease) ", -2
"RIB2.06 ","RIADA512","Allow. Loan/Lease Loss Balance ", 234528
"RID1.1.A ","RIAD4837","Interest Income Booked ", 0
"RID1.1.B ","RIAD4838","Interest Expense Booked ", 0
"RID1.1.C ","RIAD4839"," Total ", 0
"RID1.2.A ","RIAD4840","Net Int'l Int Income Sold American ", 0
"RID1.2.B ","RIAD4841","Net Domestic Int Income Booked Foreig ", 0
"RID1.2.C ","RIAD4842"," Total ", 0
"RID1.3.A ","RIAD4097","Noninterest Intl INcome ", 0
"RID1.3.B ","RIAD4235","Provision for Intl Loan/Lease Losses ", 0
"RID1.3.C ","RIAD4239","Other Intl Nonint Expense ", 0
"RID1.3.D ","RIAD4843"," Total ", 0
"RID1.4 ","RIAD4844"," Total ", 0
"RID1.5 ","RIAD4845","Adjustment to Pretax Income Etc ", 0
"RID1.6 ","RIAD4846"," Total ", 0
"RID1.7 ","RIAD4797","Intl Income Taxes ", 0
"RID1.8 ","RIAD4341"," Total ", 0
"RID1.M.1 ","RIAD4847","Intracompany Int Income ", 0
"RID1.M.2 ","RIAD4848","Intracompany Int Expense ", 0
"RID2.1 ","RIAD4849","Interest Income at IBFs ", 0
"RID2.2 ","RIAD4850","Interest Expense at IBFs ", 0
"RID2.3.A ","RIAD5491","Noninterest Intl Income (Gain/Losses) ", 0
"RID2.3.B ","RIAD5492","Noninterest Intl Income (Fees & Othr) ", 0
"RID2.4 ","RIAD4852","Provision Loan/Lease Losses Intl Sold ", 0
"RID2.5 ","RIAD4853","Other Noninterest Exp INtl Sold Ameri ", 0
"RIE01.A ","RIAD5415","Other non-interest income (RI-5.f.2) ", 0
"RIE01.B ","RIAD5416","Other non-interest income (RI-5.f.2) ", 0
"RIE01.C ","RIAD5417","Other non-interest income (RI-5.f.2) ", 0
"RIE01.D ","RIAD4461","Other non-interest income (RI-5.f.2) ", 23144
"RIE01.E ","RIAD4462","Other non-interest income (RI-5.f.2) ", 0
"RIE01.F ","RIAD4463","Other non-interest income (RI-5.f.2) ", 0
"RIE02.A ","RIAD4531","Other non-interest expense (RI-7.c) ", 326
"RIE02.B ","RIAD5418","Other non-interest expense (RI-7.c) ", 0
"RIE02.C ","RIAD5419","Other non-interest expense (RI-7.c) ", 0
"RIE02.D ","RIAD5420","Other non-interest expense (RI-7.c) ", 0
"RIE02.E ","RIAD4464","Other non-interest expense (RI-7.c) ", 40407
"RIE02.F ","RIAD4467","Other non-interest expense (RI-7.c) ", 0
"RIE02.G ","RIAD4468","Other non-interest expense (RI-7.c) ", 0
"RIE03.A.1 ","RIAD4469","Extraordinary items and Adj (RI-11.a) ", 0
"RIE03.A.2 ","RIAD4486","Applicable tax effect (RI-11.b) ", 0
"RIE03.B.1 ","RIAD4487","Extraordinary items and Adj (RI-11.a) ", 0
"RIE03.B.2 ","RIAD4488","Applicable tax effect (RI-11.b) ", 0
"RIE03.C.1 ","RIAD4489","Extraordinary items and Adj (RI-11.a) ", 0
"RIE03.C.2 ","RIAD4491","Applicable tax effect (RI-11.b) ", 0
"RIE04.A ","RIAD4492","Equity cap adjustments (RIA-2) ", 0
"RIE04.B ","RIAD4493","Equity cap adjustments (RIA-2) ", 0
"RIE05.A ","RIAD4494","Acctg changes effects (RIA-9) ", 0
"RIE05.B ","RIAD4495","Acctg changes effects (RIA-9) ", 0
"RIE06.A ","RIAD4496","Corrections (RIA-10) ", 0
"RIE06.B ","RIAD4497","Corrections (RIA-10) ", 0
"RIE07.A ","RIAD4498","Transactions w/parent (RIA-12) ", 0
"RIE07.B ","RIAD4499","Transactions w/parent (RIA-12) ", 0
"RIE08.A ","RIAD4521","Adjs. to allow for l & l loss (RIB.2. ", -2
"RIE08.B ","RIAD4522","Adjs. to allow for l & l loss (RIB.2. ", 0
- ------------
* = Less Than
** = More Than
