REGISTRATION NO. 333-51279
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
AMENDMENT NO. 1 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 TO MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PRICE PER OFFERING FEE(3)
REGISTERED (1) UNIT (2) PRICE (2)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-Backed $1,000,000 100% $1,000,000 $295.00
Certificates and Mortgage-
Backed Notes
==========================================================================================================================
</TABLE>
(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.
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
the Mortgage Loans actually delivered to the Trustee named herein, and may be
adjusted as necessary to obtain the required ratings on the Offered
Certificates. It is a condition to their issuance that each Class of
Certificates receive the respective ratings (set forth under "Summary of
Terms--Rating") of _______________________ and ________________.
(COVER CONTINUED ON NEXT PAGE)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTERESTS IN 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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<S> <C> <C> <C> <C> <C>
$ __________ ____% Class A-I-1 Certificates $ __________ ____ Class A-I-11 Certificates
$ __________ ____% Class A-I-2 Certificates $ __________ ____ Class A-II Certificates
$ __________ ____% Class A-I-3 Certificates $ __________ (3) Class PO Certificates
$ __________ ____% Class A-I-4 Certificates $ (4) (4) Class X Certificates
$ __________ ____% Class A-I-5 Certificates $ __________ ____ Class B-1 Certificates
$ __________ ____% Class A-I-6 Certificates $ __________ ____ Class B-2 Certificates
$ __________ (1) Class A-I-7 Certificates $ __________ ____ Class B-3 Certificates
(2) Class A-I-8 Certificates $ __________ ____ Class R-1 Certificates
$ __________ ____% Class A-I-9 Certificates $ __________ (5) Class R-2 Certificates
$ __________ ____% Class A-I-10 Certificates
</TABLE>
- - --------------------------
(1) The Class A-I-7 Certificates will bear interest at _____% per annum
during the first Interest Accrual Period (as defined herein). During
each Interest Accrual Period thereafter, the Class A-I-7
Certificates will bear interest, subject to a maximum rate of _____%
per annum and a minimum rate of _____% per annum, at a rate per
annum equal to _____% in excess of the London interbank offered rate
for one-month U.S. dollar deposits ("LIBOR"), as more fully
described herein.
(2) The Class A-I-8 Certificates will have a notional principal amount
(the "Class A-I-8 Notional Amount") equal to the Current Principal
Amount of the Class A-I-7 Certificates. The Class A-I-8
Certificates will bear interest at _____% per annum during the first
Interest Accrual Period. During each Interest Accrual Period
thereafter, the Class A-I-8 Certificates will bear interest, subject
to a maximum rate of _____% per annum and a minimum rate of _____%
per annum, at a rate per annum equal to _____% - LIBOR.
(3) The Class PO Certificates will be principal only Certificates and will
not bear interest.
(4) The Class X Certificates will have a notional principal amount (the
"Class X Notional Amount") equal to the aggregate Scheduled Principal
Balances (as defined herein) of all of the Mortgage Loans and will
bear interest on the Class X Notional Amount at a variable
Pass-Through Rate equal to the excess of (a) the weighted average of
the Net Rates of all of the Mortgage Loans over (b) the weighted
average of the Pass-Through Rates of all of the Certificates (other
than the Class X Certificates). The Pass-Through Rate for the Class X
Certificates for the first Interest Accrual Period is expected to be
approximately _____% per annum. (5) The Class R-2 Certificates will
bear interest on their Current Principal Amount at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of
the Group I Mortgage Loans (as defined herein).
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").
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
--------------------
(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 attached hereto.
Net Rate......................... The "Net Rate" for each Mortgage Loan is the
interest rate borne by such Mortgage Loan
(the "Mortgage Rate"), less the sum of the
Master Servicing Fee and the Trustee's Fee
attributable thereto (in each case expressed
as a per annum rate) (the "Aggregate Expense
Rate"). It is expected that with respect to
each Distribution Date, the Master Servicing
Fee (which includes the fee payable to any
sub-servicer ) for the Mortgage Loans will be
_____% per annum, and the Trustee's Fee will
be _____% per annum, of the Scheduled
Principal Balance of each Mortgage Loan as of
the Due Date in the month preceding the month
in which such Distribution Date occurs. For
any Distribution Date, the "Due Date" will be
the _______ day of the month in which such
Distribution Date occurs.
The "Scheduled Principal Balance" of a
Mortgage Loan with respect to a Distribution
Date is (i) the unpaid principal balance of
such Mortgage Loan as of the close of
business on the Due Date in the month
preceding the month of the Distribution Date
(i.e., taking account of the principal
payment to be made on such Due Date 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.
AT
--------------,---------------------------------
<TABLE>
<CAPTION>
199- 199- 199- AT 31, 199-
PERCENT PERCENT PERCENT PERCENT
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
OF SERVICING OF SERVICING OF SERVICING OF SERVICING
LOANS PORTFOLIO LOANS PORTFOLIO LOANS PORTFOLIO LOANS PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % % %
Period of
Delinquency:
30-59 days....... % % % %
60-89 days......... % % % %
90 days or more.... % % % 2 %2
----- --- ------- ------- ------- -------- ------- ------
Total Delinquencies % % % 2 %2
(excluding 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 Remaining
Principal Approximate Approximate Term Term
BALANCE MORTGAGE RATE NET to Maturity to Maturity
RATE (IN MONTHS) (IN MONTHS)
$ % %
$ % %
$ % %
$ % %
(ii) the Group II Mortgage Loans consist of two Mortgage Loans with the
following characteristics:
Original Remaining
Principal Approximate Approximate Term Term
BALANCE MORTGAGE RATE NET to Maturity to Maturity
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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-I-1 CERTIFICATES CLASS A-I-2 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-I-3 CERTIFICATES CLASS A-I-4 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-I-5 CERTIFICATES CLASS A-I-6 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-I-7 CERTIFICATES CLASS A-I-9 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-I-10 CERTIFICATES CLASS A-I-11 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-II CERTIFICATES CLASS PO CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING
<TABLE>
<CAPTION>
CLASS B-1, B-2 AND B-3 CERTIFICATES CLASS R-1 AND R-2 CERTIFICATES
% OF PREPAYMENT ASSUMPTION % OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 150% 50% 75% 100% 125% 150%
-- -- --- --- --- -- -- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100 100 100 100 100 100 100 100 100 100
__________, [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)
<TABLE>
<CAPTION>
% of Prepayment Assumption
-----------------------------------------------------------------------------------------
LIBOR 50% 75% 100% 125% 150%
- - ------------------------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
-----% ----% ----% ----% ----% ----%
_____% ____% ____% *____% *____% *____%
- - --------------------------------
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-I-8 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class A-I-8 Certificates indicated above and converting such
monthly rates to corporate bond equivalent rates. Such calculation does not take
into account variations that may occur in the interest rates at which investors
may be able to reinvest funds received by them as payments of principal of and
interest on the Class A-I-8 Certificates and consequently does not purport to
reflect the return on any investment in the Class A-I-8 Certificates when such
reinvestment rates are considered.
YIELD ON CLASS X CERTIFICATES
The significance of the effects of prepayments on the Class X Certificates
is illustrated in the following table entitled "Sensitivity of the Class X
Certificates to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis) to holders of such Certificates under different CONSTANT
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above under "--Decrement Tables" and assuming that the purchase price including
accrued interest of the Class X Certificates is approximately $___________ for
100% of such Class of Certificates and such Certificates are purchased on
__________, 199_.
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS (ESPECIALLY THOSE WITH HIGH NET
RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED ABOVE, THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES
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)
<TABLE>
<CAPTION>
% OF PREPAYMENT ASSUMPTION
50% 75% 100% 125% 200%
--- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity................. ____% ____% ____% ____% ____%
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class X Certificates indicated above and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as payments of interest on the Class X
Certificates and consequently does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Reference is made to the Prospectus for important information
additional to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. The Seller will provide to
a prospective or actual Certificateholder without charge, upon written request,
a copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to 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.
<PAGE>
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, be materially different 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.
YEAR OF FIRST PAYMENT OF THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
YEAR OF FIRST PAYMENT LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
199_..................................... $ %
199_..................................... ---------- ---------- ------
Total.............................. $ 100%
=========== ====
- - ----------------
(1) As of the Cut-off Date, the weighted average seasoning of the Group I
Mortgage Loans is expected to be approximately ____ months.
</TABLE>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
Aggregate
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Single-Family..................................... $ %
Two- to Four-Family...............................
Planned Unit Development..........................
Condominium.......................................
---------- ----------- ---------
Total.................................... $ 100%
========== =========== =========
</TABLE>
<PAGE>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Primary Residence................................. $ %
Second Home..............................
Investor Property........................
---------- ---------- --------
Total.................................... $ 100%
- - ----------------
(1) Based on representations of the Mortgagor at the time of Group I
Mortgage Loan origination.
</TABLE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Alabama.................................. $ %
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................
---------- ---------- ---------
Total.................................... $ 100%
- - -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the
aggregate Outstanding Principal Balance of the Group I Mortgage Loans
is expected to be secured by properties located in any one zip code.
</TABLE>
LOAN PURPOSE OF THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOSS PURPOSE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Purchase............................ $ %
Rate and Term Refinance.............
Cash-Out Refinance..................
---------- ---------- ----------
Total...................... $ 100%
====
</TABLE>
<PAGE>
DISTRIBUTION OF ORIGINAL GROUP I MORTGAGE LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL MORTGAGE LOAN AMOUNT LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
$50,000 or less.......................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000......................
---------- ---------- ----------
Total $ 100%
====
- - -----------------
(1) As of the Cut-off Date, the average Outstanding Principal Balance of the
Group I Mortgage Loans is expected to be approximately $_______.
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
50.00% or less........................... $ %
50.01% - 55.00%..........................
55.01% - 60.00%..........................
60.01% - 65.00%..........................
65.01% - 70.00%..........................
70.01% - 75.00%..........................
75.01% - 80.00%..........................
80.01% - 85.00%..........................
85.01% - 90.00%..........................
90.01% - 95.00%..........................
---------- ---------- ----------
Total............................... $ 100%
====
- - ---------------------
(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>
MORTGAGE RATES OF THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE RATE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
7.375%................................... $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%..................................
---------- ---------- ----------
Total........................... $ 100%
====
- - --------------------
(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>
ORIGINAL TERM OF THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERM LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360...............................
---------- ---------- ----------
Total............................... $ 100%
====
- - ------------------
(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>
DOCUMENTATION TYPE OF THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset.......................
---------- --------- ----------
Total........................... $ 100%
====
</TABLE>
YEAR OF FIRST PAYMENT OF THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
YEAR OF FIRST PAYMENT LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
199_..................................... $ %
199_.....................................
--------- ----------
Total........................... $ 100%
====
- - ----------------
(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>
TYPES OF MORTGAGED PROPERTIES SECURING
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
PROPERTY TYPE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Single-Family............................ $ %
Two- to Four-Family......................
Planned Unit Development.................
Condominium..............................
---------- ----------- ----------
Total........................... $ 100%
====
</TABLE>
OCCUPANCY OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Primary Residence........................ $ %
Second Home..............................
Investor Property........................
---------- ---------- --------
Total........................... $ 100%
====
- - ----------------
(1) Based on representations of the Mortgagor at the time of Group II
Mortgage Loan origination.
</TABLE>
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
SECURING GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Alabama.................................. $ %
Arizona..................................
California...............................
Colorado.................................
Connecticut..............................
District of Columbia.....................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Kansas...................................
Massachusetts............................
Maryland.................................
Maine....................................
Missouri.................................
Mississippi..............................
Montana..................................
North Carolina...........................
Nebraska.................................
New Hampshire............................
New Jersey...............................
New Mexico...............................
Nevada...................................
New York.................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Tennessee................................
Texas....................................
Utah.....................................
Virginia.................................
Washington...............................
West Virginia............................
---------- ---------- ---------
Total.................................. $ 100%
- - -----------------
(1) As of the Cut-off Date, no more than approximately ____% of the
aggregate Outstanding Principal Balance of the Group II Mortgage Loans
is expected to be secured by properties located in any one zip code.
</TABLE>
<PAGE>
LOAN PURPOSE OF THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
LOSS PURPOSE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Purchase................................. $ %
Rate and Term Refinance..................
Cash-Out Refinance.......................
---------- ---------- ----------
Total............................ $ 100%
====
</TABLE>
DISTRIBUTION OF ORIGINAL GROUP II MORTGAGE LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL MORTGAGE LOAN AMOUNT LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
$50,000 or less.......................... $ %
$50,001 - $100,000.......................
$100,001 - $150,000......................
$150,001 - $200,000......................
$200,001 - $250,000......................
$250,001 - $300,000......................
$300,001 - $350,000......................
$350,001 - $400,000......................
$500,001 - $550,000......................
$550,001 - $600,000......................
$600,001 - $650,000......................
$700,001 - $750,000......................
---------- ---------- ----------
Total $ 100%
====
- - -----------------
(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>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
50.00% or less.......................... $ %
0.01% - 55.00%..........................
5.01% - 60.00%..........................
0.01% - 65.00%..........................
5.01% - 70.00%..........................
0.01% - 75.00%..........................
5.01% - 80.00%..........................
0.01% - 85.00%..........................
5.01% - 90.00%..........................
0.01% - 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>
MORTGAGE RATES OF THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE RATE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
7.375%................................... $ %
7.500%...................................
7.625%...................................
7.750%...................................
7.875%...................................
7.989%...................................
8.000%...................................
8.125%...................................
8.250%...................................
8.375%...................................
8.500%...................................
8.625%...................................
8.750%...................................
8.875%...................................
9.000%...................................
9.125%...................................
9.250%...................................
9.375%...................................
9.500%...................................
9.625%...................................
9.750%...................................
9.875%...................................
10.000%..................................
10.125%..................................
10.375%..................................
10.500%..................................
10.625%..................................
10.750%..................................
10.875%..................................
11.000%..................................
11.625%..................................
---------- ---------- ----------
Total........................... $ 100%
====
- - --------------------
(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>
ORIGINAL TERM OF THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERM LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
180 or less.............................. $ %
180 to 360...............................
---------- ---------- ----------
Total............................ $ 100%
====
- - ------------------
(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>
<PAGE>
DOCUMENTATION TYPE OF THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
NUMBER OF BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP
<S> <C> <C> <C>
Full..................................... $ %
Alternative..............................
Reduced/Stated Income....................
No Income/No Asset.......................
---------- ---------- ----------
Total........................... $ 100%
====
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- - -------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations in connection with this offering other than those
contained in this Prospectus Supplement and the accompanying Prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Seller or the Underwriter. This Prospectus
Supplement and the accompanying 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.
_____________________________, 199_
- - -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
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
described in the related Prospectus Supplement for the Series. The Securities of
a Series will evidence either beneficial ownership of one or more trusts (each a
"Trust Fund") or the debt obligations of a Trust Fund. As specified in the
related Prospectus Supplement, a Trust Fund for a Series of Securities will
include certain mortgage-related assets (the "Mortgage Assets") consisting of
(i) mortgage loans or participations therein secured by one- to four-family
residential properties ("Single Family Loans"), (ii) mortgage loans or
participations therein secured by multifamily residential properties
("Multifamily Loans"), (iii) loans or participations therein secured by security
interests or similar liens on shares in cooperative housing corporations and the
related proprietary leases or occupancy agreements ("Cooperative Loans"), (iv)
conditional sales contracts and installment sales or loan agreements or
participations therein secured by manufactured housing ("Contracts"), (v)
mortgage pass-though securities (the "Agency Securities") issued or guaranteed
by the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("Fannie Mae"), Freddie Mac (formerly, the Federal Home
Loan Mortgage Corporation) ("Freddie Mac") or other government agencies or
government- sponsored agencies or (vi) privately issued mortgage-backed
securities ("Private Mortgage-Backed Securities"). If specified in the related
Prospectus Supplement, certain Securities will evidence the entire beneficial
ownership interest in, or the debt obligations of, a Trust Fund that will
contain a beneficial ownership interest in another Trust Fund which will contain
the Mortgage Assets. The Mortgage Assets will be acquired by 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, the holders of
one or more classes of Securities may be
entitled, upon notice and payment of an
administrative fee, to exchange all or a
portion of such classes for
proportionate interests in one or more
classes of exchangeable certificates
(each an "ES Class" or "Exchangeable
Security") as provided in the related
Prospectus Supplement, and the holders
of such ES Classes may be entitled to
exchange all or a portion of such ES
Classes for proportionate interests in
the related classes of Securities and,
if so provided, in other related ES
Classes. Any class of Securities subject
to the exchange arrangements may be
deposited in a separate trust that will
issue securities identical to those so
deposited. These issued securities may
then be exchanged, in whole or in part,
for ES Classes. See "Exchangeable
Securities-- General." Further, if so
provided in the related Prospectus
Supplement, one or more classes of
Securities (each, a "Callable Class")
may be callable at the option of one or
more other classes of securities (each,
a "Call Class"). A Call Class and its
related Callable Class or Classes will
be issued pursuant to a separate trust
agreement. A Callable Class generally
will not be called unless the market
value of the assets in the trust fund
for such Callable Class exceeds the
outstanding principal balance of such
assets. If so provided in the related
Prospectus Supplement, after the
issuance of the Callable Class, there
may be a specified "lock-out period"
during which such Securities could not
be called. It is anticipated that Call
Classes generally will be offered only
on a private basis. See "Description of
the Securities--General."
The related Prospectus
Supplement will specify whether
application will be made to list any
Securities on a securities exchange or
to quote the Securities in the automated
quotation system of a registered
securities association.
Distributions on the
Securities.........................Distributions on the
Securities entitled thereto will be made
monthly, quarterly, semi-annually or at
such other intervals and on such other
Distribution Dates specified in the
related Prospectus Supplement solely out
of the payments received in respect of
the assets of the related Trust Fund or
other assets pledged for the benefit of
the Securities as specified in the
related Prospectus Supplement. The
amount allocable to distributions of
principal and interest on any
Distribution Date will be determined as
specified in the related Prospectus
Supplement. All distributions will be
made pro rata to Securityholders of the
class entitled thereto or as otherwise
specified in the related Prospectus
Supplement, and the aggregate original
principal balance of the Securities will
equal the aggregate distributions
allocable to principal that such
Securities will be entitled to receive.
If specified in the related Prospectus
Supplement, the Securities will have an
aggregate original principal balance
equal to or less than the aggregate
unpaid principal balance of the Trust
Assets (plus amounts held in a
Pre-Funding Account) as of a date
specified in the Prospectus Supplement
related to the creation of the Trust
Fund (the "Cut-off Date") and will bear
interest in the aggregate at a rate (the
"Interest Rate") equal to the interest
rate borne by the underlying Mortgage
Loans, Agency Securities or Private
Mortgage-Backed Securities, net of the
aggregate servicing fees and any other
amounts specified in the related
Prospectus Supplement. If specified in
the related Prospectus Supplement, the
aggregate original principal balance of
the Securities and interest rates on the
classes of Securities will be determined
based on the cash flow on the Trust
Assets. The Interest Rate at which
interest will be paid to holders of
Securities entitled thereto may be a
fixed rate or a rate that is subject to
change from time to time from the time
and for the periods, in each case as
specified in the related Prospectus
Supplement. Any such rate may be
calculated on a loan-by-loan, weighted
average or other basis, in each case as
described in the related Prospectus
Supplement.
Credit Enhancement.................The assets in a Trust Fund or
the Securities of one or more classes in
the related Series may have the benefit
of one or more types of credit
enhancement described in the related
Prospectus Supplement. The protection
against losses afforded by any such
credit support will be limited. Such
credit enhancement may include one or
more of the following types:
A. Subordination..................... The rights of the holders of
the Subordinated Securities of a Series
to receive distributions with respect to
the assets in the related Trust Fund
will be subordinated to such rights of
the holders of the Senior Securities of
the same Series to the extent described
in the related Prospectus Supplement.
This subordination is intended to
enhance the likelihood of regular
receipt by holders of Senior Securities
of the full amount of payments which
such holders would be entitled to
receive if there had been no losses or
delinquencies. The protection afforded
to the holders of Senior Securities of a
Series by means of the subordination
feature may be accomplished by (i) the
preferential right of such holders to
receive, prior to any distribution being
made in respect of the related
Subordinated Securities, the amounts of
principal and interest due them on each
Distribution Date out of the funds
available for distribution on such date
in the related Securities Account and,
to the extent described in the related
Prospectus Supplement, by the right of
such holders to receive future
distributions from the assets in the
related Trust Fund that would otherwise
have been payable to the Subordinated
Securityholders; (ii) reducing the
ownership interest of the related
Subordinated Securities; (iii) a
combination of clauses (i) and (ii)
above; or (iv) as otherwise described in
the related Prospectus Supplement. The
protection afforded to the holders of
Senior Securities of a Series by means
of the subordination feature also may be
accomplished by allocating certain types
of losses or delinquencies to the
Subordinated Securities to the extent
described in the related Prospectus
Supplement.
If so specified in the related
Prospectus Supplement, the same class of
Securities may be Senior Securities with
respect to certain types of payments or
certain types of losses or delinquencies
and Subordinated Securities with respect
to other types of payments or types of
losses or delinquencies. If so specified
in the related Prospectus Supplement,
subordination may apply only in the
event of certain types of losses not
covered by other forms of credit
support, such as hazard losses not
covered by standard hazard insurance
policies or losses due to the bankruptcy
of the borrower. If specified in the
related Prospectus Supplement, a reserve
fund may be established and maintained
by the deposit therein of distributions
allocable to the holders of Subordinated
Securities until a specified level is
reached. The related Prospectus
Supplement will set forth information
concerning the amount of subordination
of a class or classes of Subordinated
Securities in a Series, the
circumstances in which such
subordination will be applicable, the
manner, if any, in which the amount of
subordination will decrease over time,
the manner of funding the related
reserve fund, if any, and the conditions
under which amounts in any such reserve
fund will be used to make distributions
to holders of Senior Securities or
released from the related Trust Fund.
B. Reserve Accounts...................One or more Reserve Accounts
may be established and maintained for
each Series. The related Prospectus
Supplement will specify whether or not
any such Reserve Account will be
included in the corpus of the Trust Fund
for such Series and will also specify
the manner of funding the related
Reserve Account and the conditions under
which the amounts in any such Reserve
Account will be used to make
distributions to holders of Securities
of a particular class or released from
the related Trust Fund.
C. Pool Insurance Policy..............A mortgage pool insurance
policy or policies (the "Pool Insurance
Policy") may be obtained and maintained
for each Series pertaining to Single
Family Loans, Cooperative Loans or
Contracts, limited in scope, covering
defaults on the related Single Family
Loans, Cooperative Loans or Contracts in
an initial amount equal to a specified
percentage of the aggregate principal
balance of all Single Family Loans,
Cooperative Loans or Contracts included
in the Mortgage Pool as of the Cut-off
Date or such other date as is specified
in the related Prospectus Supplement.
D. Special Hazard Insurance
Policy.............................In the case of Single Family
Loans, Cooperative Loans or Contracts,
certain physical risks that are not
otherwise insured against by standard
hazard insurance policies may be covered
by a special hazard insurance policy or
policies (the "Special Hazard Insurance
Policy"). Each Special Hazard Insurance
Policy generally will be limited in
scope and will cover losses in an
initial amount equal to the greatest of
(i) a specified percentage of the
aggregate principal balance of the
Single Family Loans, Cooperative Loans
or Contracts as of the related Cut-off
Date, (ii) twice the unpaid principal
balance as of the related Cut-off Date
of the largest Single Family Loan,
Cooperative Loan or Contract in the
related Mortgage Pool, or (iii) the
aggregate principal balance of Single
Family Loans, Cooperative Loans or
Contracts as of the Cut-off Date secured
by property in any single zip code
concentration.
E. Bankruptcy Bond.................... A bankruptcy bond or bonds
(the "Bankruptcy Bond") may be obtained
covering certain losses resulting from
action which may be taken by a
bankruptcy court in connection with a
Single Family Loan, Cooperative Loan or
Contract. The level of coverage of each
Bankruptcy Bond will be specified in the
related Prospectus Supplement.
F. FHA Insurance and VA
Guarantee......................... All or a portion of the
Mortgage Loans in a Mortgage Pool may be
insured by FHA insurance and all or a
portion of the Single Family Loans or
Contracts in a Mortgage Pool may be
partially guaranteed by the VA.
G. Other Arrangements................ Other arrangements as
described in the related Prospectus
Supplement including, but not limited
to, one or more U.S. Government
Securities, letters of credit, financial
guaranty insurance policies or third
party guarantees, interest rate or other
swap agreements, caps, collars or
floors, may be used to provide coverage
for certain risks of defaults or losses.
These arrangements may be in addition to
or in substitution for any forms of
credit support described in the
Prospectus. Any such arrangement must be
acceptable to each nationally recognized
rating agency that rates the related
Series of Securities (the "Rating
Agency").
H. Cross Support......................If specified in the related
Prospectus Supplement, separate groups
of assets or separate Trust Funds may be
beneficially owned by separate classes
of the related Series of Securities or
separate groups of assets or separate
Trust Funds may be available for the
payment of principal and interest on
certain classes of Securities. In any
such case, credit support may be
provided by a cross- support feature
which requires that distributions be
made with respect to certain Securities
relating to one or more asset groups or
Trust Funds 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".
THE TRUST FUND
A Trust Fund for a Series of Securities will include the Mortgage
Assets consisting of (A) a Mortgage Pool* comprised of (i) Single Family Loans,
(ii) Multifamily Loans, (iii) Cooperative Loans or (iv) Contracts, (B) Agency
Securities, or (C) Private Mortgage-Backed Securities, in each case, as
specified in the related Prospectus Supplement, together with payments in
respect of such Mortgage Assets and certain other accounts, obligations or
agreements, such as U.S. Government Securities, in each case as specified in the
related Prospectus Supplement.
The Securities will be entitled to payment only from the assets of the
related Trust Fund and any other assets specified in the related Prospectus
Supplement, but will not be entitled to payments in respect of the assets of any
other trust fund established by the Seller. If specified in the related
Prospectus Supplement, certain Securities 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".
- - -------------------------------
* 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 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. In any such Series, the holders of one or more
specified classes of Securities will be entitled, upon notice and payment to the
Trustee of an administrative fee, to exchange all or a portion of such classes
for proportionate interests in one or more related classes of Exchangeable
Securities, as provided in the relevant Prospectus Supplement. Similarly, the
holders of ES Classes will be entitled to exchange all or a portion of such ES
Classes for proportionate interests in the related classes of Securities and, if
so provided, in other related ES Classes. This process may be repeated again and
again. For this purpose, "related" classes are those within the same
"Combination" as described in the related Prospectus Supplement.
In general, the descriptions in this Prospectus of classes of
Securities of a Series also apply to the ES Classes of that Series, except where
the context requires otherwise. For example, the ES Classes of a Series and
their related classes of Securities are entitled to receive payments of
principal and/or interest, are issued in book- entry form or as Definitive
Securities to Securityholders in prescribed denominations, may be provided with
credit enhancements, and are subject to yield and prepayment considerations, in
the same manner and to the same extent as are the classes of Securities of such
Series. Similarly, the discussions under "ERISA Considerations" and "Legal
Investment" apply to Exchangeable Securities as well as Securities.
In each Series that includes Exchangeable Securities, the classes of
Securities shown on the cover page of the related Prospectus Supplement will be
issued and those classes that are to be subject to the exchange arrangements
will be deposited in a separate trust fund (an "Exchangeable Security Trust
Fund") established pursuant to a trust agreement between the Seller and a
trustee. The Trustee may serve as such trustee. The Exchangeable Security Trust
Fund will issue classes of securities that are identical in all respects to the
classes of Securities deposited in such trust fund (and consequently are
referred to herein as "Securities"). At any time after their issuance, including
immediately after such issuance, these classes of Securities may be exchanged,
in whole or in part, for classes of Exchangeable Securities. When an exchange is
effected, the Exchangeable Security Trust Fund will cancel the relevant portion
or portions of the class or classes of Securities that are being exchanged and
will issue the corresponding portion or portions of the class or classes of
Exchangeable Securities into which such class or classes of Securities are
exchangeable. Each Security and Exchangeable Security issued by an Exchangeable
Security Trust Fund will represent a beneficial ownership interest in the
related class or classes of Securities deposited in such trust fund.
The maximum original principal (or notional principal) amount of each
ES Class within a Series represents the largest amount of that class that could
be supported by the related class or classes of Securities as of the date of
their original issuance.
EXCHANGES
Any exchange of related classes within a Series will be permitted, so
long as the following constraints are met:
* Such classes must be exchanged in the applicable "exchange
proportions," if any, shown in the related Prospectus
Supplement, which, as described below, are based at all times
on the original principal amounts (or original notional
principal amounts, if applicable) of such classes.
* The aggregate principal amount (rounded to whole dollars) of
the securities received in the exchange, immediately after the
exchange, must equal that of the securities surrendered for
exchange immediately before the exchange (for this purpose,
the principal amount of any interest only class always equals
$0).
* The aggregate "Annual Interest Amount" (rounded to whole
dollars) of the securities received in the exchange must equal
that of the securities surrendered for exchange (the "Annual
Interest Amount" for any security equals its outstanding
principal amount or notional principal amount multiplied by
its Interest Rate or, in the case of a floating rate, inverse
floating rate or weighted average coupon class, its original
class Interest Rate).
Where "exchange proportions" are shown for classes that are
exchangeable for other classes, the Issuer will follow the convention of basing
such proportions on the original, rather than on the outstanding, principal or
notional principal amounts of such classes. If such classes receive principal
payments pro rata with each other, the exchange proportions also will apply to
their outstanding principal amounts. If such classes do not receive principal
payments pro rata with each other, an investor can calculate current exchange
proportions for such classes, based on their outstanding principal amounts, by
(i) multiplying the exchange proportion shown in the related Prospectus
Supplement for each such class by its current Class Factor (as defined herein)
and (ii) dividing each resulting percentage by the sum of such percentages. The
Trustee will include the Class Factor for each class of outstanding Securities
having a principal amount in the statements it furnishes to Securityholders in
connection with each Distribution Date. The current Class Factor also will be
available to Securityholders upon request from the Trustee or the Seller as
specified in the related Prospectus Supplement. The "Class Factor" for any month
will be a truncated seven-digit decimal which, when multiplied by the original
principal amount of that class, will equal its remaining principal amount, after
giving effect to any payment of (or addition to) principal to be made on the
Distribution Date in the following month. A Class Factor for each interest only
class having a notional principal amount will be included in the statements the
Trustee furnishes to Securityholders in connection with each Distribution Date
and also will be available to Securityholders upon request from the Trustee or
the Seller as specified in the related Prospectus Supplement. Such a Class
Factor will reflect the remaining notional principal amount of the interest only
class in an analogous manner.
Example: Class A-1 and Class A-2, which together are exchangeable for
an ES Class, have equal original principal amounts and therefore have
exchange proportions of 50% and 50%. However, they receive principal
payments in alphabetical order, so that no principal payment is made on
Class A-2 until Class A-1 has been retired. If the current Class
Factors are 0.6000000 for Class A-1 and 1.0000000 for Class A-2, their
exchange proportions, based on their current outstanding principal
amounts, would be calculated as follows:
Step (i):
Class A-1: 50% X 0.6000000 = 30%
Class A-2: 50% X 1.0000000 = 50%
Step (ii):
Class A-1: 30% / (30% + 50%) = 37.5%
Class A-2: 50% / (30% + 50%) = 62.5%
A permitted exchange might include $375,000 outstanding
principal amount of Class A-1 and $625,000 outstanding
principal amount of Class A-2 (equivalent to $625,000 original
principal amount of Class A-1 and $625,000 original principal
amount of Class A-2). If Class A-1 has been retired, its
current exchange proportion would be 0%, that of Class A-2
would be 100%, and only Class A-2 would be included in the
exchange.
Within a particular Series, one or more types of Combinations may
exist. For example, a class of Securities of the Series with an Interest Rate
that varies directly with changes in an index (a "Floating Rate Class") and a
class of Securities of the Series with an Interest Rate that varies inversely
with changes in an index (an "Inverse Floating Rate Class") may be exchangeable
for a class of Exchangeable Securities of the Series with a fixed Interest Rate.
Under another Combination, a class of Securities of the Series that is a
principal only class and a class of Securities of the Series that is an interest
only class may be exchangeable for a class of Exchangeable Securities of the
Series that pays both principal and interest. Further, a class of Securities of
the Series that accretes all of its interest for a period (such accreted
interest being added to the principal of such class) (an "Accrual Class") and a
class of Securities of the Series that receives principal payments from such
accretions on the Accrual Class may be exchangeable for a class of Exchangeable
Securities of the Series that receives payments of principal continuously from
the first Distribution Date on which it receives principal until it is retired.
Under another Combination, a class of Securities of the Series that is designed
to receive principal payments in accordance with a predetermined schedule
derived by assuming two constant prepayment rates for the underlying Mortgage
Loans ( a "Planned Amortization Class") and a class of Securities of the Series
that receives principal payments on any Distribution Date only if scheduled
payments have been made on the Planned Amortization Class may be exchangeable
for a class of Exchangeable Securities of the Series that receives payments of
principal continuously from the first Distribution Date on which it receives
principal until it is retired and that also receives a coupon. The foregoing
examples describe only some of the Combinations that are possible. Additional
examples are set forth below.
In some cases two or more classes of Securities may be exchangeable for
a single class of Exchangeable Securities, and vice versa. The following
illustrates such a Combination in which Securities of a principal only class and
Securities of an interest bearing class are exchanged for Exchangeable
Securities of a class that has the aggregate characteristics of the two original
classes of Securities:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $20,000,000 50% 10% ES-1 $40,000,000 100% 5%
P* 20,000,000 50 0
--------------
* Class P is a principal only class and will receive no interest.
</TABLE>
The following example illustrates a Combination of a Floating Rate
Class and an Inverse Floating Rate Class which are exchangeable for a class of
Exchangeable Securities with a
fixed interest rate:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS AMOUNT PROPORTIONS RATES
<S> <C> <C> <C> <C> <C> <C> <C>
A-2 $9,333,330 82.352936% LIBOR+ 0.75% ES-2 $11,333,330 100% 7%
A-3 2,000,000 17.647064% 36.16666 -
(LIBOR x
4.666667)
</TABLE>
In some cases one class of Securities may be exchangeable for two or
more classes of Exchangeable Securities, and vice versa. The following
illustrates such a Combination:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
MAXIMUM
ORIGINAL ORIGINAL
PRINCIPAL EXCHANGE INTEREST PRINCIPAL OR EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS NOTIONAL PROPORTIONS RATES
PRINCIPAL
AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $20,000,000 100% 10% ES-P* $20,000,000 100% 0%
ES-X** 20,000,000 (notional) *** 10
</TABLE>
--------------
* Class EX-P is a principal only class and will receive no interest.
** Class ES-X is an interest only class and will receive no principal.
*** Not applicable. Notional principal amount of ES-X Class being
exchanged equals principal amount of ES-P Class being exchanged.
Finally, in some cases a class or classes of Securities may be
exchangeable for various combinations of "ratio-stripping" ES Classes, and such
ES Classes may be exchangeable for Securities or for other ES Classes. In such
cases, subject to the constraints listed above, numerous subcombinations are
permitted. The following illustrates a "ratio-stripping" Combination:
<TABLE>
<CAPTION>
SECURITIES EXCHANGEABLE SECURITIES
ORIGINAL MAXIMUM
PRINCIPAL EXCHANGE INTEREST ORIGINAL EXCHANGE INTEREST
CLASS AMOUNT PROPORTIONS RATES CLASS PRINCIPAL OR PROPORTIONS RATES
NOTIONAL
PRINCIPAL
AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
A-4 $20,000,000 100% 7.00% ES-X* $20,000,000 (notional) N/A 7.00%
ES-3 20,000,000 N/A 6.00
ES-4 20,000,000 N/A 6.25
ES-5 20,000,000 N/A 6.50
ES-6 20,000,000 N/A 6.75
ES-7 19,310,344 N/A 7.25
ES-8 18,064,516 N/A 7.50
ES-9 18,064,516 N/A 7.75
ES-10 17,500,000 N/A 8.00
ES-P** 20,000,000 N/A 0.00
</TABLE>
- - --------------
* Class ES-X is an interest only class and will receive no principal.
** Class ES-P is a principal only class and will receive no interest.
The foregoing table shows the maximum amount of each ES Class that can
be created from the related Security. Such amounts could not exist concurrently,
as any combination is limited to the amount of principal and interest
distributable on the related Security to be exchanged. One method of calculating
the maximum amount that can be created in a specific combination is to determine
the Annual Interest Amount applicable to the Security to be exchanged, and
divide such interest amount by the coupon of the desired Exchangeable Security.
The resulting principal amount can in no case be greater than the principal
amount of Securities to be exchanged. For example, using the foregoing table, if
Class ES-8 is desired, the maximum original principal amount of the Class ES-8
Exchangeable Securities that could be created would be $18,666,666, an amount
arrived at by dividing the Annual Interest Amount of the Class A-4 Securities
($1,400,000) by the Interest Rate of the Class ES-8 Exchangeable Securities
(7.50%). Since all of the available Annual Interest Amount with respect to the
Class A-4 Securities would be used to create the Class ES-8 Exchangeable
Securities, principal only Class ES-P Exchangeable Securities would be created
to receive the remainder of the Class A-4 principal in the amount of $1,333,334
(calculated by subtracting the Class ES-8 Exchangeable Securities original
principal amount from the Class A-4 Securities original principal amount).
Similarly, if Class ES-5 Exchangeable Securities are desired, dividing
the Annual Interest Amount of the Class A-4 Securities ($1,400,000) by the
Interest Rate of the Class ES-5 Exchangeable Securities (6.50%) would indicate
an original principal amount of $21,538,461. However, since the Class A-4
Securities have a principal balance of $20,000,000, only $20,000,000 of the
Class ES-5 Exchangeable Securities could be created. The Annual Interest Amount
applicable to the Class ES-5 Exchangeable Securities would be $20,000,000
multiplied by 6.50% or $1,300,000. Since the Annual Interest Amount of the Class
A-4 Securities is $1,400,000, the interest only Class ES-X Exchangeable
Securities would be created to receive the remaining $100,000 of interest. The
notional amount of such securities would be calculated by dividing the Annual
Interest Amount ($100,000) by the Interest Rate applicable to Class ES-X
Exchangeable Securities (7.00%) to determine the notional amount ($1,428,571).
Within this Combination, a Securityholder could, for example, exchange
any one of the first four subcombinations of classes shown in the following
table for any other such subcombination, or any one of the last three
subcombinations shown for any other such subcombination. Numerous other
subcombinations are possible.
<TABLE>
<CAPTION>
SUBCOMBINATIONS
ORIGINAL PRINCIPAL OR ANNUAL
SUBCOMBINATION CLASS NOTIONAL PRINCIPAL INTEREST INTEREST
AMOUNT RATE AMOUNT
<S> <C> <C> <C> <C>
1 A-4 $20,000,000 7.00% $1,400,000
2 ES-X $20,000,000 (notional) 7.00% $1,400,000
ES-P 20,000,000 0.00 0
----------- ---------
$20,000,000 $1,400,000
============ ==========
3 ES-X $ 2,857,142 (notional) 7.00% $ 200,000
ES-3 20,000,000 6.00 1,200,000
---------- ----------
$20,000,000 $1,400,000
=========== ==========
4 ES-4 $ 3,200,000 6.25% $ 200,000
ES-10 15,000,000 8.00 1,200,000
ES-P 1,800,000 0.00 0
---------- ---------
$20,000,000 $1,400,000
=========== ==========
ES-8 $10,000,000 7.50% $ 750,000
5 ES-5 10,000,000 6.50% 650,000
----------- ----------
$20,000,000 $1,400,000
=========== ==========
6 ES-8 $17,500,000 8.00% $1,400,000
ES-P 2,500,000 0.00 0
----------- -----------
$20,000,000 $1,400,000
=========== ==========
7 ES-3 $10,000,000 6.00% $ 600,000
ES-4 10,000,000 6.25 625,000
ES-X 2,500,000 (notional) 7.00 175,000
---------- -----------
$20,000,000 $1,400,000
=========== ==========
</TABLE>
The foregoing examples set forth various combinations and
subcombinations of Securities and Exchangeable Securities which differ in
interest characteristics (i.e., interest only classes, principal only classes
and coupon paying classes). A Securityholder may also exchange its Securities
for Exchangeable Securities that have different principal payment
characteristics. For example, an exchange of two or more classes of Securities
for a single class of Exchangeable Securities may result in an Exchangeable
Security with the aggregate principal payment characteristics of the multiple
classes of Securities for which it was exchanged.
In addition, Exchangeable Securities may be created that combine
Securities with different credit characteristics. For example, a class that is
senior in priority of payment may be combined with a subordinated class, to
create a new class with the aggregate credit characteristics of the two classes
of Securities.
At any given time, a Securityholder's ability to exchange Securities
for Exchangeable Securities or to exchange Exchangeable Securities for
Securities or for different Exchangeable Securities will be limited by a number
of factors. A Securityholder must, at the time of the proposed exchange, own the
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 necesssary amounts of such class or classes
may not be able to obtain the desired class or classes of Securities or
Exchangeable Securities. The Securityholder of a needed class may refuse or be
unable to sell at a reasonable price or at any price, or certain classes may
have been purchased and placed into other financial structures. ERISA or other
transfer restrictions may apply to certain of the Securities or Exchangeable
Securities in a combination, but not to others. In addition, principal payments
and prepayments will, over time, diminish the amounts available for exchange.
PROCEDURES
A Securityholder proposing to effectuate an exchange must notify the
Trustee through the [_________]. Such notice must be given in writing or by
telefax not later than five business days before the proposed exchange date
(which date, subject to the Trustee's approval, can be any business day other
than the first or last business day of the month) or as otherwise specified in
the related Prospectus Supplement. The notice must include the outstanding
principal (or notional principal) amount of both the securities to be exchanged
and the securities to be received, and the proposed exchange date. Promptly
after the receipt of a Securityholder's notice, the Trustee will telephone the
[_________] to provide instructions for delivering the securities and the
administrative fee to the Trustee by wire transfer. A Securityholder's notice
becomes irrevocable on the second business day before the proposed exchange date
or as otherwise specified in the related Prospectus Supplement.
An administrative fee will be payable to the Trustee in connection with
each exchange as specified in the related Prospectus Supplement. Any exchanges
will be subject to the rules, regulations and procedures applicable to DTC's
book-entry securities, in the case of ES Classes issued in book-entry form.
The first payment on a Security or an Exchangeable Security received in
an exchange transaction will be made on the Distribution Date in the month
following the month of the exchange or as specified in the related Prospectus
Supplement. Such payment will be made to the Securityholder of record as of the
applicable record date.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a Series of Securities or with respect to the assets in the related Trust
Fund. Credit enhancement may be in the form of (i) the subordination of one or
more classes of the Securities of such Series, (ii) the use of a Pool Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, FHA Insurance, VA
Guarantees, Reserve Accounts, a letter of credit, a limited financial guaranty
insurance policy, other third party guarantees, interest rate or other swap
agreements, caps, collars or floors, another method of credit enhancement
described in the related Prospectus Supplement, or the use of a cross-support
feature, or (iii) any combination of the foregoing. In general, any credit
enhancement will not provide protection against all risks of loss and generally
will not guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement, holders of one
or more classes of Securities will bear their allocable share of deficiencies.
If a form of credit enhancement applies to several classes of Securities, and if
principal payments equal to the Current Principal Amounts of certain classes
will be distributed prior to such distributions to other classes, the classes
which receive such distributions at a later time are more likely to bear any
losses which exceed the amount covered by credit enhancement. Coverage under any
credit enhancement generally may be canceled or reduced by the Master Servicer
or the Seller if such cancellation or reduction would not adversely affect the
rating or ratings of the related Securities.
SUBORDINATION
If so specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
classes of Subordinated Securities of a Series will instead be payable to
holders of one or more classes of Senior Securities under the circumstances and
to the extent specified in the related Prospectus Supplement. If specified in
the related Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans will be borne first by
the various classes of Subordinated Securities and thereafter by the various
classes of Senior Securities, in each case under the circumstances and subject
to the limitations specified in the related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Loans over the
lives of the Securities or at any time, the aggregate losses in respect of
defaulted Mortgage Loans which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securityholders that will be distributable to
Senior Securityholders on any Distribution Date may be limited as specified in
the related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Loans or aggregate losses in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Securities or, if applicable, were to
exceed the specified maximum amount, holders of Senior Securities would
experience losses on such Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Securities on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee. If so specified in the related Prospectus Supplement, such deposits may
be made on each Distribution Date, on each Distribution Date for specified
periods or until the balance in the Reserve Account has reached a specified
amount and, following payments from the Reserve Account to holders of Senior
Securities or otherwise, thereafter to the extent necessary to restore the
balance in the Reserve Account to required levels, in each case as specified in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, amounts on deposit in the Reserve Account may be released to the
holders of the class of Securities specified in the related Prospectus
Supplement at the times and under the circumstances specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the same class of
Securities may be Senior Securities with respect to certain types of payments or
certain types of losses or delinquencies and Subordinated Securities with
respect to other types of payment or types of losses or delinquencies. If
specified in the related Prospectus Supplement, various classes of Senior
Securities and Subordinated Securities may themselves be subordinate in their
right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross support mechanism or
otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to a Mortgage Pool of
Single Family Loans or Cooperative Loans, a separate Pool Insurance Policy will
be obtained for the Mortgage Pool and issued by the insurer (the "Pool Insurer")
named in such related Prospectus Supplement. Each Pool Insurance Policy will,
subject to the limitations described below, cover loss by reason of default in
payment on Single Family Loans or Cooperative Loans in the Mortgage Pool in an
amount specified in such Prospectus Supplement. As more fully described below,
the Master Servicer will present claims thereunder to the Pool Insurer on behalf
of itself, the Trustee and the holders of the Securities. The Mortgage Pool
Insurance Policies, however, are not blanket policies against loss, since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described below. A Pool
Insurance Policy generally will not cover losses due to a failure to pay or
denial of a claim under a Primary Insurance Policy.
In general, each Pool Insurance Policy will provide that no claims may
be validly presented unless (i) any required Primary Insurance Policy is in
effect for the defaulted Mortgage Loan and a claim thereunder has been submitted
and settled; (ii) hazard insurance on the related Mortgaged Property has been
kept in force and real estate taxes and other protection and preservation
expenses have been paid; (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its physical condition (reasonable
wear and tear excepted) at the time of issuance of the policy; and (iv) the
insured has acquired good and merchantable title to the Mortgaged Property free
and clear of liens except certain permitted encumbrances. Upon satisfaction of
these conditions, the Pool Insurer will have the option either (a) to purchase
the Mortgaged Property at a price equal to the principal balance thereof plus
accrued and unpaid interest at the Mortgage Rate to the date of purchase and
certain expenses incurred by the Master Servicer on behalf of the Trustee and
Securityholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Insurance Policy. If any Mortgaged Property
securing a defaulted Mortgage Loan is damaged and proceeds, if any, from the
related hazard insurance policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged Mortgaged Property to a condition
sufficient to permit recovery under the Pool Insurance Policy, the Master
Servicer will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it determines that (i) such restoration will increase
the proceeds to Securityholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) such expenses
will be recoverable by it through proceeds of the sale of the Mortgaged Property
or proceeds of the related Pool Insurance Policy or any related Primary
Insurance Policy.
A Pool Insurance Policy generally will not insure (and many Primary
Insurance Policies do not insure) against loss sustained by reason of a default
arising from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. If
so specified in the Prospectus supplement, an endorsement to the Pool Insurance
Policy, a bond or other credit support may cover fraud in connection with the
origination of Mortgage Loans. If so specified in the related Prospectus
Supplement, a failure of coverage attributable to an event specified in clause
(i) or (ii) above might result in a breach of the related Lender's
representations described above and, in such event, might give rise to an
obligation on the part of such Lender to purchase the defaulted Mortgage Loan if
the breach cannot be cured by such Lender. No Pool Insurance Policy will cover
(and many Primary Insurance Policies do not cover) a claim in respect of a
defaulted Mortgage Loan occurring when the servicer of such Mortgage Loan, at
the time of default or thereafter, was not approved by the applicable insurer.
The original amount of coverage under each Pool Insurance Policy
generally will be reduced over the life of the related Securities by the
aggregate dollar amount of claims paid less the aggregate of the net dollar
amounts realized by the Pool Insurer upon disposition of all foreclosed
properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer as well as accrued interest on
delinquent Mortgage Loans to the date of payment of the claim. Accordingly, if
aggregate net claims paid under any Pool Insurance Policy reach the original
policy limit, coverage under that Pool Insurance Policy will be exhausted and
any further losses will be borne by the Securityholders.
The terms of any pool insurance policy relating to a pool of Contracts
will be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Mortgage Pool and will be
issued by the insurer (the "Special Hazard Insurer") named in such Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described below, protect holders of the related Securities from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located or under a flood
insurance policy if the Mortgaged Property is located in a federally designated
flood area, and (ii) loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies. See "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 certain provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of each Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements. Concurrently with the assignment of the Trust
Assets to the related Trust Fund, the Trustee will execute and deliver the
Securities.
ASSIGNMENT OF MORTGAGE ASSETS
ASSIGNMENT OF THE MORTGAGE LOANS. At the time of issuance of the
Securities of a Series, the Seller will cause the Mortgage Loans comprising the
Trust Fund to be sold and assigned to the Trustee, together with all principal
and interest received by or on behalf of the Seller on or with respect to such
Mortgage Loans after the Cut-off Date, other than principal and interest due on
or before the Cut-off Date and other than any Retained Interest specified in the
related Prospectus Supplement. If Notes are issued in a Series, such assets will
be pledged to the Trustee pursuant to the terms of the Indenture. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Mortgage Loan after application of payments due on the
Cut-off Date, as well as information regarding the Mortgage Rate or APR, the
current scheduled monthly payment of principal and interest, the maturity of the
loan, the Loan-to-Value Ratio at origination and certain other information.
In addition, the Seller generally will deliver or cause to be delivered
to the Trustee (or to the custodian hereinafter referred to) as to each Mortgage
Loan, among other things, (i) the mortgage note or Contract endorsed without
recourse in blank or to the order of the Trustee, (ii) in the case of Single
Family Loans or Multifamily Loans, the mortgage, deed of trust or similar
instrument (a "Mortgage") with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Seller will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was or will be
delivered to such recording office), (iii) an assignment of the Mortgage or
Contract to the Trustee, which assignment will be in recordable form in the case
of a Mortgage assignment, and (iv) such other security documents as may be
specified in the related Prospectus Supplement. In the case of Single Family
Loans or Multifamily Loans, the Seller or Master Servicer generally will
promptly cause the assignments of the related Mortgage Loans to be recorded in
the appropriate public office for real property records, except in the
discretion of the Seller in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such loans against the claim of any subsequent transferee
or any successor to or creditor of the Seller or the originator of such loans.
In the case of Contracts, the Seller or Master Servicer generally will promptly
make or cause to be made an appropriate filing of a UCC-1 financing statement in
the appropriate states to give notice of the Trustee's ownership of the
Contracts.
With respect to any Mortgage Loans which are Cooperative Loans, the
Seller will cause to be delivered to the Trustee (or to the custodian
hereinafter referred to), the related original cooperative note endorsed without
recourse in blank or to the order of the Trustee, the original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing agreement and the relevant stock certificate
and related blank stock powers. The Seller will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold such
documents in trust for the benefit of the Securityholders. In general, if any
such document is found to be missing or defective in any material respect, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Seller or in certain circumstances the related Lender, or the Master
Servicer will notify the related Lender. If the Lender or an entity which sold
the Mortgage Loan to the Lender cannot cure the omission or defect within 60
days after receipt of such notice (or such other period as is specified in the
related Prospectus Supplement), the Lender or such entity generally will be
obligated to purchase the related Mortgage Loan from the Trustee at the Purchase
Price. There can be no assurance that a Lender or such entity will fulfill this
purchase obligation. Although the Master Servicer may be obligated to enforce
such obligation to the extent described above under "The Mortgage
Loans-Representations by Lenders; Repurchases," neither the Master Servicer nor
the Seller will be obligated to purchase such Mortgage Loan if the Lender or
such entity defaults on its purchase obligation, unless such breach also
constitutes a breach of the representations or warranties of the Master Servicer
or the Seller, as the case may be. This purchase obligation generally will
constitute the sole remedy available to the Securityholders or the Trustee for
omission of, or a material defect in, a constituent document. Certain rights of
substitution for defective Mortgage Loans may be provided with respect to a
Series in the related Prospectus Supplement.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
ASSIGNMENT OF AGENCY SECURITIES. The Seller will cause Agency
Securities to be registered in the name of the Trustee or its nominee. Each
Agency Security will be identified in a schedule appearing as an exhibit to the
Agreement, which will specify as to each Agency Security the original principal
amount and outstanding principal balance as of the Cut-off Date, the annual
pass-through rate (if any) and the maturity date.
ASSIGNMENT OF PRIVATE MORTGAGE-BACKED SECURITIES. The Seller will cause
Private Mortgage-Backed Securities to be registered in the name of the Trustee
on behalf of the Trust Fund. The Trustee (or the custodian) will have possession
of any certificated Private Mortgage-Backed Securities. The Trustee generally
will not be in possession of or be assignee of record of any underlying assets
for a Private Mortgage-Backed Security. See "The Trust Fund- Private
Mortgage-Backed Securities" herein. Each Private Mortgage-Backed Security will
be identified in a schedule appearing as an exhibit to the related Agreement
which will specify the original principal amount, outstanding principal balance
as of the Cut-off Date, annual pass-through rate or interest rate and maturity
date for each Private Mortgage- Backed Security conveyed to the Trustee.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO ACCOUNTS
In general, each Master Servicer and Sub-Servicer servicing the
Mortgage Loans will be required to establish and maintain for one or more Series
of Securities a separate account or accounts for the collection of payments on
the related Mortgage Loans (the "Protected Account"), which must be either (i)
maintained with a depository institution the debt obligations of which (or in
the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of such holding company) are rated in one of
the two highest rating categories by each Rating Agency rating the Series of
Securities, (ii) an account or accounts the deposits in which are fully insured
by the FDIC, (iii) an account or accounts the deposits in which are insured by
the FDIC (to the limits established by the FDIC), and the uninsured deposits in
which are invested in Permitted Investments held in the name of the Trustee, or
(iv) an account or accounts otherwise acceptable to each Rating Agency. A
Protected Account may be maintained as an interest bearing account or the funds
held therein may be invested pending each succeeding Distribution Date in
Permitted Investments. The related Master Servicer or Sub-Servicer or its
designee or another person specified in the Prospectus supplement will be
entitled to receive any such interest or other income earned on funds in the
Protected Account as additional compensation and will be obligated to deposit or
deliver for deposit in the Protected Account the amount of any loss immediately
as realized. The Protected Account may be maintained with the Master Servicer or
Sub-Servicer or with a depository institution that is an affiliate of the Master
Servicer or Sub-Servicer, provided it meets the standards set forth above.
Each Master Servicer and Sub-Servicer generally will be required to
deposit or cause to be deposited in the Protected Account for each Trust Fund on
a daily basis the following payments and collections received or advances made
by or on behalf of it subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date and exclusive of any amounts representing Retained
Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, prepayment
penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) to the extent specified in the related Agreement, all proceeds
(net of unreimbursed payments of property taxes, insurance premiums and similar
items ("Insured Expenses") incurred, and unreimbursed advances made, by the
related Master Servicer or Sub-Servicer, if any) of the title insurance
policies, the hazard insurance policies and any Primary Insurance Policies, to
the extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts (net of unreimbursed expenses incurred in connection with liquidation or
foreclosure ("Liquidation Expenses") and unreimbursed advances made, by the
related Master Servicer or Sub-Servicer, if any) received and retained in
connection with the liquidation of defaulted Mortgage Loans, by foreclosure or
otherwise ("Liquidation Proceeds"), together with any net proceeds received with
respect to any properties acquired on behalf of the Securityholders by
foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased as described under "The Mortgage Loans-Representations by Lenders;
Repurchases" or "-Assignment of
Mortgage Assets" above;
(v) all payments required to be deposited in the Protected Account with
respect to any deductible clause in any blanket insurance policy described under
"-Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer or
Sub-Servicer in connection with losses realized on investments for the benefit
of the Master Servicer or Sub-Servicer of funds held in any Accounts; and
(vii) all other amounts required to be deposited in the Protected
Account pursuant to the Agreement.
If acceptable to each Rating Agency rating the Series of Securities, a
Protected Account maintained by a Master Servicer or Sub-Servicer may commingle
funds from the Mortgage Loans deposited in the Trust Fund with similar funds
relating to other mortgage loans which are serviced or owned by the Master
Servicer or Sub-Servicer. The Agreement may require that certain payments
related to the Mortgage Assets be transferred from a Protected Account
maintained by a Master Servicer or Sub-Servicer into another account maintained
under conditions acceptable to each Rating Agency.
The Trustee will be required to establish in its name as Trustee for
one or more Series of Securities a trust account or another account acceptable
to each Rating Agency (the "Securities Account"). The Securities Account may be
maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Permitted Investments. If
there is more than one Master Servicer for the rated Series of Securities, there
may be a separate Securities Account or a separate subaccount in a single
Securities Account for funds received from each Master Servicer. The related
Master Servicer or its designee or another person specified in the related
Prospectus Supplement may be entitled to receive any interest or other income
earned on funds in the Securities Account or subaccount of the Securities
Account as additional compensation and, if so entitled, will be obligated to
deposit or deliver for deposit in the Securities Account or subaccount the
amount of any loss immediately as realized. The Trustee will be required to
deposit into the Securities Account on the business day received all funds
received from the Master Servicer for deposit into the Securities Account and
any other amounts required to be deposited into the Securities Account pursuant
to the Agreement. In addition to other purposes specified in the Agreement, the
Trustee will be required to make withdrawals from the Securities Account to make
distributions to Securityholders. If the Series includes one Trust Fund which
contains a beneficial ownership interest in another Trust Fund, funds from the
Trust Assets may be withdrawn from the Securities Account included in the latter
Trust Fund and deposited into another Account included in the former Trust Fund
prior to transmittal to Securityholders with a beneficial ownership interest in
the former Trust Fund. If specified in the related Prospectus Supplement, the
Protected Account and the Securities Account may be combined into a single
Securities Account. With respect to a Series backed by Agency Securities and/or
Private Mortgage-Backed Securities there would only be one or more Securities
Accounts.
SUB-SERVICING BY LENDERS
Each Lender with respect to a Mortgage Loan or any other servicing
entity may act as the Master Servicer or the Sub-Servicer for such Mortgage Loan
pursuant to an agreement (each, a "Sub-Servicing Agreement"), which will not
contain any terms inconsistent with the related Agreement. While in general each
Sub-Servicing Agreement will be a contract solely between the Master Servicer
and the Sub-Servicer, the Agreement pursuant to which a Series of Securities is
issued will provide that, if for any reason the Master Servicer for such Series
of Securities is no longer the Master Servicer of the related Mortgage Loans,
the Trustee or any successor Master Servicer must recognize the Sub- Servicer's
rights and obligations under such Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers. Such Sub-Servicer will
remain obligated, or will be released from its obligations, under the related
Sub- Servicing Agreement, as provided in the related Prospectus Supplement. Each
Sub-Servicer will be required to perform the customary functions of a servicer
of mortgage loans. Such functions generally include collecting payments from
mortgagors or obligors and remitting such collections to the Master Servicer;
maintaining hazard insurance policies as described herein and in the related
Prospectus Supplement, and filing and settling claims thereunder, subject in
certain cases to the right of the Master Servicer to approve in advance any such
settlement; maintaining escrow or impound accounts of mortgagors or obligors for
payment of taxes, insurance and other items required to be paid by the mortgagor
or obligor pursuant to the related Mortgage Loan; processing assumptions or
substitutions, although the Master Servicer is generally required to exercise
due-on-sale clauses to the extent such exercise is permitted by law and would
not adversely affect insurance coverage; attempting to cure delinquencies;
supervising foreclosures; inspecting and managing Mortgaged Properties under
certain circumstances; maintaining accounting records relating to the Mortgage
Loans; and, to the extent specified in the related Prospectus Supplement,
maintaining additional insurance policies or credit support instruments and
filing and settling claims thereunder. A Sub-Servicer will also be obligated to
make advances in respect of delinquent installments of principal and interest on
Mortgage Loans, as described more fully above under "-Payments on Mortgage
Loans; Deposits to Accounts," and in respect of certain taxes and insurance
premiums not paid on a timely basis by mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on the
related Mortgage Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer will generally be entitled to collect
and retain, as part of its servicing compensation, any prepayment or late
charges provided in the mortgage note or related instruments. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under the Agreement. The Master Servicer may purchase the servicing of Mortgage
Loans if the Sub-Servicer elects to release the servicing of such Mortgage Loans
to the Master Servicer. See "-Servicing and Other Compensation and Payment of
Expenses."
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer will be required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan
pursuant to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is earlier terminated by the
Master Servicer or unless servicing is released to the Master Servicer. The
Master Servicer generally may terminate a Sub-Servicing Agreement without cause,
upon written notice to the Sub-Servicer.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement or, upon termination of the Sub-Servicing Agreement, the
Master Servicer may act as servicer of the related Mortgage Loans or enter into
new Sub-Servicing Agreements with other sub-servicers. If the Master Servicer
acts as servicer, it will not assume liability for the representations and
warranties of the Sub-Servicer which it replaces. Each Sub-Servicer must be a
Lender or meet the standards for becoming a Lender or have such servicing
experience as to be otherwise satisfactory to the Master Servicer and the
Seller. The Master Servicer will make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no assurance can be given that such an assumption
will occur. In the event of such an assumption, the Master Servicer may in the
exercise of its business judgment release the terminated Sub-Servicer from
liability in respect of such representations and warranties. Any amendments to a
Sub-Servicing Agreement or new Sub-Servicing Agreements may contain provisions
different from those which are in effect in the original Sub-Servicing
Agreement. However, each Agreement will provide that any such amendment or new
agreement may not be inconsistent with or violate such Agreement.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans and will, consistent with each Agreement and any Pool Insurance
Policy, Primary Insurance Policy, FHA Insurance, VA Guaranty, Special Hazard
Insurance Policy, Bankruptcy Bond or alternative arrangements, follow such
collection procedures as are customary with respect to mortgage loans that are
comparable to the Mortgage Loans. Consistent with the above, the Master Servicer
may, in its discretion, (i) waive any assumption fee, late payment or other
charge in connection with a Mortgage Loan and (ii) to the extent not
inconsistent with the coverage of such Mortgage Loan by a Pool Insurance Policy,
Primary Insurance Policy, FHA Insurance, VA Guaranty, Special Hazard Insurance
Policy, Bankruptcy Bond or alternative arrangements, if applicable, arrange with
a Mortgagor a schedule for the liquidation of delinquencies running for no more
than 125 days after the applicable due date for each payment or such other
period as is specified in the Agreement. Both the Sub-Servicer and the Master
Servicer remain obligated to make advances during any period of such an
arrangement.
In any case in which property securing a conventional Mortgage Loan has
been, or is about to be, conveyed by the mortgagor or obligor, the Master
Servicer generally will, to the extent it has knowledge of such conveyance or
proposed conveyance, exercise or cause to be exercised its rights to accelerate
the maturity of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by applicable law
and will not impair or threaten to impair any recovery under any related Primary
Insurance Policy. If these conditions are not met or if such Mortgage Loan is
insured by the FHA or partially guaranteed by the VA, the Master Servicer will
enter into or cause to be entered into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable for repayment of the Mortgage Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon; provided, however, that the Master Servicer will not enter into such an
agreement if it would jeopardize the tax status of the Trust Fund. Any fee
collected by or on behalf of the Master Servicer for entering into an assumption
agreement will be retained by or on behalf of the Master Servicer as additional
servicing compensation. In the case of Multifamily Loans, the Master Servicer
generally will agree to exercise any right it may have to accelerate the
maturity of a Multifamily Loan to the extent it has knowledge of any further
encumbrance of the related Mortgaged Property effected in violation of any
due-on-encumbrance clause applicable thereto. See "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 certain legal matters relating to the Mortgage Loans. Because such
legal aspects are governed primarily by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete or to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans is situated.
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) certain federal income tax opinions of
Stroock & Stroock & Lavan LLP, special counsel to the Seller ("Federal Tax
Counsel"), and (ii) a summary, based on the advice of Federal Tax Counsel, of
the material federal income tax consequences of the purchase, ownership and
disposition of Securities. The summary does not purport to deal with all aspects
of federal income taxation that may affect particular investors in light of
their individual circumstances, nor with certain types of investors subject to
special treatment under the federal income tax laws. The summary focuses
primarily upon investors who will hold Securities as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"), but much of the
discussion is applicable to other investors as well. Because tax
consequences may vary based on the status or tax attributes of the owner of a
Security, prospective investors are 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 WHICH ARE CERTIFICATES
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 related classes of Securities. If it represents an interest in more than
one Class of Securities, a purchaser must allocate its basis in the ES Class
among the interests in classes of Securities in accordance with their relative
fair market values as of the time of acquisition. Similarly, on the sale of such
an ES Class, the holder must allocate the amount received on the sale among the
interests in the classes of Securities in accordance with their relative fair
market values as of the time of sale.
The holder of an ES Class must account separately for each interest in
a class of Securities (there may be only one such interest). Where the interest
represents a pro rata portion of a class of Securities, the holder of the ES
Class should account for such interest as described under "--Current Income on
REMIC Regular Securities" above. Where the interest represents beneficial
ownership of a disproportionate part of the principal and interest payments on a
class of Securities (a "Strip"), the holder 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 class of Securities for several ES Classes and
then sells one of such ES Classes, the sale will subject the investor to the
coupon stripping rules of Section 1286 of the Code. The holder must allocate its
basis in the exchanged class of Securities between the part of the class of
Securities underlying the ES Class sold and the part of the class of Securities
underlying the ES Classes retained, in proportion to their relative fair market
values as of the date of such sale. The holder is treated as purchasing the
interest retained for the amount of basis allocated to such interest. The holder
must calculate original issue discount with respect to the retained interest as
described above.
Although the matter is not free from doubt, a holder that acquires in
one transaction a combination of ES Classes that may be exchanged for a class of
Securities should be treated as owning the class of Securities.
EXCHANGES OF EXCHANGEABLE SECURITIES
An exchange of an interest in one or more classes of Securities for an
interest in one or more ES Classes, or vice versa (or, if permitted, an exchange
of an interest in one or more ES Classes for an interest in one or more other ES
Classes), will not be a taxable exchange. After the exchange, the holder is
treated as continuing to own the interests in the class or classes of Securities
that it owned immediately prior to the exchange.
TAX TREATMENT OF FOREIGN INVESTORS
A holder of an ES Class 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 Securities or ES 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 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 Securities, classes of ES 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.
<PAGE>
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 servicing assets), having characteristics
similar to those of high-risk mortgage securities, will be subject to the same
supervisory treatment as high-risk mortgage securities. Long-maturity holdings
of zero coupon, stripped and deep discount OID products which are
disproportionately large in relation to the total investment portfolio or total
capital of a depository institution are considered an imprudent investment
practice. Long-maturity generally means a remaining maturity exceeding 10 years.
GENERALLY
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Securities, such as residual interests
or stripped mortgage-backed securities. Investors should consult their own legal
advisors in determining whether and to what extent the Securities constitute
legal investments for such investors and comply with any other applicable
requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus
Supplements will be offered in Series. The distribution of the Securities may be
effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Securities will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Bear, Stearns & Co. Inc. ("Bear,
Stearns"), an affiliate of the Seller, acting as underwriter with other
underwriters, if any, named therein. In such event, the related Prospectus
Supplement may also specify that the underwriters will not be obligated to pay
for any Securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Seller. In connection with the sale of the
Securities, underwriters may receive compensation from the Seller or from
purchasers of the Securities in the form of discounts, concessions or
commissions. The related Prospectus Supplement will describe any such
compensation paid by the Seller.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by Bear, Stearns acting as agent or in some cases
as principal with respect to Securities that it has previously purchased or
agreed to purchase. If Bear, Stearns acts as agent in the sale of Securities,
Bear, Stearns will receive a selling commission with respect to each Series of
Securities, depending on market conditions, expressed as a percentage of the
aggregate principal balance of the Securities sold hereunder as of the Cut-off
Date. The exact percentage for each Series of Securities will be disclosed in
the related Prospectus Supplement. To the extent that Bear, Stearns elects to
purchase Securities as principal, Bear, Stearns may realize losses or profits
based upon the difference between its purchase price and the sales price. The
related Prospectus Supplement with respect to any Series offered other than
through underwriters will contain information regarding the nature of such
offering and any agreements to be entered into between the Seller and purchasers
of Securities of such Series.
The Seller will indemnify Bear, Stearns and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Bear, Stearns and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Bear, Stearns and the Seller may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Seller's Mortgage Loans pending
the sale of such Mortgage Loans or interests therein, including the Securities.
The Seller anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
The legality of the Securities of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Seller by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities and no Trust Fund will engage in any business activities or have any
assets or obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the related Prospectus Supplement that they shall have
been rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
Prospectus Supplement.
Ratings on mortgage-backed securities address the likelihood of receipt
by Securityholders of all distributions on the underlying mortgage loans or
other assets. These ratings address the structural, legal and issuer-related
aspects associated with such Securities, the nature of the underlying mortgage
loans or other assets and the credit quality of the guarantor, if any. Ratings
on mortgage-backed securities do not represent any assessment of the likelihood
of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
Securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped Securities under certain scenarios might fail to recoup
their underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
GLOSSARY
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
TERM PAGE
Accounts..............................................................37
Accrual Securities....................................................38
Agency Securities......................................................1
APR....................................................................7
ARM..................................................................103
Available Funds.......................................................38
Bankruptcy Bond.......................................................15
Basis Risk Shortfall..................................................81
Bear, Stearns........................................................120
Buydown Funds....................................................82, 100
Buydown Loans..........................................................5
Call Class............................................................12
Call Securities........................................................1
Callable Class........................................................12
Callable Securities....................................................1
Capitalized Interest Account..........................................10
Cedel.................................................................41
CERCLA................................................................80
Certificates...........................................................1
Charter Act...........................................................28
Cleanup Costs.........................................................80
CMO....................................................................8
Code..............................................................16, 81
Collateral Value......................................................24
Commission.............................................................2
Contracts..............................................................1
Cooperative...........................................................43
Cooperative Loans......................................................1
Cooperatives...........................................................5
Current Principal Amount..............................................39
Cut-off Date..........................................................12
Debt Securities......................................................105
Definitive Security...................................................41
Detailed Description..................................................22
Distribution Date......................................................2
DTC...................................................................41
Equity Interest......................................................117
ERISA.................................................................19
ES Class..............................................................11
Euroclear.............................................................41
Euroclear Operator....................................................43
European Depositaries.................................................41
Events of Default.................................................68, 69
Exchangeable Security.................................................11
Exchangeable Security Trust Fund......................................45
Fannie Mae.............................................................1
Fannie Mae Certificates................................................7
FASIT..............................................................2, 81
FASIT Owner...........................................................99
FASIT Ownership Security..............................................96
FASIT Ownership Security..............................................17
FASIT Regular Securities..........................................17, 96
FASIT Securities......................................................96
FDIC..................................................................35
Federal Tax Counsel...................................................80
FHA....................................................................5
FHA Insurance.........................................................37
FHA Loans.............................................................26
FHLMC Act.............................................................29
Freddie Mac............................................................1
Freddie Mac Certificate Group.........................................29
Freddie Mac Certificates...............................................7
FTC Rule..............................................................78
Garn-St Germain Act...................................................78
GNMA...................................................................1
GNMA Certificates......................................................7
GNMA Issuer...........................................................26
Guaranty Agreement....................................................26
High-Yield Interests..................................................96
Holders of Securities.................................................18
Housing Act...........................................................26
HUD...................................................................31
Indenture.............................................................36
Insurance Proceeds....................................................61
Insured Expenses......................................................61
Interest Rate.........................................................12
Investor Based Exemptions............................................117
Lender.................................................................1
LIBOR...............................................................119
Liquidation Expenses..................................................61
Liquidation Proceeds..................................................61
Loan-to-Value Ratio...................................................24
Lower Tier REMIC......................................................90
Manufactured Homes....................................................26
Manufacturer's Invoice Price..........................................24
Master Servicer........................................................1
Master Servicing Agreement............................................24
Mortgage..............................................................59
Mortgage Assets........................................................1
Mortgage Loans.........................................................4
Mortgage Pool..........................................................4
Mortgage Rate..........................................................5
Mortgaged Properties..................................................22
Multifamily Loans......................................................1
Multiple Variable Rate REMIC Regular Security.........................87
Nationally Recognized Rating Agencies................................115
NCUA.................................................................118
Non-Electing Securities...............................................18
Non-REMIC Certificates................................................18
Notes..................................................................1
OID Regulations.......................................................83
Owners................................................................41
Participants..........................................................41
Percentage Interests..................................................68
Permitted Investments.................................................56
Plan.................................................................113
Plan Asset Regulations...............................................113
PMBS Agreement........................................................31
PMBS Issuer............................................................8
PMBS Servicer..........................................................8
PMBS Trustee...........................................................8
Policy Statement.....................................................118
Pool Insurance Policy.................................................14
Pool Insurer..........................................................51
Pooling and Servicing Agreement.......................................36
Pre-Funded Amount.....................................................10
Pre-Funding Account...................................................10
Pre-Funding Period....................................................10
Prepayment Assumption.................................................84
Presumed Single Qualified Floating Rate...............................86
Presumed Single Variable Rate........................................86
Primary Insurance Policy..............................................22
Primary Insurer.......................................................65
Principal Prepayments.................................................39
Private Mortgage-Backed Securities.....................................1
Protected Account.....................................................60
PTCE 83-1............................................................114
PTE 90-30............................................................114
Purchase Price........................................................35
Rating Agency.........................................................15
Record Date...........................................................37
Refinance Loan........................................................24
REIT..................................................................91
Relevant Depositary...................................................41
Relief Act............................................................79
REMIC..............................................................2, 81
REMIC Regular Securities......................................16, 17, 81
REMIC Regulations................................................82, 100
REMIC Residual Securities.............................................16
REMIC Securities......................................................81
Reserve Account........................................................2
Restricted Group.....................................................115
Retained Interest.....................................................37
RICs..................................................................91
Securities.............................................................1
Securities Account....................................................61
Securities Register...................................................37
Securityholders........................................................1
Seller..............................................................1, 3
Senior Securities.....................................................11
Series.................................................................1
Single Family Loans....................................................1
Single Variable Rate REMIC Regular Security...........................86
SMMEA.................................................................16
Special Hazard Insurance Policy.......................................14
Special Hazard Insurer................................................52
Strip................................................................111
Subordinated Securities...............................................11
Sub-Servicer..........................................................15
Sub-Servicing Agreement...............................................62
Superlien.............................................................80
Terms and Conditions..................................................43
Tiered FASITs........................................................97
Tiered REMICs.........................................................82
Title V...............................................................79
Trust Agreement.......................................................36
Trust Assets...........................................................1
Trust Fund.............................................................1
Trustee...............................................................36
U.S. Government Securities..........................................1, 4
United States person..................................................94
VA ....................................................................5
VA Guarantees.........................................................37
VA Loans..............................................................26
Variable Rate Non-Electing Securities................................102
Variable Rate REMIC Regular Security..................................85
Yield Supplement Agreement............................................81
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee.............................. $295.00
Printing and Engraving Expenses *
Trustee Fees and Expenses......................... *
Legal Fees and Expenses........................... *
Blue Sky Fees and Expenses........................ *
Accounting Fees and Expenses *
Rating Agency Fees................................ *
Miscellaneous Fees and Expenses *
-----------
Total Expenses........................... *
===========
* To be filed by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 7 of the form of Underwriting Agreement, the Underwriters
are obligated under certain circumstances to indemnify certain controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act of 1933.
The Registrant's By-Laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreements, Trust Agreements and Indentures
may provide that no director, officer, employee or agent or the Registrant is
liable to the Trust Fund or the Securityholders, except for such person's own
willful misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. Such agreements may provide
further that, with the exemptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expenses incurred in connection with legal actions relating to such
agreement and the related Securities, other than such expenses relating to
particular Mortgage Loans.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Registrant.* +
3.2 By-laws of Registrant.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Certificate (included as part of Exhibit 4.1).*
4.3 Form of Indenture.
4.4 Form of Note (included as part of Exhibit 4.3).
4.5 Form of Trust Agreement.
4.6 Form of Trust Certificate (included as part of Exhibit 4.5).
5.1 Opinion of Stroock & Stroock & Lavan LLP with respect to legality.
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to federal income
tax matters (contained in Exhibit 5.1).
10.1 Form of Master Servicing Agreement.
23.1 Consent of Stroock & Stroock & Lavan LLP (contained in
Exhibit 5.1).
24.1 Power of Attorney.*
25.1 Statement of Eligibility and Qualification of Indenture
Trustee (Form T-1).
- - -------------------------
* Previously filed.
+ Certificate of Amendment of the Certificate of Incorporation
is filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934, as amended,
hat is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(6) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a) (3) of the Securities Act;
(ii) To reflect in the Prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(7) That, for the purpose of determining any liability under the
Securities Act, each such post- effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bear Stearns
Mortgage Securities Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, it believes that
the securities rating requirement for use of Form S-3 will be met by the time of
sale of the securities and it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the State
of New York on June 16, 1998.
BEAR STEARNS MORTGAGE SECURITIES 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 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 June 16, 1998
- - ------------------------ Board/ Chief
Jeffrey J. Mayer Executive Office (Principal
Executive Officer),
President and
Director
/S/ WILLIAM J. MONTGORIS Secretary/ June 16, 1998
- - --------------------------- Treasurer (Principal
William J.Mortgoris Financial and
Accounting Officer)
/S/ PAUL M. FRIEDMAN Vice President/ June 16, 1998
- - ----------------------- Assistant Secretary
Paul M. Friedman and Director
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
REGISTRATION NO. 333-51279
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBITS
TO
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BEAR STEARNS MORTGAGE SECURITIES INC.
(Depositor)
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3633241
(State of incorporation) (I.R.S. Employer Identification Number)
245 PARK AVENUE
NEW YORK, NEWYORK 10167
(212) 272-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
WILLIAM J. MONTGORIS
TREASURER AND SECRETARY
BEAR STEARNS MORTGAGE SECURITIES INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copies to:
LOIS L. WEINROTH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
--------------------------
<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.
+ Certificate of Amendment of the Certificate of Incorporation
is filed herewith.
Exhibit 4.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Bear Stearns Mortgage Securities Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware.
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the
Board, adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said
corporation:
RESOLVED, that the Certificate of Incorporation of
Bear Stearns Mortgage Securities Inc. be amended by changing
the First Article thereof so that, as amended, said Article
shall be and read as follows:
The name of the corporation is Structured Asset
Mortgage Investments Inc.
SECOND: That in lieu of a meeting and vote of stockholder, the
stockholder has given unanimous written consent to said amendment in
accordance with the provisions of Section 226 of the General
Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Bear Stearns Mortgage Securities Inc. has
caused this certificate to be signed by Jeffrey Mayer, its Chairman of the
Board, Chief Executive Officer, President, this 28th day of April, 1998.
Bear Stearns Mortgage Securities Inc.
By: /S/ JEFFREY MAYER
Jeffrey Mayer
Chairman of the Board, Chief
Executive Officer, President
Exhibit 4.3
STRUCTURED ASSET MORTGAGE INVESTMENTS
TRUST 199_-_
[LIST THE CLASSES OF NOTES]
INDENTURE
Dated as of ___________, 199_
___________________, Trustee
<PAGE>
CROSS REFERENCE TABLE 1
TIA SECTION INDENTURE SECTION
310(a) (1)..................................................... 6.11
(a) (2)................................................... 6.11
(a) (3)................................................... 6.10
(a) (4)................................................... A.2
(a) (5)................................................... 6.11
(b).......................................................6.8; 6.11
(c)....................................................... N A
311(a)......................................................... 6.12
(b)....................................................... 6.12
(c)....................................................... N A
312(a)......................................................... 7.1
(b)....................................................... 7.2
(c........................................................ 7.2
(d)....................................................... 7.4
313(a)......................................................... 7.4
(b) (1)................................................... 7.4
(b) (2)................................................... 11.5
(c)....................................................... 7.4
(d)....................................................... 7.3
314(a)......................................................... 11.15
(b)....................................................... 11.1
(c) (1)................................................... 11.1
(c) (2)................................................... 11.1
(c) (3)................................................... 11.1
(d)....................................................... 11.1
(e)....................................................... 11.1
(f)....................................................... 11.1
315(a)......................................................... 6.1
(b).......................................................6.5; 11.5
(c)....................................................... 6.1
(d)....................................................... 6.1
(e)....................................................... 5.13
316 (a) (last sentence)........................................ 2.7
(a) (1) (A)............................................... 5.11
(a) (1) (B)............................................... 5.12
(a) (2)................................................... N A
(b)....................................................... 5.7
(c)....................................................... N A
317(a) (1)..................................................... 5.3
(a) (2.................................................... 5.3
(b)....................................................... 3.3
318(a)......................................................... 11.7
1 Note: This Cross Reference Table shall not, for any purpose, be deemed
to be part of this Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Definitions and Incorporation by Reference..................2
SECTION 1.1 Definitions............................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act......8
SECTION 1.3 Rules of Construction..................................9
ARTICLE II The Notes...................................................9
SECTION 2.1 Form...................................................9
SECTION 2.2 Execution, Authentication and Delivery.................9
SECTION 2.3 Temporary Notes.......................................10
SECTION 2.4 Registration; Registration of Transfer and Exchange...11
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes............12
SECTION 2.6 Persons Deemed Owner..................................13
SECTION 2.7 Payment of Principal and Interest; Defaulted
Interest............................................13
SECTION 2.8 Cancellation..........................................14
SECTION 2.9 Release of Collateral.................................14
SECTION 2.10 Book-Entry Notes......................................14
SECTION 2.11 Notices to Clearing Agency............................15
SECTION 2.12 Definitive Notes......................................16
ARTICLE III Covenants..................................................16
SECTION 3.1 Payment of Principal and Interest......................16
SECTION 3.2 Maintenance of Office or Agency........................16
SECTION 3.3 Money for Payments To Be Held in Trust.................17
SECTION 3.4 Existence..............................................18
SECTION 3.5 Protection of Trust Estate.............................18
SECTION 3.6 Opinions as to Trust Estate............................19
SECTION 3.7 Performance of Obligations; Servicing of
Mortgage Loans.......................................20
SECTION 3.8 Negative Covenants.....................................22
SECTION 3.9 Annual Statement as to Compliance
SECTION 3.10 Issuer May Consolidate, Etc. Only on
Certain Terms.........................................23
SECTION 3.11 Successor or Transferee...............................25
SECTION 3.12 No Other Business.....................................25
SECTION 3.13 No Borrowing..........................................25
SECTION 3.14 Master Servicer's Obligations.........................25
SECTION 3.15 Guarantees, Mortgage Loans, Advances and
Other Liabilities....................................25
SECTION 3.16 Capital Expenditures.................................26
SECTION 3.17 Reserved.............................................26
SECTION 3.18 Restricted Payments..................................26
SECTION 3.19 Notice of Events of Default..........................26
SECTION 3.20 Further Instruments and Acts.........................26
ARTICLE IV Satisfaction and Discharge..................................26
SECTION 4.1 Satisfaction and Discharge of Indenture................26
SECTION 4.2 Application of Trust Money.............................28
SECTION 4.3 Repayment of Moneys Held by Paying Agent...............28
ARTICLE V Remedies.....................................................28
SECTION 5.1 Events of Default......................................28
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.....29
SECTION 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee...............................30
SECTION 5.4 Remedies; Priorities...................................32
SECTION 5.5 Optional Preservation of the Mortgage Loans............34
SECTION 5.6 Limitation of Suits....................................34
SECTION 5.7 Unconditional Rights of Noteholders To Receive
Principal and Interest...............................35
SECTION 5.8 Restoration of Rights and Remedies.....................35
SECTION 5.9 Rights and Remedies Cumulative.........................35
SECTION 5.10 Delay or Omission Not a Waiver........................35
SECTION 5.11 Control by Noteholders................................36
SECTION 5.12 Waiver of Past Defaults...............................36
SECTION 5.13 Undertaking for Costs.................................37
SECTION 5.14 Waiver of Stay or Extension Laws......................37
SECTION 5.15 Action on Notes.......................................37
SECTION 5.16 Performance and Enforcement of Certain Obligations....37
ARTICLE VI The Trustee..................................................38
SECTION 6.1 Duties of Trustee......................................38
SECTION 6.2 Rights of Trustee......................................39
SECTION 6.3 Individual Rights of Trustee...........................40
SECTION 6.4 Trustee's Disclaimer...................................40
SECTION 6.5 Notice of Defaults.....................................40
SECTION 6.6 Reports by Trustee to Holders..........................40
SECTION 6.7 Compensation and Indemnity.............................40
SECTION 6.8 Replacement of Trustee.................................41
SECTION 6.9 Successor Trustee by Merger............................42
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee.........42
SECTION 6.11 Eligibility; Disqualification.........................44
SECTION 6.12 Preferential Collection of Claims Against Issuer......44
ARTICLE VII Noteholders' Lists and Reports...............................44
SECTION 7.1 Issuer To Furnish Trustee Names and
Addresses of Noteholders...........................44
SECTION 7.2 Preservation of Information; Communications
to Noteholders........................................44
SECTION 7.3 Reports by Issuer......................................45
SECTION 7.4 Reports by Trustee.....................................45
ARTICLE VIII Accounts, Disbursements and Releases.........................46
SECTION 8.1 Collection of Money....................................46
SECTION 8.2 Trust Accounts.........................................46
SECTION 8.3 General Provisions Regarding Accounts..................47
SECTION 8.4 Release of Trust Estate................................47
SECTION 8.5 Opinion of Counsel.....................................48
ARTICLE IX Supplemental Indentures......................................48
SECTION 9.1 Supplemental Indentures Without Consent
of Noteholders........................................48
SECTION 9.2 Supplemental Indentures with Consent
of Noteholders........................................50
SECTION 9.3 Execution of Supplemental Indentures..................51
SECTION 9.4 Effect of Supplemental Indenture......................52
SECTION 9.5 Conformity With Trust Indenture Act...................52
SECTION 9.6 Reference in Notes to Supplemental Indentures.........52
ARTICLE X Redemption of Notes...........................................52
SECTION 10.1 Redemption............................................52
SECTION 10.2 Form of Redemption Notice.............................53
SECTION 10.3 Notes Payable on Redemption Date......................54
ARTICLE XI Miscellaneous.................................................54
SECTION 11.1 Compliance Certificates and Opinions, etc.............54
SECTION 11.2 Form of Documents Delivered to Trustee................56
SECTION 11.3 Acts of Noteholders...................................57
SECTION 11.4 Notices, etc., to Trustee, Issuer and
Rating Agencies.......................................57
SECTION 11.5 Notices to Noteholders; Waiver........................58
SECTION 11.6 Alternate Payment and Notice Provisions...............58
SECTION 11.7 Conflict with Trust Indenture Act.....................59
SECTION 11.8 Effect of Headings and Table of Contents..............59
SECTION 11.9 Successors and Assigns................................59
SECTION 11.10 Separability.........................................59
SECTION 11.11 Benefits of Indenture................................59
SECTION 11.12 Legal Holidays.......................................59
SECTION 11.13 GOVERNING LAW........................................60
SECTION 11.14 Counterparts.........................................60
SECTION 11.15 Recording of Indenture...............................60
SECTION 11.16 Trust Obligation.....................................60
SECTION 11.17 No Petition..........................................61
SECTION 11.18 Inspection...........................................61
<PAGE>
INDENTURE dated as of ______________, 199_ , between Structured Asset
Mortgage Investments Trust 199_-_ , a Delaware business trust (the "Issuer"),
and __________________________, a _______________________, as trustee and not in
its individual
capacity (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Issuer's Notes :
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, as
Trustee for the benefit of the Holders of the Notes, all of the Issuer's right,
title and interest in and to (a) the Mortgage Loans, and all moneys due or
received thereon, on or after the Cut-off Date; (b) the security interests in
the Mortgaged Properties granted by Mortgagors pursuant to the Mortgage Loans
and any other interest of the Issuer in the Mortgaged Properties; (c) any
proceeds with respect to the Mortgage Loans from claims on any insurance
policies covering Mortgaged Properties or Mortgagors; (d) all funds on deposit
from time to time in the Trust Accounts , including the Reserve Account Initial
Deposit , and in all investments and proceeds thereof (including all income
thereon); (e) the Master Servicing Agreement; and (f) all present and future
claims, demands, causes and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion, voluntary or involuntary, into cash or other liquid property,
all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, insurance proceeds, condemnation
awards, rights to payment of any and every kind and other forms of obligations
and receivables, instruments and other property which at any time constitute all
or part of or are included in the proceeds of any of the foregoing
(collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction except as
otherwise set forth herein, and to secure compliance with the provisions of this
Indenture, all as provided in this Indenture.
The Trustee, as Trustee on behalf of the Holders of the Notes,
acknowledges such Grant, accepts the trusts under this Indenture in accordance
with the provisions of this Indenture and agrees to perform its duties required
in this Indenture to the best of its ability to the end that the interests of
the Holders of the Notes may be adequately and effectively protected.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
Except as otherwise specified herein, the following terms have the
respective meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
"Authorized Officer" means, with respect to the Issuer and the Master
Servicer, any officer of the Owner Trustee or the Master Servicer, as
applicable, who is authorized to act for the Owner Trustee or the Master
Servicer, as applicable, in matters relating to the Issuer and who is identified
on the list of Authorized Officers delivered by each of the Owner Trustee and
the Master Servicer to the Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
the Master Servicing Agreement, the Depository Agreements and other documents
and certificates delivered in connection therewith.
"Book-Entry Notes" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions or trust companies in The City of New York or
________________, are authorized or obligated by law, regulation or executive
order to remain closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Class" means the class designation of any Note.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting
Clause of this Indenture.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office at date of the execution of this Agreement is located at
____________________, Attention:_______________ or at such other address as the
Trustee may designate from time to time by notice to the Noteholders, the Master
Servicer and the Issuer, or the principal corporate trust office of any
successor Trustee (the address of which the successor Trustee will notify the
Noteholders and the Issuer).
"Current Principal Amount" means the aggregate principal amount of all
Notes, or any class of Notes, as applicable, Outstanding at the date of
determination.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.10.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indenture" means this Indenture as amended and supplemented from time
to time.
"Independent" means, when used with respect to any specified Person,
that the person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Seller and any Affiliate of any of the foregoing persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Interest Rate" means, with respect to the Define the Interest Rate
for each class of Notes.
"Issuer" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Trustee.
"Master Servicing Agreement" means the Master Servicing Agreement,
dated as of _____________, 199_, among the Issuer, the Seller and the Master
Servicer, as the same may be amended or supplemented from time to time.
"Notes" means any or all of the Class __, Class __ and Class __ Notes
issued hereunder and representing obligations of the Trust.
"Note Depository Agreement" means the agreement among the Issuer, the
Trustee, the Master Servicer and The Depository Trust Company, as the initial
Clearing Agency, dated ,_______________, 199_.
"Note Owner" means, with respect to a Book-Entry Note, the person who
is the owner of such Book-Entry Note, as reflected on the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1 and TIA Section 314,
and delivered to the Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Trustee, and which
opinion or opinions shall be addressed to the Trustee as Trustee, shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Trustee.
"Outstanding" means with respect to Notes, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note
Registrar or delivered to the Note Registrar for
cancellation;
(ii) Notes or portions thereof the payment for which
money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent in
trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed,
notice of such redemption has been duly given
pursuant to this Indenture or provision therefor,
satisfactory to the Trustee); and
(iii) Notes in exchange for or in lieu of other Notes
which have been authenticated and delivered pursuant
to this Indenture unless proof satisfactory
to the Trustee is presented that any such Notes
are held by a bona fide purchaser; provided
that in determining whether the Holders of
the requisite Current Principal Amount of the Notes
have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or
under any Basic Document, Notes owned by the Issuer,
any other obligor upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be
protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver,
only Notes that a Responsible Officer of the Trustee
either actually knows to be so owned or has received
written notice thereof shall be so disregarded. Notes
so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the
foregoing Persons.
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means a Distribution Date.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Record Date" means, with respect to a Distribution Date or Redemption
Date, the close of business on the fourteenth day of the calendar month in which
such Distribution Date or Redemption Date occurs.
"Redemption Date" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a) or a payment to Noteholders pursuant to Section
10.1(b), the Distribution Date specified by the Master Servicer or the Issuer
pursuant to Section 10.1(a) or (b) as applicable.
"Redemption Price" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a), an amount equal to the unpaid principal amount of
the then outstanding Class ____ Notes plus accrued and unpaid interest thereon
to but excluding the Redemption Date, or (b) in the case of a payment made to
Noteholders pursuant to Section 10.1(b), the amount on deposit in the Note
Distribution Account, but not in excess of the amount specified in clause (a)
above.
"Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Schedule of Mortgage Loans" means the listing of the Mortgage Loans
set forth in Exhibit A (which Exhibit may be in the form of microfiche).
"State" means any one of the 50 states of the United States of America
or the District of Columbia.
"Successor Master Servicer" has the meaning specified in Section
3.7(e).
"Trust Estate" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trustee), including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force on the date hereof, unless otherwise specifically provided.
"Trustee" means _______________, a ___________________, not in its
individual capacity but as trustee under this Indenture, or any successor
trustee under this Indenture.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(a) Except as otherwise specified herein, the following terms
have the respective meanings set forth in the Master Servicing
Agreement as in effect on the Closing Date for all purposes of this
Indenture, and the definitions of such terms are equally applicable
both to the singular and plural forms of such terms:
Section of Master
Term Servicing Agreement
Annual Percentage Rate or APR...................................Section 1.1
Certificateholders..............................................Section 1.1
Closing Date....................................................Section 1.1
Collection Account..............................................Section 1.1
Collection Period...............................................Section 1.1
Contract........................................................Section 1.1
Depository Agreements...........................................Section 1.1
Distribution Date...............................................Section 1.1
Eligible Deposit Account........................................Section 1.1
Eligible Investments............................................Section 1.1
Final Scheduled Distribution Date...............................Section 1.1
Final Scheduled Maturity Date...................................Section 1.1
Mortgage Loans..................................................Section 1.1
Mortgaged Property..............................................Section 1.1
Note Distribution Account.......................................Section 1.1
Noteholders' Distributable Amount...............................Section 1.1
Noteholders' Percentage.........................................Section 1.1
Master Servicer.................................................Section 1.1
Mortgagor.......................................................Section 1.1
Original Pool Balance...........................................Section 1.1
Owner Trustee...................................................Section 1.1
Person..........................................................Section 1.1
Pool Balance....................................................Section 1.1
Purchased Mortgage Loans........................................Section 1.1
Rating Agency...................................................Section 1.1
Rating Agency Condition.........................................Section 1.1
Reserve Account.................................................Section 1.1
Seller..........................................................Section 1.1
Servicer Default................................................Section 1.1
Specified Reserve Account Balance...............................Section 1.1
Total Distribution Amount.......................................Section 1.1
Trust Accounts..................................................Section 1.1
Trust Agreement.................................................Section 1.1
(b) Capitalized terms used herein and not otherwise defined
herein or in the Master Agreement have the meanings assigned to them in
the Trust Agreement.
SECTION 1.2 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally
accepted accounting principles as in effect from time
to time;
(iii) "or" is not exclusive;
(iv) "including" means including without
limitation; and
(v) words in the singular include the plural and
words in the plural include the singular.
ARTICLE II
THE NOTES
SECTION 2.1 FORM.
The Class __, Class __ and Class __ Notes, in each case together with
the Trustee's certificate of authentication, shall be in substantially the form
set forth in Exhibit B, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution of the Notes. Any portion of the text of any Note may be set forth on
the reverse thereof, with an appropriate reference thereto on the face of the
Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit B is part of the terms of this Indenture.
SECTION 2.2 EXECUTION, AUTHENTICATION AND DELIVERY.
The Notes shall be executed on behalf of the Issuer by any of its
Authorized Officers. The signature of any such Authorized Officer on the Notes
may be manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon Issuer Order authenticate and deliver Class ___
Notes for original issue in an aggregate principal amount of $_____________,
Class ___Notes for original issue in the aggregate principal amount of
$_____________ and Class ___Notes for original issue in the aggregate principal
amount of $_____________. The aggregate principal amount of Class ___, Class ___
and Class ___ Notes outstanding at any time may not exceed such amounts except
as provided in Section 2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $1,000 and
in integral multiples thereof (except for one Note of each class which may be
issued in a denomination other than an integral multiple of $1,000).
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.3 TEMPORARY NOTES.
Pending the preparation of Definitive Notes, the Issuer may execute,
and upon receipt of an Issuer Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, of the tenor of the Definitive Notes in lieu of which they
are issued and with such variations not inconsistent with the terms of this
Indenture as the officers executing such Notes may determine, as evidenced by
their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of Definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes.
SECTION 2.4 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Trustee shall be "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as Note
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, if the
requirements of Section 8-401(1) of the UCC are met, the Issuer shall execute
and upon its request the Trustee shall authenticate and the Noteholder shall
obtain from the Trustee, in the name of the designated transferee or
transferees, one or more new Notes, in any authorized denominations, of the same
class and a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of the same class and a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, if the requirements of
Section 8-401(1) of the UCC are met the Issuer shall execute and upon its
request the Trustee shall authenticate and the Noteholder shall obtain from the
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Trustee may
require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
The preceding provisions of this section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
SECTION 2.5 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Trustee such security or indemnity as
may be required by it to hold the Issuer and the Trustee harmless, then, in the
absence of notice to the Issuer, the Note Registrar or the Trustee that such
Note has been acquired by a bona fide purchaser, and provided that the
requirements of Section 8-405 of the UCC are met, the Issuer shall execute and
upon its request the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement
Note; provided, however, that if any such destroyed, lost or stolen Note, but
not a mutilated Note, shall have become or within seven days shall be due and
payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If, after
the delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer and the Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 PERSONS DEEMED OWNER.
Prior to due presentment for registration of transfer of any Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name any Note is registered (as of the day of determination) as
the owner of such Note for the purpose of receiving payments of principal of and
interest, if any, on such Note and for all other purposes whatsoever, whether or
not such Note be overdue, and neither the Issuer, the Trustee nor any agent of
the Issuer or the Trustee shall be affected by notice to the contrary.
SECTION 2.7 PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) The Notes shall accrue interest as provided in the forms
of the Classes of Notes, set forth in Exhibit B, and such interest
shall be payable on each Distribution Date as specified therein. Any
installment of interest or principal, if any, payable on any Note which
is punctually paid or duly provided for by the Issuer on the applicable
Distribution Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered on the Record Date, by
check mailed first class, postage prepaid, to such Person's address as
it appears on the Note Register on such Record Date, except that,
unless Definitive Notes have been issued pursuant to Section 2.12, with
respect to Notes registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available
funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the Final Scheduled Distribution Date (and
except for the Redemption Price for any Note called for redemption
pursuant to Section 10.1(a)) which shall be payable as provided below.
The funds represented by any such checks returned undelivered shall be
held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in
installments on each Distribution Date as provided in the forms of the
Classes of Notes, set forth in Exhibit B. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due
and payable, if not previously paid, on the date on which an Event of
Default shall have occurred and be continuing, if the Trustee or the
Holders of the Notes representing not less than a majority of the
Current Principal Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2. All
principal payments on each Class of Notes shall be made pro rata to the
Noteholders of such Class entitled thereto. The Trustee shall notify
the Person in whose name a Note is registered at the close of business
on the Record Date preceding the Distribution Date on which the Issuer
expects that the final installment of principal of and interest on such
Note will be paid. Such notice shall be mailed or transmitted by
facsimile prior to such final Distribution Date and shall specify that
such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may
be presented and surrendered for payment of such installment. Notices
in connection with redemptions of Notes shall be mailed to Noteholders
as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the
Notes, the Issuer shall pay defaulted interest (plus interest on such
defaulted interest to the extent lawful) at the applicable Interest
Rate in any lawful manner.
The Issuer may pay such defaulted interest to the Persons who are
Noteholders on a subsequent special record date, which date shall be at
least five Business Days prior to the payment date. The Issuer shall
fix or cause to be fixed any such special record date and payment date,
and, at least 15 days before any such special record date, the Issuer
shall mail to each Noteholder and the Trustee a notice that states the
special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.8 CANCELLATION.
All Notes surrendered for payment, registration of transfer, exchange
or redemption shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly canceled by the Trustee. The
Issuer may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Trustee in accordance with its standard retention or disposal policy as in
effect at the time unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided that such Issuer Order is timely and
the Notes have not been previously disposed of by the Trustee.
SECTION 2.9 RELEASE OF COLLATERAL.
Subject to Section 11.1, the Trustee shall release property from the
lien of this Indenture only upon receipt of an Issuer Request accompanied by an
Officer's Certificate, an Opinion of Counsel and Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion of Counsel in
lieu of such Independent Certificates to the effect that the TIA does not
require any such Independent Certificates.
SECTION 2.10 BOOK-ENTRY NOTES.
The Notes, upon original issuance, will be issued in the form of
typewritten Notes representing the Book-Entry Notes, to be delivered to, as
agent for The Depository Trust Company, the initial Clearing Agency, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Note Owner will receive a Definitive Note representing such Note Owner's
interest in such Note, except as provided in Section 2.12. Unless and until
definitive, fully registered Notes (the "Definitive Notes") have been issued to
Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in
full force and effect;
(ii) the Note Registrar and the Trustee shall be
entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of
principal of and interest on the Notes and the giving
of instructions or directions hereunder) as the sole
Holder of the Notes, and shall have no obligation to
the Note Owners;
(iii) to the extent that the provisions of this
Section conflict with any other provisions of this
Indenture, the provisions of this Section shall
control;
(iv) the rights of Note Owners shall be exercised
only through the Clearing Agency and shall be limited
to those established by law and agreements between
such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Note
Depository Agreement, unless and until Definitive
Notes are issued pursuant to Section 2.12, the
initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and
receive and transmit payments of principal of and
interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits
actions to be taken based upon instructions or
directions of Holders of Notes evidencing a specified
percentage of the Current Principal Amount of the
Notes, the Clearing Agency shall be deemed to
represent such percentage only to the extent that it
has received instructions to such effect from Note
Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage
of the beneficial interest in the Notes and has
delivered such instructions to the Trustee.
SECTION 2.11 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Noteholders is
required under this Indenture, unless and until Definitive Notes shall have been
issued to Note Owners pursuant to Section 2.12, the Trustee shall give all such
notices and communications specified herein to be given to Holders of the Notes
to the Clearing Agency, and shall have no obligation to the Note Owners.
SECTION 2.12 DEFINITIVE NOTES.
If (i) the Master Servicer advises the Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Notes, and the Master Servicer is unable to
locate a qualified successor, (ii) the Master Servicer at its option advises the
Trustee in writing that it elects to terminate the book-entry system through the
Clearing Agency or (iii) after the occurrence of an Event of Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Current Principal Amount of the Notes advise the Trustee through the Clearing
Agency in writing that the continuation of a book entry system through the
Clearing Agency is no longer in the best interests of the Note Owners, then the
Clearing Agency shall notify all Note Owners and the Trustee of the occurrence
of any such event and of the availability of Definitive Notes to Note Owners
requesting the same. Upon surrender to the Trustee of the typewritten Note or
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Notes, the Trustee shall recognize the Holders of the Definitive
Notes as Noteholders.
ARTICLE III
COVENANTS
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Issuer will duly and punctually pay the principal of and interest
on the Notes in accordance with the terms of the Notes and this Indenture.
Without limiting the foregoing, subject to Section 8.2(c), the Issuer will cause
to be distributed to the Noteholders all amounts on deposit in the Note
Distribution Account on a Distribution Date deposited therein pursuant to the
Master Servicing Agreement for the benefit of the Noteholders. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Issuer
to such Noteholder for all purposes of this Indenture.
SECTION 3.2 MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain in the [Borough of Manhattan, The City of New
York], an office or agency where Notes may be surrendered for registration of
transfer or exchange, and where notices and demands to or upon the Issuer in
respect of the Notes and this Indenture may be served. The Issuer hereby
initially appoints the Trustee to serve as its agent for the foregoing purposes.
The Issuer will give prompt written notice to the Trustee of the location, and
of any change in the location, of any such office or agency. If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to furnish
the Trustee with the address thereof, such surrenders, notices and demands may
be made or served at the Corporate Trust Office, and the Issuer hereby appoints
the Trustee as its agent to receive all such surrenders, notices and demands.
SECTION 3.3 MONEY FOR PAYMENTS TO BE HELD IN TRUST.
As provided in Sections 8.2(a) and (b), all payments of amounts due
and payable with respect to any Notes that are to be made from amounts withdrawn
from the Collection Account and the Note Distribution Account pursuant to
Section 8.2(c) shall be made on behalf of the Issuer by the Trustee or by
another Paying Agent, and no amounts so withdrawn from the Collection Account
and the Note Distribution Account for payments of Notes shall be paid over to
the Issuer except as provided in this Section.
On or before each Distribution Date and Redemption Date, the Issuer
shall deposit or cause to be deposited in the Note Distribution Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Trustee) shall promptly notify the Trustee of
its action or failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee (and if the Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) hold all sums held by it for the payment of
amounts due with respect to the Notes in trust for
the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to
such Persons as herein provided;
(ii) give the Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other
obligor upon the Notes) in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in
trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and
forthwith pay to the Trustee all sums held by it in
trust for the payment of Notes if at any time it
ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by
it on any Notes of any applicable withholding taxes
imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which the sums were held by such Paying Agent; and upon such a
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Subject to applicable laws with respect to the escheat of funds, any
money held by the Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years after
such amount has become due and payable shall be discharged from such trust and
be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense of
the Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee shall also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Trustee or of any Paying Agent,
at the last address of record for each such Holder).
SECTION 3.4 EXISTENCE.
Except as otherwise permitted by the provisions of Section 3.10, the
Issuer will keep in full effect its existence, rights and franchises as a
business trust under the laws of the State of Delaware (unless it becomes, or
any successor Issuer hereunder is or becomes, organized under the laws of any
other state or of the United States of America, in which case the Issuer will
keep in full effect its existence, rights and franchises under the laws of such
other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Estate.
SECTION 3.5 PROTECTION OF TRUST ESTATE.
The Issuer will from time to time prepare (or shall cause to be
prepared), execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security
interest (and the priority thereof) of this Indenture
or carry out more effectively the purposes hereof;
(ii) perfect, publish notice of or protect the
validity of any Grant made or to be made by this
Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate
and the rights of the Trustee and the Noteholders in
such Trust Estate against the claims of all persons
and parties.
The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Trustee pursuant to this Section.
SECTION 3.6 OPINIONS AS TO TRUST ESTATE.
(a) On the Closing Date, the Issuer shall furnish to the
Trustee an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording
and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and
filing of any financing statements and continuation statements, as are
necessary to perfect and make effective the lien and security interest
of this Indenture and reciting the details of such action, or stating
that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) Within ____ days after the beginning of each calendar
year, beginning with the first calendar year beginning more than three
months after the Cut-off Date, the Issuer shall furnish to the Trustee
an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording,
filing, re- recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect
to the execution and filing of any financing statements and
continuation statements as are necessary to maintain the lien and
security interest created by this Indenture and reciting the details
of such action or stating that in the opinion of such counsel no such
action is necessary to maintain such lien and security interest. Such
Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to
maintain the lien and security interest of this Indenture until
January 30 in the following calendar year.
SECTION 3.7 PERFORMANCE OF OBLIGATIONS; SERVICING OF MORTGAGE LOANS.
(a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would
release any Person from any of such Person's material covenants or
obligations under any instrument or agreement included in the Trust
Estate or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as ordered
by any bankruptcy or other court or as expressly provided in this
Indenture, the Basic Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Trustee in an Officer's
Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Master Servicer
to assist the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic
Documents and in the instruments and agreements included in the Trust
Estate, including but not limited to preparing (or causing to prepared)
and filing (or causing to be filed) all UCC financing statements and
continuation statements required to be filed by the terms of this
Indenture and the Master Servicing Agreement in accordance with and
within the time periods provided for herein and therein. Except as
otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any
provision thereof without the consent of the Trustee or the Holders of
at least a majority of the aggregate Current Principal Amount of the
Outstanding Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Master Servicing Agreement, the Issuer shall
promptly notify the Trustee and the Rating Agencies thereof in
accordance with Section 11.4, and shall specify in such notice the
action, if any, the Issuer is taking in respect of such default. If a
Servicer Default shall arise from the failure of the Master Servicer to
perform any of its duties or obligations under the Master Servicing
Agreement with respect to the Mortgage Loans, the Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of
termination to the Master Servicer of the Master Servicer's rights and
powers pursuant to Section 8.1 of the Master Servicing Agreement, the
Issuer shall appoint a successor Master Servicer (the "Successor
Master Servicer"), and such Successor Master Servicer shall accept its
appointment by a written assumption in a form acceptable to the
Trustee. In the event that a Successor Master Servicer has not been
appointed and accepted its appointment at the time when the Master
Servicer ceases to act as Master Servicer, the Trustee without further
action shall automatically be appointed the Successor Master Servicer.
The Trustee may resign as the Master Servicer by giving written notice
of such resignation to the Issuer and in such event will be released
from such duties and obligations, such release not to be effective
until the date a new Master Servicer enters into a servicing agreement
with the Issuer as provided below. Upon delivery of any such notice to
the Issuer, the Issuer shall obtain a new Master Servicer as the
Successor Master Servicer under the Master Servicing Agreement. Any
Successor Master Servicer other than the Trustee shall (i) be an
established financial institution having a net worth of not less than
$_____________ and whose regular business includes the servicing of
residential mortgage loans and (ii) enter into a servicing agreement
with the Issuer having substantially the same provisions as the
provisions of the Master Servicing Agreement applicable to the Master
Servicer. If within 30 days after the delivery of the notice referred
to above, the Issuer shall not have obtained such a new Master
Servicer, the Trustee may appoint, or may petition a court of
competent jurisdiction to appoint, a Successor Master Servicer. In
connection with any such appointment, the Trustee may make such
arrangements for the compensation of such successor as it and such
successor shall agree, subject to the limitations set forth below and
in the Master Servicing Agreement, and in accordance with Section 8.2
of the Master Servicing Agreement, the Issuer shall enter into an
agreement with such successor for the servicing of the Mortgage Loans
(such agreement to be in form and substance satisfactory to the
Trustee). If the Trustee shall succeed to the Master Servicer's duties
as Master Servicer of the Mortgage Loans as provided herein, it shall
do so in its individual capacity and not in its capacity as Trustee
and, accordingly, the provisions of Article VI hereof shall be
inapplicable to the Trustee in its duties as the successor to the
Master Servicer and the servicing of the Mortgage Loans. In case the
Trustee shall become successor to the Master Servicer under the Master
Servicing Agreement, the Trustee shall be entitled to appoint as
Master Servicer any one of its Affiliates, or delegate any of its
responsibilities as Master Servicer to agents, subject to the terms of
the Master Servicing Agreement, provided that such appointment or
delegation shall not affect or alter in any way the liability of the
Trustee as a successor for the performance of the duties and
obligations of the Master Servicer in accordance with the terms
hereof.
(f) Upon any termination of the Master Servicer's rights and
powers pursuant to the Master Servicing Agreement, the Issuer shall
promptly notify the Trustee. As soon as a Successor Master Servicer
(other than the Trustee) is appointed, the Issuer shall notify the
Trustee of such appointment, specifying in such notice the name and
address of such Successor Master Servicer.
(g) Without derogating from the absolute nature of the
assignment granted to the Trustee under this Indenture or the rights of
the Trustee hereunder, the Issuer agrees that, unless such action is
specifically permitted hereunder or under the Basic Documents, it will
not, without the prior written consent of the Trustee or the Holders of
at least a majority in aggregate Current Principal Amount of the
Outstanding Notes, amend, modify, waive, supplement, terminate or
surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral or the
Basic Documents, or waive timely performance or observance by the
Master Servicer or the Seller under the Master Servicing Agreement;
provided, however, that no such amendment shall (i) increase or reduce
in any manner the amount of, or accelerate or delay the timing of,
distributions that are required to be made for the benefit of the
Noteholders, or (ii) reduce the aforesaid percentage of the Notes which
are required to consent to any such amendment, without the consent of
the Holders of all the Outstanding Notes. If any such amendment,
modification, supplement or waiver shall be so consented to by the
Trustee or such Holders, the Issuer agrees, promptly following a
request by the Trustee to do so, to execute and deliver, in its own
name and at its own expense, such agreements, instruments, consents and
other documents as the Trustee may deem necessary or appropriate in the
circumstances.
SECTION 3.8 NEGATIVE COVENANTS.
So long as any Notes are Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture
or the Basic Documents, sell, transfer, exchange or
otherwise dispose of any of the properties or assets
of the Issuer, including those included in the Trust
Estate, unless directed to do so by the Trustee;
(ii) claim any credit on, or make any deduction from
the principal or interest payable in respect of, the
Notes (other than amounts properly withheld from such
payments under the Code) or assert any claim against
any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part
of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of
this Indenture to be impaired, or permit the lien of
this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any
Person to be released from any covenants or
obligations with respect to the Notes under this
Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance
(other than the lien of this Indenture) to be created
on or extend to or otherwise arise upon or burden the
Trust Estate or any part thereof or any interest
therein or the proceeds thereof (other than tax
liens, mechanics' liens and other liens that arise by
operation of law, in each case on a Mortgage Loan and
arising solely as a result of an action or omission
of the related Mortgagor) or (C) permit the lien of
this Indenture not to constitute a valid first
priority (other than with respect to any such tax,
mechanics' or other lien) security interest in the
Trust Estate.
SECTION 3.9 ANNUAL STATEMENT AS TO COMPLIANCE.
The Issuer will deliver to the Trustee, within ___ days after the end
of each fiscal year of the Issuer (commencing with the fiscal year 199_ ), and
otherwise in compliance with the requirements of TIA Section 314(a)(4) an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that
(i) a review of the activities of the Issuer during
such year and of performance under this Indenture has
been made under such Authorized Officer's
supervision; and
(ii) to the best of such Authorized Officer's
knowledge, based on such review, the Issuer has
complied with all conditions and covenants under this
Indenture throughout such year, or, if there has been
a default in the compliance of any such condition or
covenant, specifying each such default known to such
Authorized Officer and the nature and status thereof.
SECTION 3.10 ISSUER MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.
(a) The Issuer shall not consolidate or merge with or
into any other Person, unless
(i) the Person (if other than the Issuer) formed by
or surviving such consolidation or merger shall be a
Person organized and existing under the laws of the
United States of America or any state and shall
expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and
punctual payment of the principal of and interest on
all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part
of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall
have occurred and be continuing;
(iii) the Rating Agency Condition shall have
been satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to
the Trustee) to the effect that such transaction will
not have any material adverse tax consequence to the
Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien
and security interest created by this Indenture shall
have been taken; and
(vi) the Issuer shall have delivered to the Trustee
an Officer's Certificate and an Opinion of Counsel
each stating that such consolidation or merger and
such supplemental indenture comply with this Article
III and that all conditions precedent herein provided
for relating to such transaction have been complied
with (including any filing required by the Exchange
Act).
(b) The Issuer shall not convey or transfer all or
substantially all of its properties or assets, including those included
in the Trust Estate, to any Person, unless
(i) the Person that acquires by conveyance or
transfer the properties and assets of the Issuer the
conveyance or transfer of which is hereby restricted
shall (A) be a United States citizen or a Person
organized and existing under the laws of the United
States of America or any state, (B) expressly assume,
by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the
principal of and interest on all Notes and the
performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer
to be performed or observed, all as provided herein,
(C) expressly agree by means of such supplemental
indenture that all right, title and interest so
conveyed or transferred shall be subject and
subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental
indenture, expressly agree to indemnify, defend and
hold harmless the Issuer against and from any loss,
liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agree by
means of such supplemental indenture that such Person
(or if a group of persons, then one specified Person)
shall prepare (or cause to be prepared) and make all
filings with the Commission (and any other
appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall
have occurred and be continuing;
(iii) the Rating Agency Condition shall have
been satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to
the Trustee) to the effect that such transaction will
not have any material adverse tax consequence to the
Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien
and security interest created by this Indenture shall
have been taken; and
(vi) the Issuer shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel
each stating that such conveyance or transfer and
such supplemental indenture comply with this Article
III and that all conditions precedent herein provided
for relating to such transaction have been complied
with (including any filing required by the Exchange
Act).
SECTION 3.11 SUCCESSOR OR TRANSFEREE.
(a) Upon any consolidation or merger of the Issuer in
accordance with Section 3.10(a), the Person formed by or surviving such
consolidation or merger (if other than the Issuer) shall succeed to,
and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had
been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and
properties of the Issuer pursuant to Section 3.10 (b), will be released
from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating
that is to be so released.
SECTION 3.12 NO OTHER BUSINESS.
The Issuer shall not engage in any business other than financing,
purchasing, owning, selling and managing the Mortgage Loans in the manner
contemplated by this Indenture and the Basic Documents and activities incidental
thereto.
SECTION 3.13 NO BORROWING.
The Issuer shall not issue, incur, assume, guarantee or otherwise
become liable, directly or indirectly, for any indebtedness except for the
Notes.
SECTION 3.14 MASTER SERVICER'S OBLIGATIONS.
The Issuer shall cause the Master Servicer to comply with Sections
[4.9, 4.10, 4.11 and 5.8] of the Master Servicing
Agreement.
SECTION 3.15 GUARANTEES, MORTGAGE LOANS, ADVANCES AND OTHER LIABILITIES.
Except as contemplated by the Master Servicing Agreement or this
Indenture, the Issuer shall not make any Mortgage Loan or advance or credit to,
or guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16 CAPITAL EXPENDITURES.
The Issuer shall not make any expenditure (by long term or operating
lease or otherwise) for capital assets (either realty or personalty).
SECTION 3.17 RESERVED.
SECTION 3.18 RESTRICTED PAYMENTS.
The Issuer shall not, directly or indirectly, (i) pay any dividend or
make any distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, to the Owner Trustee or any owner
of a beneficial interest in the Issuer or otherwise with respect to any
ownership or equity interest or security in or of the Issuer or to the Master
Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that the Issuer
may make, or cause to be made, distributions to the Master Servicer, the Owner
Trustee, the Trustee and the Certificateholders as permitted by, and to the
extent funds are available for such purpose under, the Master Servicing
Agreement or Trust Agreement. The Issuer will not, directly or indirectly, make
payments to or distributions from the Collection Account except in accordance
with this Indenture and the Basic Documents.
SECTION 3.19 NOTICE OF EVENTS OF DEFAULT.
The Issuer agrees to give the Trustee and the Rating Agencies prompt
written notice of each Event of Default hereunder and each default on the part
of the Master Servicer or the Seller of its obligations under the Master
Servicing Agreement.
SECTION 3.20 FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect with respect to the
Notes except as to (i) rights of registration of transfer and exchange, (ii)
substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of
Noteholders to receive payments of principal thereof and interest thereon, (iv)
Sections 3.3, 3.4, 3.5, 3.8, 3.10, 3.12 and 3.13, (v) the rights, obligations
and immunities of the Trustee hereunder (including the rights of the Trustee
under Section 6.7 and the obligations of the Trustee under Section 4.2) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Trustee payable to all or any of them, and the Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when
(A) either
(1) all Notes theretofore authenticated and
delivered (other than (i) Notes that have
been destroyed, lost or stolen and that have
been replaced or paid as provided in
Section 2.5 and (ii) Notes for whose payment
money has theretofore been deposited in
trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer
or discharged from such trust, as provided
in Section 3.3) have been delivered to the
Trustee for cancellation; or
(2) all Notes not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at the Final
Scheduled Distribution Date within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Issuer, and the
Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably
deposited with the Trustee cash or direct obligations
of or obligations guaranteed by the United States of
America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in
an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered
to the Trustee for cancellation when due to the Final
Scheduled Distribution Date or Redemption Date (if
Notes shall have been called for redemption pursuant
to Section10.1(a)), as the case may be;
(B) the Issuer has paid or caused to be
paid all other sums payable hereunder by
the Issuer; and
(C) the Issuer has delivered to the Trustee
an Officer's Certificate, an Opinion of
Counsel and (if required by the TIA or the
Trustee) an Independent Certificate from a
firm of certified public accountants, each
meeting the applicable requirements of
Section 11.1(a) and each stating that all
conditions precedent herein provided for
relating to the satisfaction and discharge
of this Indenture have been complied with.
SECTION 4.2 APPLICATION OF TRUST MONEY.
All moneys deposited with the Trustee pursuant to Section 4.1 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent, as the Trustee may determine, to the Holders of the particular
Notes for the payment or redemption of which such moneys have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Master Servicing Agreement or required by law.
SECTION 4.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT.
In connection with the satisfaction and discharge of this Indenture
with respect to the Notes, all moneys then held by any Paying Agent other than
the Trustee under the provisions of this Indenture with respect to such Notes
shall, upon demand of the Issuer, be paid to the Trustee to be held and applied
according to Section 3.3 and thereupon such Paying Agent shall be released from
all further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) a default for ______ days or more in the
payment of any principal of or interest on any
Note; or
(ii) default in the observance or performance of any
covenant or agreement of the Issuer or the Trust Fund
made in this Indenture (other than a covenant or
agreement, a default in the observance or performance
of which is elsewhere in this Section specifically
dealt with), which continues for a period of ______
days after notice after thereof shall have been
given, by registered or certified mail, to the Issuer
by the Trustee or to the Issuer and the Trustee by
the Holders of at least ___% of the Current Principal
Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and
requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(iii) any representation or warranty of the Issuer or
the Trust Fund made in this Indenture or in any
certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been
incorrect in any material respect as of the time when
the same shall have been made, and such breach is not
cured within _____ days after notice thereof after
there shall have been given, by registered or
certified mail, to the Issuer by the Trustee or to
the Issuer and the Trustee by the Holders of at least
___% of the Current Principal Amount of the Notes, a
written notice specifying such default or incorrect
representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of
Default" hereunder; or
(iv) the filing of a decree or order for relief by a
court having jurisdiction in the premises in respect
of the Issuer or any substantial part of the Trust
Estate in an involuntary case under any applicable
Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing
a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for
any substantial part of the Trust Estate, or ordering
the winding-up or liquidation of the Issuer's
affairs, and such decree or order shall remain
unstayed and in effect for a period of ______
consecutive days; or
(v) the commencement by the Issuer of a
voluntary case under any applicable Federal or
state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by the
Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent
by the Issuer to the appointment or taking possession
by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust
Estate, or the making by the Issuer of any general
assignment for the benefit of creditors, or the
failure by the Issuer generally to pay its debts as
such debts become due, or the taking of action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Trustee, within five days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (iii), its status and what action the Issuer is
taking or proposes to take with respect thereto.
SECTION 5.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default should occur and be continuing, then and in
every such case the Trustee or the Holders of Notes representing not less than a
majority of the Current Principal Amount of the Notes may declare the principal
or if any Note is a [Zero Coupon Security], such portion of the principal amount
as specified in the Note to be immediately due and payable, by a notice in
writing to the Issuer (and to the Trustee if given by Noteholders), and upon any
such declaration the unpaid principal amount of such Notes, together with
accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article V provided, the Holders
of Notes representing a majority of the Current Principal Amount of the Notes,
by written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(i) the Issuer has paid or deposited with the
Trustee a sum sufficient to pay
(A) all payments of principal of and
interest on all Notes and all other amounts
that would then be due hereunder or upon
such Notes if the Event of Default giving
rise to such acceleration had not occurred;
and
(B) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation,
expenses, disbursements and advances of the
Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment
of the principal of the Notes that has become due
solely by such acceleration, have been cured or
waived as provided in Section 5.12. No such
rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 5.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and
payable, and such default continues for a period of ______ days, or
(ii) default is made in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable, the Issuer will, upon demand of the Trustee, pay to it, for
the benefit of the Holders of the Notes, the whole amount then due and
payable on such Notes for principal and interest, with interest upon
the overdue principal, and, to the extent payment at such rate of
interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Notes and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as trustee
of an express trust, may institute a proceeding for the collection of
the sums so due and unpaid, and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Issuer
or other obligor upon such Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor upon such Notes,
wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the
Trustee may, as more particularly provided in Section 5.4, in its
discretion, proceed to protect and enforce its rights and the rights of
the Noteholders, by such appropriate proceedings as the Trustee shall
deem most effective to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture
or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the
Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or
any other obligor upon the Notes or any Person having or claiming an
ownership interest in the Trust Estate, proceedings under Title 11 of
the United States Code or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Issuer or its property or such other obligor or
Person, or in case of any other comparable judicial proceedings
relative to the Issuer or other obligor upon the Notes, or to the
creditors or property of the Issuer or such other obligor, the Trustee,
irrespective of whether the principal of any Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand pursuant
to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order
to have the claims of the Trustee (including any
claim for reasonable compensation to the Trustee and
each predecessor Trustee, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor
Trustee, except as a result of negligence, bad faith
or willful misconduct) and of the Noteholders allowed
in such proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of
Notes in any election of a trustee, a standby trustee
or person performing similar functions in any such
proceedings;
(iii) to collect and receive any moneys or other
property payable or deliverable on any such claims
and to distribute all amounts received with respect
to the claims of the Noteholders and of the Trustee
on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Trustee or the Holders of
Notes allowed in any judicial proceedings relative to
the Issuer, its creditors and its property; and any
trustee, receiver, liquidator, custodian or other
similar official in any such proceeding is hereby
authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the
Trustee shall consent to the making of payments
directly to such Noteholders, to pay to the Trustee
such amounts as shall be sufficient to cover
reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents,
attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a
result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any
Holder thereof or to authorize the Trustee to vote in respect of the
claim of any Noteholder in any such proceeding except, as aforesaid, to
vote for the election of a trustee in bankruptcy or similar person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee
without the possession of any of the Notes or the production thereof in
any trial or other proceedings relative thereto, and any such action or
proceedings instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment, subject
to the payment of the expenses, disbursements and compensation of the
Trustee, each predecessor Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders of the
Notes.
(g) In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party), the Trustee shall be
held to represent all the Holders of the Notes, and it shall not be
necessary to make any Noteholder a party to any such proceedings.
SECTION 5.4 REMEDIES; PRIORITIES.
(a) If an Event of Default shall have occurred and be
continuing, the Trustee may do one or more of the following (subject to
Section 5.5):
(i) institute proceedings in its own name and as
trustee of an express trust for the collection
of all amounts then payable on the Notes or under
this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment
obtained, and collect from the Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under
the UCC and take any other appropriate action to
protect and enforce the rights and remedies of the
Trustee and the Holders of the Notes; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or
private sales called and conducted in any manner
permitted by law; provided, however, that the Trustee
may not sell or otherwise liquidate the Trust Estate
following an Event of Default, other than an Event of
Default described in Section 5.1(i), unless(A) the
Holders of _____% of the Current Principal Amount of
the Notes consent thereto, (B) the proceeds of such
sale or liquidation distributable to the Noteholders
are sufficient to discharge in full all amounts then
due and unpaid upon such Notes for principal and
interest or (C) the Trustee determines that the Trust
Estate will not continue to provide sufficient funds
for the payment of principal of and interest on the
Notes as they would have become due if the Notes had
not been declared due and payable, and the Trustee
obtains the consent of Holders of ______% of the
Current Principal Amount of the Notes. In determining
such sufficiency or insufficiency with respect to
clause (B) and (C), the Trustee may, but need not,
obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national
reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate
for such purpose.
(b) If the Trustee collects any money or property pursuant to
this Article V, it shall pay out such money or property (and other
amounts including amounts held on deposit in the Reserve Account) held
as Collateral for the benefit of the Noteholders in the following
order:
FIRST: to the Trustee for amounts due under Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on the
Notes for interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
interest;
THIRD: to Noteholders for amounts due and unpaid on the
Notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal; and
FOURTH: to the Issuer for distribution to the
Certificateholders. The Trustee may fix a record date and payment date
for any payment to Noteholders pursuant to this Section. At least _____
days before such record date, the Issuer shall mail to each Noteholder
and the Trustee a notice that states the record date, the payment date
and the amount to be paid.
SECTION 5.5 OPTIONAL PRESERVATION OF THE MORTGAGE LOANS.
If the Notes have been declared to be due and payable under Section
5.2 following an Event of Default and such declaration and its consequences have
not been rescinded and annulled, the Trustee may, but need not, elect to
maintain possession of the Trust Estate. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Trustee shall take such
desire into account when determining whether or not to maintain possession of
the Trust Estate. In determining whether to maintain possession of the Trust
Estate, the Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
SECTION 5.6 LIMITATION OF SUITS.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written
notice to the Trustee of a continuing Event of
Default;
(ii) the Holders of not less than _____% of the
Current Principal Amount of the Notes have made
written request to the Trustee to institute such
proceeding in respect of such Event of Default in its
own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the
Trustee indemnity reasonably satisfactory to it
against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Trustee for _____ days after its receipt of
such notice, request and offer of indemnity has
failed to institute such proceedings; and
(v) no direction inconsistent with such written
request has been given to the Trustee during such
_____-day period by the Holders of a majority of the
Current Principal Amount of the Notes; it being
understood and intended that no one or more Holders
of Notes shall have any right in any manner whatever
by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the
rights of any other Holders of Notes or to obtain or
to seek to obtain priority or preference over any
other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Current Principal Amount of the Notes,
the Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.
Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.8 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Trustee or to such Noteholder, then and in every such case the Issuer, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such proceeding had been instituted.
SECTION 5.9 RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.10 DELAY OR OMISSION NOT A WAIVER.
No delay or omission of the Trustee or any Holder of any Note to
exercise any right or remedy accruing upon any Default or Event of Default shall
impair any such right or remedy or constitute a waiver of any such Default or
Event of Default or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Trustee or to the Noteholders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Noteholders, as the case may be.
SECTION 5.11 CONTROL BY NOTEHOLDERS.
The Holders of a majority of the Current Principal Amount of the Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee with respect to the Notes or
exercising any trust or power conferred on the Trustee; provided that
(i) such direction shall not be in conflict with
any rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Trustee to sell or liquidate the
Trust Estate shall be by the Holders of Notes
representing not less than _____% of the Current
Principal Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have
been satisfied and the Trustee elects to retain the
Trust Estate pursuant to such Section, then any
direction to the trustee by Holders of Notes
representing less than _____% of the Current
Principal Amount of the Notes to sell or liquidate
the Trust Estate shall be of no force and effect; and
(iv) the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with
such direction; provided, however, that, subject to
Section 6.1, the Trustee need not take any action
that it determines might involve it in liability or
might materially adversely affect
the rights of any Noteholders not consenting to
such action.
SECTION 5.12 WAIVER OF PAST DEFAULTS.
Prior to the declaration of the acceleration of the maturity of the
Notes as provided in Section 5.2, the Holders of Notes of not less than a
majority of the Current Principal Amount of the Notes may waive any past Default
or Event of Default and its consequences except a Default (a) in payment of
principal of or interest on any of the Notes or (b) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Note. In the case of any such waiver, the Issuer, the Trustee and
the Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto. Upon any such waiver, such
Default shall cease to exist and be deemed to have been cured and not to have
occurred, and any Event of Default arising therefrom shall be deemed to have
been cured and not to have occurred, for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereto.
SECTION 5.13 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by
such Holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Trustee, (b) any suit instituted by any Noteholder, or group of Noteholders, in
each case holding in the aggregate more than _____% of the Current Principal
Amount of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture (or, in
the case of redemption, on or after the Redemption Date).
SECTION 5.14 WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead or in any manner whatsoever, claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.15 ACTION ON NOTES.
The Trustee's right to seek and recover judgment on the Notes or under
this Indenture shall not be affected by the seeking, obtaining or application of
any other relief under or with respect to this Indenture. Neither the lien of
this Indenture nor any rights or remedies of the Trustee or the Noteholders
shall be impaired by the recovery of any judgment by the Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate or upon any of the assets of the Issuer.
SECTION 5.16 PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.
(a) Promptly following a request from the Trustee to do so and
at the Master Servicer's expense, the Issuer agrees to take all such
lawful action as the Trustee may request to compel or secure the
performance and observance by the Seller and the Master Servicer, as
applicable, of each of their obligations to the Issuer under or in
connection with the Master Servicing Agreement in accordance with the
terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer under or in connection with
the Master Servicing Agreement to the extent and in the manner directed
by the Trustee, including the transmission of notices of default on the
part of the Seller or the Master Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel
or secure performance by the Seller or the Master Servicer of each of
their obligations under the Master Servicing Agreement.
(b) If an Event of Default has occurred and is continuing,
the Trustee may, and, at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of
the Holders of _______% of the Current Principal Amount of the Notes
shall, exercise all rights, remedies, powers, privileges and claims of
the Issuer against the Seller or the Master Servicer under or in
connection with the Master Servicing Agreement, including the right or
power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer of each of their obligations to
the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Master Servicing
Agreement, and any right of the Issuer to take such action shall be
suspended.
ARTICLE VI
THE TRUSTEE
SECTION 6.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in
this Indenture and no implied covenants or
obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions
expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the
requirements of this Indenture; however, the Trustee
shall examine the certificates and opinions to
determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant
to Section 5.11.
(d) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law or the terms of
this Indenture or the Master Servicing Agreement.
(f) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if it shall have reasonable grounds to
believe that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section and to the
provisions of the TIA.
SECTION 6.2 RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officer's Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee, and the Trustee
shall not be responsible for any misconduct or negligence on the part
of, or for the supervision of, ______________, or any other such agent,
attorney, custodian or nominee appointed with due care by it hereunder.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that the Trustee's
conduct does not constitute wilful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
SECTION 6.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuer or its
Affiliates with the same rights it would have if it were not Trustee. Any Paying
Agent, Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Trustee's certificate of authentication.
SECTION 6.5 NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is either actually
known or written notice of the existence thereof has been delivered to a
Responsible Officer of the Trustee, the Trustee shall mail to each Noteholder
notice of the Default within ___ days after such knowledge or notice occurs.
Except in the case of a Default in payment of principal of or interest on any
Note (including payments pursuant to the mandatory redemption provisions of such
Note), the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
SECTION 6.6 REPORTS BY TRUSTEE TO HOLDERS.
The Trustee shall deliver to each Noteholder such information as may
be reasonably required to enable such Holder to prepare its Federal and state
income tax returns.
SECTION 6.7 COMPENSATION AND INDEMNITY.
The Issuer shall or shall cause the Master Servicer to pay to the
Trustee from time to time compensation for its services in accordance with a
separate agreement between the Master Servicer and the Trustee. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuer shall or shall cause the Master Servicer to reimburse
the Trustee for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Issuer shall or shall cause the Master Servicer to indemnify the
Trustee and its officers, directors, employees and agents against any and all
loss, liability or expense (including attorneys' fees and expenses) incurred by
it in connection with the acceptance or the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Issuer and the
Master Servicer promptly of any claim for which it may seek indemnity. Failure
by the Trustee to so notify the Issuer and the Master Servicer shall not relieve
the Issuer of its obligations hereunder or the Master Servicer of its
obligations under [Article X] of the Master Servicing Agreement. The Issuer
shall or shall cause the Master Servicer to defend the claim and the Trustee may
have separate counsel and the Issuer shall or shall cause the Master Servicer to
pay the fees and expenses of such counsel. Neither the Issuer nor the Master
Servicer need reimburse any expense or indemnify against any loss, liability or
expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Trustee pursuant to this
Section shall survive the discharge of this Indenture subject to a satisfaction
of the Rating Agency Condition. When the Trustee incurs expenses after the
occurrence of a Default specified in Section 5.1(iv) or (v) with respect to the
Issuer, the expenses are intended to constitute expenses of administration under
Title 11 of the United States Code or any other applicable Federal or state
bankruptcy, insolvency or similar law.
SECTION 6.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Issuer. The
Holders of a [majority] in Current Principal Amount of the Notes may remove the
Trustee by so notifying the Trustee and may appoint a successor Trustee. The
Issuer shall remove the Trustee if:
(i) the Trustee fails to comply with Section
6.11; or
(ii) the Trustee is adjudged a bankrupt or
insolvent.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture subject to satisfaction of the Rating Agency Condition. The successor
Trustee shall mail a notice of its succession to Noteholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee.
If a successor Trustee does not take office within ____ days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of a majority in Current Principal Amount of the Notes may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.11, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 6.8 and payment of all fees and expenses owed to the
outgoing Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Issuer's and the Master Servicer's obligations under Section 6.7
shall continue for the benefit of the retiring Trustee.
SECTION 6.9 SUCCESSOR TRUSTEE BY MERGER.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all its corporate trust business or assets to,
another corporation or banking association, the resulting, surviving or
transferee corporation without any further act shall be the successor Trustee.
The Trustee shall provide the Rating Agencies prior written notice of any such
transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 6.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Indenture, at
any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Trust may at the time be located,
the Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any
part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Noteholders, such title to the
Trust, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of
the appointment of any co-trustee or separate trustee shall be required
under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following
provisions and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be
conferred or imposed upon and exercised or performed
by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such
act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are
to be performed the Trustee shall be incompetent or
unqualified to perform such act or acts, in which
event such rights, powers, duties and obligations
(including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of
the Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder, including acts or omissions of predecessor
or successor trustees; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or
co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them.
Every instrument appointing any separate trustee or co-trustee shall
refer to this Agreement and the conditions of this Article VI. Each
separate trustee and co-trustee, upon its acceptance of the trusts
conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions
of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be
filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful
act under or in respect of this Agreement on its behalf and in its
name. If any separate trustee or co-trustee shall die, become incapable
of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall invest in and
be exercised by the Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
SECTION 6.11 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA Section
310(a).The Trustee shall have a combined capital and surplus of at least
$_______________ as set forth in its most recent published annual report of
condition and it shall have a long term debt rating of _______ or better by the
Rating Agencies. The Trustee shall comply with TIA Section 310(b), including the
optional provision permitted by the second sentence of TIA Section 310(b)(9);
provided, however, that there shall be excluded from the operation of TIA
Section310(b)(1) any indenture or indentures under which other securities of the
Issuer are outstanding if the requirements for such exclusion set forth in TIA
Section 310(b)(1) are met.
SECTION 6.12 PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS.
The Issuer will furnish or cause to be furnished to the Trustee (a)
not more than five days after the earlier of (i) each Record Date and (ii) three
months after the last Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such Record
Date, (b) at such other times as the Trustee may request in writing, within 30
days after receipt by the Issuer of any such request, a list of similar form and
content as of a date not more than 10 days prior to the time such list is
furnished; provided, however, that so long as the Trustee is the Note Registrar,
no such list shall be required to be furnished.
SECTION 7.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this
Indenture or under the Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 REPORTS BY ISSUER.
(a) The Issuer shall:
(i) file with the Trustee, within 15 days after the
Issuer is required to file the same with the
Commission, copies of the annual reports and of the
information, documents and other reports (or copies
of such portions of any of the foregoing as the
Commission may from time to time by rules and
regulations prescribe) which the Issuer may be
required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act;
(ii) file with the Trustee and the Commission in
accordance with rules and regulations prescribed from
time to time by the Commission such additional
information, documents and reports with respect to
compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from
time to time by such rules and regulations; and
(iii) supply to the Trustee (and the Trustee shall
transmit by mail to all Noteholders described in TIA
Section 313(c)) such summaries of any information,
documents and reports required to be filed by the
Issuer pursuant to clauses (i) and (ii) of this
Section 7.3(a) as may be required by rules and
regulations prescribed from time to time by the
Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
SECTION 7.4 REPORTS BY TRUSTEE.
If required by TIA Section 313(a), within 60 days after each,
beginning with ___________, 199_, the Trustee shall mail to each Noteholder as
required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Trustee also shall comply with TIA Section
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Trustee with the Commission and each stock exchange, if any, on
which the Notes are listed. The Issuer shall notify the Trustee if and when the
Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 COLLECTION OF MONEY.
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Trustee pursuant to this
Indenture. The Trustee shall apply all such money received by it as provided in
this Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Trust Estate, the Trustee may take such action
as may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.2 Trust Accounts.
(a) On or prior to the Closing Date, the Issuer shall cause
the Master Servicer to establish and maintain, in the name of the
Trustee, for the benefit of the Noteholders and the Certificateholders,
the Trust Accounts as provided in Section 5.1 of the Master Servicing
Agreement
(b) On or before each Distribution Date, the Total
Distribution Amount with respect to the preceding Collection Period
will be deposited in the Collection Account as provided in Section 5.2
of the Master Servicing Agreement. On or before each Distribution Date,
the Noteholders' Distributable Amount with respect to the preceding
Collection Period will be transferred from the Collection Account
and/or the Reserve Account to the Note Distribution Account as provided
in Sections 5.5 and 5.6 of the Master Servicing Agreement.
(c) On each Distribution Date and Redemption Date, the Trustee
shall distribute all amounts on deposit in the Note Distribution
Account to Noteholders in respect of the Notes to the extent of amounts
due and unpaid on the Notes for principal and interest in the following
amounts and in the following order of priority (except as otherwise
provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes;
provided that if there are not sufficient funds in
the Note Distribution Account to pay the entire
amount of accrued and unpaid interest then due on the
Notes, the amount in the Note Distribution Account
shall be applied to the payment of such interest on
the Notes pro rata on the basis of the total such
interest due on the Notes;
(ii) to the Holders of the Class ____ Notes until the
Current Principal Amount of the Class ____ Notes is
reduced to zero;
(iii) [Describe additional distributions to
Holders of other Classes of Notes].
SECTION 8.3 GENERAL PROVISIONS REGARDING ACCOUNTS.
(a) So long as no Default or Event of Default shall have
occurred and be continuing, all or a portion of the funds in the Trust
Accounts shall be invested in Eligible Investments and reinvested by
the Trustee upon Issuer Order, subject to the provisions of Section
5.1(b) of the Master Servicing Agreement. All income or other gain from
investments of moneys deposited in the Trust Accounts shall be
deposited (or caused to be deposited) by the Trustee in the Collection
Account, and any loss resulting from such investments shall be charged
to such account. The Issuer will not direct the Trustee to make any
investment of any funds or to sell any investment held in any of the
Trust Accounts unless the security interest Granted and perfected in
such account will continue to be perfected in such investment or the
proceeds of such sale, in either case without any further action by any
Person, and, in connection with any direction to the Trustee to make
any such investment or sale, if requested by the Trustee, the Issuer
shall deliver to the Trustee an Opinion of Counsel, acceptable to the
Trustee, to such effect.
(b) Reserved
(c) Subject to Section 6.1(c), the Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included
therein except for losses attributable to the Trustee's failure to make
payments on such Eligible Investments issued by the Trustee, in its
commercial capacity as principal obligor and not as trustee, in
accordance with their terms.
(d) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the
Trustee by ________ (or such other time as may be agreed by the Issuer
and Trustee) on any Business Day; or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the
Notes shall not have been declared due and payable pursuant to Section
5.2, or, if such Notes shall have been declared due and payable
following an Event of Default, amounts collected or receivable from the
Trust Estate are being applied in accordance with Section 5.5 as if
there had not been such a declaration; then the Trustee shall, to the
fullest extent practicable, invest and reinvest funds in the Trust
Accounts in one or more Eligible Investments.
SECTION 8.4 RELEASE OF TRUST ESTATE.
(a) Subject to the payment of its fees and expenses pursuant
to Section 6.7, the Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property from the
lien of this Indenture, or convey the Trustee's interest in the same,
in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument
executed by the Trustee as provided in this Article VIII shall be
bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of
any moneys.
(b) The Trustee shall, at such time as there are no Notes
outstanding and all sums due the Trustee pursuant to Section 6.7 have
been paid, release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture and release to the
Issuer or any other Person entitled thereto any funds then on deposit
in the Trust Accounts. The Trustee shall release property from the lien
of this Indenture pursuant to this Section 8.4(b) only upon receipt of
an Issuer Request accompanied by an Officer's Certificate, an Opinion
of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(1) meeting the
applicable requirements of Section 11.1.
SECTION 8.5 Opinion of Counsel.
The Trustee shall receive at least seven days' notice when requested
by the Issuer to take any action pursuant to Section 8.4(a), accompanied by
copies of any instruments involved, and the Trustee shall also require as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Trustee, stating the legal effect of any such action,
outlining the steps required to complete the same, and concluding that all
conditions precedent to the taking of such action have been complied with and
such action will not materially and adversely impair the security for the Notes
or the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Trust Estate. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Trustee in connection with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with
prior notice to the Rating Agencies by the Issuer, as evidenced to the
Trustee, the Issuer and the Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions
of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Trustee, for any of the following
purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this
Indenture, or better to assure, convey and confirm
unto the Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with
the applicable provisions hereof, of another person
to the Issuer, and the assumption by any such
successor of the covenants of the Issuer herein and
in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or
pledge any property to or with the Trustee;
(v) to cure any ambiguity, to correct or supplement
any provision herein or in any supplemental indenture
which may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to matters or
questions arising under this Indenture or in any
supplemental indenture, provided that such action
shall not adversely affect the interests of the
Holders of the Notes;
(vi) to evidence and provide for the acceptance of
the appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions
of this Indenture to such extent as shall be
necessary to effect the qualification of this
Indenture under the TIA or under any similar federal
statute hereafter enacted and to add to this
Indenture such other provisions as may be expressly
required by the TIA.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the
Notes but with prior notice to the Rating Agencies by the Issuer, as
evidenced to the Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this
Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of any Noteholder.
SECTION 9.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
The Issuer and the Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Current Principal Amount of the
Notes, by Act of such Holders delivered to the Issuer and the Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the
principal amount thereof, the interest rate thereon
or the Redemption Price with respect thereto, change
the provision of this Indenture relating to the
application of collections on, or the proceeds of the
sale of, the Trust Estate to payment of principal of
or interest on the Notes, or change any place of
payment where, or the coin or currency in which, any
Note or the interest thereon is payable;
(ii) impair the right to institute suit for the
enforcement of the provisions of this Indenture
requiring the application of funds available
therefor, as provided in Article V, to the payment of
any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of
redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Current Principal
Amount of the Notes, the consent of the Holders of
which is required for any such supplemental
indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain
provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this
Indenture;
(iv) modify or alter the provisions of the proviso to
the definition of the term "Outstanding";
(v) reduce the percentage of the Current Principal
Amount of the Notes required to direct the Trustee to
direct the Issuer to sell or liquidate the Trust
Estate pursuant to Section 5.4;
(vi) modify any provision of this Section except to
increase any percentage specified herein or to
provide that certain additional provisions of this
Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each
Outstanding Note affected thereby;
(vii) modify any of the provisions of this Indenture
in such manner as to affect the calculation of the
amount of any payment of interest or principal due on
any Note on any Distribution Date (including the
calculation of any of the individual components of
such calculation) or to affect the rights of the
Holders of Notes to the benefit of any provisions for
the mandatory redemption of the Notes contained
herein; or
(viii) permit the creation of any lien ranking prior
to or on a parity with the lien of this Indenture
with respect to any part of the Trust Estate or,
except as otherwise permitted or contemplated herein
or in the Basic Documents, terminate the lien of this
Indenture on any property at any time subject hereto
or deprive the Holder of any Note of the security
provided by the lien of this Indenture.
The Trustee may determine whether or not any Notes would be affected
by any supplemental indenture and any such determination shall be conclusive
upon the Holders of all Notes, whether theretofore or thereafter authenticated
and delivered hereunder. The Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or permitting the additional trusts created by, any
supplemental indenture permitted by this Article IX or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and subject to Sections 6.1 and 6.2, shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Trustee's own rights, duties, liabilities or immunities under
this Indenture or otherwise.
SECTION 9.4 EFFECT OF SUPPLEMENTAL INDENTURE.
Upon the execution of any supplemental indenture pursuant to the
provisions hereof, this Indenture shall be and be deemed to be modified and
amended in accordance therewith with respect to the Notes affected thereby, and
the respective rights, limitations of rights, obligations, duties, liabilities
and immunities under this Indenture of the Trustee, the Issuer and the Holders
of the Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.5 CONFORMITY WITH TRUST INDENTURE ACT.
Every amendment of this Indenture and every supplemental indenture
executed pursuant to this Article IX shall conform to the requirements of the
Trust Indenture Act as then in effect so long as this Indenture shall then be
qualified under the Trust Indenture Act.
SECTION 9.6 REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Trustee shall
so determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Issuer, to any such supplemental indenture may be prepared and executed
by the Issuer and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1 REDEMPTION.
(a) The Class ____ Notes are subject to redemption in whole,
but not in part, at the direction of the Seller pursuant to Section
9.1(a) of the Sale and Servicing Agreement, on any Distribution Date on
which the Seller exercises its option to purchase the Trust Estate
pursuant to said Section 9.1(a), for a purchase price equal to the
Redemption Price; provided, however, that the Issuer has available
funds sufficient to pay the Redemption Price. The Master Servicer or
the Issuer shall furnish the Rating Agencies notice of such redemption.
If the Class ___ Notes are to be redeemed pursuant to this Section
10.1(a), the Master Servicer or the Issuer shall furnish notice of such
election to the Trustee not later than days prior to the Redemption
Date and the Issuer shall deposit with the Trustee in the Note
Distribution Account the Redemption Price of the Class ___ Notes to be
redeemed whereupon all such Class ___ Notes shall be due and payable on
the Redemption Date upon the furnishing of a notice complying with
Section 10.2 to each Holder of the Class ___ Notes.
(b) In the event that the assets of the Trust are sold
pursuant to Section 9.2 of the Trust Agreement, all amounts on deposit
in the Note Distribution Account shall be paid to the Noteholders up to
the Current Principal Amount of the Notes and all accrued and unpaid
interest thereon. If amounts are to be paid to Noteholders pursuant to
this Section 10.1(b), the Master Servicer or the Issuer shall, to the
extent practicable, furnish notice of such event to the Trustee not
later than days prior to the Redemption Date whereupon all such amounts
shall be payable on the Redemption Date.
SECTION 10.2 FORM OF REDEMPTION NOTICE.
(a) Notice of redemption under Section 10.1(a) shall be given
by the Trustee by facsimile or by first class mail, postage prepaid,
transmitted or mailed prior to the applicable Redemption Date to each
Holder of Class ____ Notes, as of the close of business on the Record
Date preceding the applicable Redemption Date, at such Holder's address
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to
such Redemption Date is not applicable and that
payments shall be made only upon presentation and
surrender of such Class ____ Notes and the place
where such Class ____ Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2); and
(iv) that interest on the Class ____ Notes shall
cease to accrue on the Redemption Date.
Notice of redemption of the Class ____ Notes shall be given by the
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Class ____ Note shall
not impair or affect the validity of the redemption of any other Class
____-Note.
(b) Prior notice of redemption under Sections 10.1(b) is not
required to be given to Noteholders.
SECTION 10.3 NOTES PAYABLE ON REDEMPTION DATE.
The Class ____-Notes to be redeemed shall, following notice of
redemption as required by Section 10.2 (in the case of redemption pursuant to
Section 10.1(a)), on the Redemption Date become due and payable at the
Redemption Price and (unless the Issuer shall default in the payment of the
Redemption Price) no interest shall accrue on the Redemption Price for any
period after the date to which accrued interest is calculated for purposes of
calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.1 COMPLIANCE CERTIFICATES AND OPINIONS, ETC.
(a) Upon any application or request by the Issuer to the Trustee to
take any action under any provision of this Indenture, the Issuer shall furnish
to the Trustee (i) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (ii) an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished. Every
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each signatory of such
certificate or opinion has read or has caused to be
read such covenant or condition and the definitions
herein relating thereto;
(ii) a brief statement as to the nature and scope of
the examination or investigation upon which the
statements or opinions contained in such certificate
or opinion are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination
or investigation as is necessary to enable such
signatory to express an informed opinion as to
whether or not such covenant or condition has been
complied with; and
(iv) a statement as to whether, in the opinion of
each such signatory such condition or covenant has
been complied with.
(b) (i) Prior to the deposit of any Collateral or
other property or securities with the Trustee
that is to be made the basis for the release of
any property or securities subject to the lien
of this Indenture, the Issuer shall, in
addition to any obligation imposed in Section
11.1(a) or elsewhere in this Indenture, furnish
to the Trustee an Officer's Certificate
certifying or stating the opinion of each person
signing such certificate as to the fair value
(within ___ days of such deposit) to the Issuer
of the Collateral or other property or
securities to be so deposited.
(v) Whenever the Issuer is required to furnish to the
Trustee an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the
matters described in clause (i) above, the Issuer
shall also deliver to the Trustee an Independent
Certificate as to the same matters, if the fair value
to the Issuer of the securities to be so deposited
and of all other such securities made the basis of
any such withdrawal or release since the commencement
of the then-current fiscal year of the Issuer, as set
forth in the certificates delivered pursuant to
clause (i) above and this clause (ii), is _______% or
more of the Current Principal Amount of the Notes,
but such a certificate need not be furnished with
respect to any securities so deposited, if the fair
value thereof to the Issuer as set forth in the
related Officer's Certificate is less than
$___________ or less than percent of the Current
Principal Amount of the Notes.
(vi) Other than with respect to the release of any
Purchased Mortgage Loans or liquidated Mortgage
Loans, whenever any property or securities are to be
released from the lien of this Indenture, the Issuer
shall also furnish to the Trustee an Officer's
Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value
(within ___ days of such release) of the property or
securities proposed to be released and stating that
in the opinion of such person the proposed release
will not impair the security under this Indenture in
contravention of the provisions hereof.
to the Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within ___ days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(vii) Whenever the Issuer is required to furnish to
the Trustee an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the
matters described in clause (iii) above, the Issuer
shall also furnish to the Trustee an Independent
Certificate as to the same matters if the fair value
of the property or securities and of all other
property other than Purchased Mortgage Loans and
Defaulted Loans, or securities released from the lien
of this Indenture since the commencement of the then
current calendar year, as set forth in the
certificates required by clause (iii) above and this
clause (iv), equals ______% or more of the Current
Principal Amount of the Notes, but such certificate
need not be furnished in the case of any release of
property or securities if the fair value thereof as
set forth in the related Officer's Certificate is
less than $_____________
or less than percent of the then Current
Principal Amount of the Notes.
(viii) Notwithstanding Section 2.9 or any other
provision of this Section, the Issuer may (A)
collect, liquidate, sell or otherwise dispose of
Mortgage Loans as and to the extent permitted or
required by the Basic Documents and (B) make cash
payments out of the Trust Accounts as and to the
extent permitted or required by the Basic Documents.
SECTION 11.2 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Master Servicer, the Seller or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Master Servicer, the
Seller or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.3 ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Noteholders may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such
Noteholders in person or by agents duly appointed in writing; and
except as herein otherwise expressly provided such action shall become
effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Issuer.
Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of
the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and
(subject to Section 6.1) conclusive in favor of the Trustee and the
Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any customary manner of the
Trustee.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind
the Holder of every Note issued upon the registration thereof or in
exchange therefor or in lieu thereof, in respect of anything done,
omitted or suffered to be done by the Trustee or the Issuer in
reliance thereon, whether or not notation of such action is made upon
such Note.
SECTION 11.4 NOTICES, ETC., TO TRUSTEE, ISSUER AND RATING AGENCIES.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to or filed with:
(a) The Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested and shall be deemed to have been duly given upon receipt to
the Trustee at its Corporate Trust Office, or
(b) The Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested and shall be deemed to have been duly given upon receipt to
the Issuer addressed to: , in care of Attention: or at any other
address previously furnished in writing to the Trustee by Issuer. The
Issuer shall promptly transmit any notice received by it from the
Noteholders to the Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Trustee or the Owner Trustee shall be in writing, personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested to (i) in the case of ______________, at the following address:
_______________________ and (ii) in the case of _______________, at the
following address: _______________________; or as to each of the foregoing, at
such other address as shall be designated by written notice to the other
parties.
SECTION 11.5 NOTICES TO NOTEHOLDERS; WAIVER.
Where this Indenture provides for notice to Noteholders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first class, postage prepaid to each
Noteholder affected by such event, at his address as it appears on the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice nor any
defect in any notice so mailed to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner here in provided shall conclusively be presumed to
have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 ALTERNATE PAYMENT AND NOTICE PROVISIONS.
Notwithstanding any provision of this Indenture or any of the Notes to
the contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Trustee or any Paying Agent
to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices, provided that such methods are
reasonable and consented to by the Trustee (which consent shall not be
unreasonably withheld). The Issuer will furnish to the Trustee a copy of each
such agreement and the Trustee will cause payments to be made and notices to be
given in accordance with such agreements.
SECTION 11.7 CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof that is required to be included in this indenture by any of the
provisions of the Trust Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 EFFECT OF HEADINGS AND TABLE OF CONTENTS
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 11.9 SUCCESSOR AND ASSIGNS
All covenants and agreements in this Indenture and the Notes by the
Issuer shall bind its successors and assigns, whether so expressed or not. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.10 SEPARABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.11 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other person with an Ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 11.12 LEGAL HOLIDAYS.
In any case where the date on which any payment is due shall not be a
Business Day, then (notwithstanding any other provision of the Notes or this
Indenture) payment need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date an
which nominally due, and no interest shall accrue for the period from and after
any such nominal date.
SECTION 11.13 GOVERNING LAW.
THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK , WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts.
This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 11.15 RECORDING OF INDENTURE.
If this Indenture is subject to recording in any appropriate public
recording offices, such recording is to be effected by the Issuer and at its
expense accompanied by an Opinion of Counsel (which may be counsel to the
Trustee or any other counsel reasonably acceptable to the Trustee) to the effect
that such recording is necessary either for the protection of the Noteholders or
any other person secured hereunder or for the enforcement of any right or remedy
granted to the Trustee under this Indenture.
SECTION 11.16 TRUST OBLIGATION.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Seller, the Master Servicer, the holder of the GP
Interest, the Owner Trustee or the Trustee on the Notes or under this Indenture
or any certificate or other writing delivered in connection herewith or
therewith, against (i) the Seller, the Master Servicer, the holder of the GP
Interest, the Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Seller, the
Master Servicer, the holder of the GP Interest, the Trustee or the Owner Trustee
in its individual capacity, any holder of a beneficial interest in the Issuer,
the Seller, the Master Servicer, the holder of the GP Interest, the Owner
Trustee or the Trustee or of any successor or assign of the Seller, the Master
Servicer, the holder of the GP Interest, the Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Trustee and the Owner Trustee have no such obligations
in their individual capacity) and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.17 NO PETITION.
The Trustee, by entering into this Indenture, and each Noteholder, by
accepting a Note, hereby covenant and agree that they will not at any time
institute against the Seller, the holder of the GP Interest or the Trust, or
join in any institution against the Seller, the holder of the GP Interest or the
Trust of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the Basic Documents.
SECTION 11.18 INSPECTION.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Trustee, during the Issuer's normal business hours, to
examine all the books of account, records, reports, and other papers of the
Issuer, to make copies and extracts therefrom, to cause such books to be audited
by Independent certified public accountants, and to discuss the Issuer's
affairs, finances and accounts with the Issuer's officers, employees, and
independent certified public accountants, all at such reasonable times and as
often as may be reasonably requested. The Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the Trustee
may reasonably determine that such disclosure is consistent with its Obligations
hereunder.
THIS SPACE LEFT INTENTIONALLY BLANK
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
- - ------------------------,
not in its individual capacity but
solely as Owner Trustee,
By:
Name:
Title:
- - -------------------------,
not in its individual capacity
but solely as Trustee,
By:
Name:
Title:
<PAGE>
EXHIBIT A
Mortgage Loan Schedule
<PAGE>
EXHIBIT B
Form of Note
REGISTERED $
No.
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
CLASS _____ ____% MORTGAGE-BACKED NOTES
__________, a business trust organized and existing under the laws of the State
of Delaware (herein referred to as the "Issuer"), for value received, hereby
promises to pay to CEDE & CO., or registered assigns, the principal sum of
DOLLARS payable on each Distribution Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $[INSERT
INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
$_________________ by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class ___ Notes pursuant to
Section 3.1 of the Indenture; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the Distribution Date
(the "Class ____ Final Scheduled Distribution Date"). The Issuer will pay
interest on this Note at the rate per annum shown above on each Distribution
Date until the principal of this Note is paid or made available for payment, on
the principal amount of this Note outstanding on the preceding Distribution Date
(after giving effect to all payments of principal made on the preceding
Distribution Date). Interest on this Note will accrue for each Distribution Date
from the most recent Distribution Date on which interest has been paid to but
excluding such Distribution Date or, if no interest has yet been paid, from
____________, 199_. Interest will be computed on the basis of the actual number
of days elapsed in a day year. Such principal of and interest on this Note shall
be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer as of the date set
forth below.
By ,
not in its individual capacity but
solely as Owner Trustee under the
Trust Agreement,
By:
Name:
Title:
Date:
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date:
______________, not in its
individual capacity but solely as
Trustee,
By:
Authorized Signatory
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer, designated
as its Class ___ % Mortgage-Backed Notes (herein called the "Class ___ Notes"),
all issued under an Indenture dated as of, 199 (such indenture, as supplemented
or amended, is herein called the "Indenture"), between the Issuer and _________,
as trustee (the "Trustee", which term includes any successor Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights and obligations
thereunder of the Issuer, the Trustee and the Holders of the Notes. The Notes
are subject to all terms of the Indenture. All terms used in this Note that are
defined in the Indenture, as supplemented or amended, shall have the meanings
assigned to them in or pursuant to the Indenture, as so supplemented or amended.
The Class ___, Class ___ and Class ___ Notes (together, the "Notes")
are and will be equally and ratably secured by the collateral pledged as
security therefor as provided in the Indenture.
Principal of the Class ___ Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
fifteenth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing ____________, 199_.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the Class ___ Final Scheduled Distribution Date.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Trustee or the Holders of the
Notes representing not less than a majority of the Current Principal Amount of
the Notes have declared the Notes to be immediately due and payable in the
manner provided in Section 5.2 of the Indenture. All principal payments on the
Class ___ Notes shall be made pro rata to the Class ___ Noteholders entitled
thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Holder of this Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on each Record Date, except that
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Distribution
Date shall be binding upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Trustee, in the
name of and on behalf of the Issuer, will notify the Person who was the Holder
hereof as of the Record Date preceding such Distribution Date by notice mailed
prior to such Distribution Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Trustee's
principal Corporate Trust Office or at the office of the Trustee's agent
appointed for such purposes located in The City of New York.
The Issuer shall pay interest on overdue installments of interest at
the Class ___ Interest Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("Stamp") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, Stamp, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Master Servicer, the holder of the GP Interest, the
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director or employee of the Seller, the Master Servicer, the
holder of the GP Interest, the Trustee or the Owner Trustee in its individual
capacity, any holder of a beneficial interest in the Issuer, the Seller, the
Master Servicer, the holder of the GP Interest, the Owner Trustee or the Trustee
or of any successor or assign of the Seller, the Master Servicer, the holder of
the GP Interest, the Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Seller, the holder of the GP Interest, or the Issuer
or join in any institution against the Seller, the holder of the GP Interest or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings, under any United States Federal
or state bankruptcy or similar law in connection with any obligations relating
to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note (as of the day of determination or as of such
other date as may be specified in the Indenture) is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Current Principal Amount of all Notes at the time Outstanding.
The Indenture also contains provisions permitting the Holders of Notes
representing specified percentages of the Current Principal Amount of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one of more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither in its individual
capacity, in its individual capacity, any owner of a beneficial interest in the
Issuer, nor any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture, it
being expressly understood that said covenants, obligations and indemnifications
have been made by the Owner Trustee for the sole purposes of binding the
interests of the Owner Trustee in the assets of the Issuer. The Holder of this
Note by the acceptance hereof agrees that except as expressly provided in the
Indenture or the Basic Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _________________, attorney, to transfer said Note on the books
kept for registration thereof, with full power of substitution in the premises.
Dated:
Signature Guaranteed:
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
EXHIBIT 4.5
STRUCTURED ASSET MORTGAGE INVESTMENTS
TRUST 199_-_
TRUST AGREEMENT
between
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.
and
-------------------------------
Dated as of __________, 199_
<PAGE>
Table of Contents
Page
ARTICLE I
Definitions
SECTION 1.1 Capitalized Terms........................................1
SECTION 1.2 Other Definitional Provisions............................3
ARTICLE II
Organization
SECTION 2.1 Name.....................................................4
SECTION 2.2 Office...................................................4
SECTION 2.3 Purposes and Powers......................................4
SECTION 2.4 Appointment of Owner Trustee.............................5
SECTION 2.5 Contributions of Trust Estate............................5
SECTION 2.6 Declaration of Trust.....................................5
SECTION 2.7 Transfer of Interest to _____________; Liability
of GP Interest......................................6
SECTION 2.8 Title to Trust Property..................................6
SECTION 2.9 Situs of Trust...........................................7
SECTION 2.10 Representations and Warranties of the Seller.............7
SECTION 2.11 Representations and Warranties of the
Holder of the GP Interest...........................7
SECTION 2.12 Federal Income Tax Allocations...........................8
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.1 Initial Ownership........................................9
SECTION 3.2 The Trust Certificates...................................9
SECTION 3.3 Authentication of Trust Certificates....................10
SECTION 3.4 Registration of Transfer and Exchange of Trust
Certificates..........................................10
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen
Trust Certificates.....................................11
SECTION 3.6 Persons Deemed Certificateholders.......................11
SECTION 3.7 Access to List of Certificateholders'
Names and Addresses..................................11
SECTION 3.8 Maintenance of Office or Agency.........................12
SECTION 3.9 Appointment of Paying Agent.............................12
SECTION 3.10 Reserved................................................13
SECTION 3.11 Reserved................................................13
SECTION 3.12 Disposition by the Holder of the GP Interest............13
SECTION 3.13 Reserved................................................13
SECTION 3.14 Book-Entry Trust Certificates...........................13
SECTION 3.15 Notices to Clearing Agency..............................14
SECTION 3.16 Definitive Trust Certificates...........................14
ARTICLE IV
Actions by Owner Trustee
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters..15
SECTION 4.2 Action by Certificateholders with Respect to
Certain Matters....................................16
SECTION 4.3 Action by Certificateholders with Respect
to Bankruptcy.....................................16
SECTION 4.4 Restrictions on Certificateholders' Power...............16
SECTION 4.5 Majority Control........................................16
ARTICLE V
Application of Trust Funds: Certain Duties
SECTION 5.1 Establishment of Certificate Distribution Account.......16
SECTION 5.2 Application of Funds in Certificate
Distribution Account...............................17
SECTION 5.3 Reserved.................................................17
SECTION 5.4 Method of Payment........................................17
SECTION 5.5 No Segregation of Monies; No Interest....................18
SECTION 5.6 Accounting and Reports to the Noteholders
Certificateholders, the Internal Revenue
Service and Others..................................18
SECTION 5.7 Signature on Returns; Tax Matters Partner................19
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.1 General Authority.......................................19
SECTION 6.2 General Duties..........................................19
SECTION 6.3 Action upon Instruction.................................19
SECTION 6.4 No Duties Except as Specified in this
Agreement or in Instructions......................20
SECTION 6.5 No Action Except under Specified Documents
or Instructions...................................21
SECTION 6.6 Restrictions............................................21
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.1 Acceptance of Trusts and Duties..........................21
SECTION 7.2 Furnishing of Documents..................................22
SECTION 7.3 Representations and Warranties...........................23
SECTION 7.4 Reliance; Advice of Counsel..............................23
SECTION 7.5 Not Acting in Individual Capacity........................24
SECTION 7.6 Owner Trustee Not Liable for Trust
Certificates or Mortgage Loans.....................24
SECTION 7.7 Owner Trustee May Own Trust Certificates and Notes.......24
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.1 Owner Trustee's Fees and Expenses........................25
SECTION 8.2 Indemnification..........................................25
SECTION 8.3 Payments to the Owner Trustee............................25
ARTICLE IX
Termination of Trust Agreement
SECTION 9.1 Termination of Trust Agreement..........................25
SECTION 9.2 Dissolution upon Bankruptcy of the Holder
of the GP Interest................................27
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1 Eligibility Requirements for Owner Trustee...............27
SECTION 10.2 Resignation or Removal of Owner Trustee..................28
SECTION 10.3 Successor Owner Trustee..................................28
SECTION 10.4 Merger or Consolidation of Owner Trustee.................29
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee............29
ARTICLE XI
Miscellaneous
SECTION 11.1 Supplements and Amendments..............................31
SECTION 11.2 No Legal Title to Owner Trust Estate in
Certificateholders................................32
SECTION 11.3 Limitations on Rights of Others.........................32
SECTION 11.4 Notices.................................................32
SECTION 11.5 Severability............................................33
SECTION 11.6 Separate Counterparts...................................33
SECTION 11.7 Successors and Assigns..................................33
SECTION 11.8 Reserved................................................33
SECTION 11.9 No Petition.............................................33
SECTION 11.10 No Recourse.............................................33
SECTION 11.11 Headings................................................33
SECTION 11.12 GOVERNING LAW...........................................34
SECTION 11.13 Trust Certificate Transfer Restrictions.................34
SECTION 11.14 Master Servicer.........................................34
<PAGE>
EXHIBITS
Exhibit A - Form of Trust Certificate
Exhibit B - Form of Certificate of Trust
<PAGE>
TRUST AGREEMENT dated as of ____________, 199_ between Structured Asset
Mortgage Investments Inc., a Delaware corporation, as Seller, and
_______________, a ____________, as
Owner Trustee.
ARTICLE I
Definitions
SECTION 1.1. Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Basic Documents" shall mean the Master Servicing Agreement, the
Indenture, the Certificate Depository Agreement, the Note Depository Agreement
and the other documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.13.
"Book-Entry Trust Certificates" means a beneficial interest in the
Trust Certificates, ownership and transfers of which shall be made through
book-entries by a Clearing Agency as described in Section 3.14.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from
time to time.
"Certificate" means a certificate evidencing the beneficial interest of
a Certificateholder in the Trust, substantially in the form of Exhibit A
attached hereto.
"Certificate Depository Agreement" shall mean the agreement among the
Trust, the Owner Trustee, the Master Servicer and _____________________, as the
initial Clearing Agency, dated as of the Closing Date, relating to the Trust
Certificates, as the same may be amended and supplemented from time to time.
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at
_______________; or at such other address as the Owner Trustee may designate by
notice to the Certificateholders and the Seller, or the principal corporate
trust office of any successor Owner Trustee (the address of which the successor
owner trustee will notify the Certificateholders and the Seller).
"Definitive Trust Certificates" shall mean either or both (as the
context requires) of (i) Trust Certificates issued in certificated, fully
registered form as provided in Section 3.14 and (ii) Trust Certificates issued
in certificated, fully registered form as provided in Section 3.16.
"Demand Note" shall have the meaning assigned to such term in Section
2.11(e).
"Delaware Trustee" shall have the meaning assigned to such term in
Section 10.1.
"ERISA" shall have the meaning assigned to such term in Section 11.13.
"Expenses" shall have the meaning assigned to such term in Section
8.2.
"GP Interest" shall have the meaning assigned to such term in Section
2.7.
"Holder" or "Certificateholder" shall mean the Person in whose name a
Trust Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.2.
"Master Servicer" shall mean __________________ or any successor
master servicer.
"Master Servicing Agreement" shall mean the Master Servicing Agreement
among the Trust, Structured Asset Mortgage Investments Inc., as Seller, and
_______________, as Master Servicer, dated as of _____________, 199_ , as the
same may be amended and supplemented from time to time.
"Note Depository Agreement" shall mean the agreement among the Trust,
the Master Servicer and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the Notes, as the same may be
amended or supplemented from time to time.
"Owner" shall mean each Person who is the beneficial owner of a
Book-Entry Certificate as reflected in the records of the Clearing Agency or if
a Clearing Agency Participant is not the Owner, then as reflected in records of
a Person maintaining an account with such Clearing Agency (directly or
indirectly, in accordance with the rules of such Clearing Agency).
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Master Servicing Agreement, all funds on deposit from time to
time in the Trust Accounts and the Certificate Distribution Account and all
other property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Master Servicing Agreement. "Owner
Trustee" shall mean ____________, a ___________, not in its individual capacity
but solely as owner trustee under this Agreement, and any successor Owner
Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.9 and shall initially be the Owner Trustee.
"Record Date" shall mean, with respect to any Distribution Date, the
close of business on the fourteenth day of the calendar month in which such
Distribution Date occurs.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a Certificate.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Master Servicing Agreement
or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Agreement or in any such certificate or other
document, and accounting terms partly defined in this Agreement or in
any such certificate or other document to the extent not defined, shall
have the respective meanings given to them under generally accepted
accounting principles as in effect on the date of this Agreement or any
such certificate or other document, as applicable. To the extent that
the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such certificate or
other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement; Section and Exhibit references contained in this Agreement
are references to Sections and Exhibits in or to this Agreement unless
otherwise specified; and the term "including" shall mean "including
without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
ARTICLE II
Organization
SECTION 2.1. NAME. The Trust created hereby shall be known as
"Structured Asset Mortgage Investments Trust 199_-_", in which name the Owner
Trustee may conduct the business of the Trust, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Seller.
SECTION 2.3. PURPOSES AND POWERS.
(a) The purpose of the Trust is, and the Trust shall have the
power and authority, to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and
the Trust Certificates pursuant to this Agreement, and to sell
the Notes and the Trust Certificates;
(ii) with the proceeds of the sale of the Notes and
the Trust Certificates, to fund the Reserve Account and to pay
the organizational, start-up and transactional expenses of the
Trust and to pay the balance to the Seller as payment of
purchase price with respect to the Mortgage Loans;
(iii) to assign, grant, transfer, pledge, mortgage
and convey the Trust Estate pursuant to the Indenture and to
hold, manage and distribute to the Certificateholders pursuant
to the terms of the Master Servicing Agreement any portion of
the Trust Estate released from the Lien of, and remitted to
the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations
under the Basic Documents to which it is a party;
(v) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or
connected therewith; and
(vi) subject to compliance with the Basic Documents,
to engage in such other activities as may be required in
connection with conservation of the Owner Trust Estate and the
making of distributions to the Certificateholders and the
Noteholders. The Trust is hereby authorized to engage in the
foregoing activities. The Trust shall not engage in any
activity other than in connection with the foregoing or other
than as required or authorized by the terms of this Agreement
or the Basic Documents.
SECTION 2.4. APPOINTMENT OF OWNER TRUSTEE. The Seller hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
SECTION 2.5. CONTRIBUTIONS OF TRUST ESTATE. The Seller hereby sells,
assigns, transfers, conveys and sets over to the Owner Trustee, as of the date
hereof, the sum of $_________. The Owner Trustee hereby acknowledges receipt in
trust from the Seller, as of the date hereof, of the foregoing contribution,
which shall constitute the initial Owner Trust Estate and shall be deposited in
the Certificate Distribution Account. On the Closing Date, the Seller shall
sell, assign, transfer, convey and set over to the Owner Trustee, as of such
date, all Seller's right, title and interest in and to the Mortgage Loans by
delivery thereof to the Indenture Trustee pursuant to the Indenture.
SECTION 2.6. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income and franchise tax purposes, the Trust shall be treated
as a partnership. The parties agree that, unless otherwise required by
appropriate tax authorities, the Trust will file or cause to be filed annual or
other necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and to the extent not inconsistent herewith, in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
The Owner Trustee and the Delaware Trustee shall file the Certificate of Trust
with the Secretary of State of Delaware.
SECTION 2.7. TRANSFER OF INTEREST TO ____________; LIABILITY OF GP
INTEREST.
(a) On the Closing Date the Seller shall and does hereby
transfer and assign its entire interest in the Trust to ______________
and shall otherwise in addition purchase a ____% interest in the Trust
(the "GP Interest"). The holder of the GP Interest shall pay
organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee
for any such expenses paid by the Owner Trustee. The holder of the GP
Interest shall also be liable directly to and will indemnify the
injured party for all losses, claims, damages, liabilities and expenses
of the Trust (including Expenses, to the extent not paid out of the
Owner Trust Estate) to the extent that the holder of the GP Interest
would be liable if the Trust were a partnership under the Delaware
Revised Uniform Limited Partnership Act in which the holder of the GP
Interest were a general partner; provided, however, that the holder of
the GP Interest shall not be liable for any losses incurred by a
Certificateholder in the capacity of an investor in the Trust
Certificates or a Noteholder in the capacity of an investor in the
Notes. In addition, any third party creditors of the Trust (other than
in connection with the obligations described in the preceding sentence
for which the holder of the GP Interest shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of
the holder of the GP Interest under this paragraph shall be evidenced
by the Trust Certificates described in Section 3.12, which for purposes
of the Business Trust Statute shall be deemed to be a separate class of
Trust Certificates from all other Trust Certificates issued by the
Trust.
(b) No Owner, other than to the extent set forth in clause
(a), shall have any personal liability for any liability or obligation
of the Trust.
SECTION 2.8. TITLE TO TRUST PROPERTY. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
SECTION 2.9. SITUS OF TRUST. The Trust will be located and
administered in the State of ________________. All bank accounts maintained by
the Owner Trustee on behalf of the Trust shall be located in the State of
Delaware or the State of ________________. Payments will be received by the
Trust only in Delaware or , and payments will be made by the Trust only from
Delaware or _______________. The only office of the Trust will be at the
Corporate Trust Office in ________________.
SECTION 2.10. REPRESENTATIONS AND WARRANTIES OF THE Seller. The Seller
hereby represents and warrants to the Owner Trustee that:
(a) The Seller is duly organized and validly existing as a New
York corporation with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(b) The Seller has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; the
Seller has full power and authority to sell and assign the property to
be sold and assigned to and deposited with the Trust and the Seller has
duly authorized such sale and assignment and deposit to the Trust by
all necessary corporate action; and the execution, delivery and
performance of this Agreement has been duly authorized by the Seller by
all necessary corporate action.
(c) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of association or by-laws of the Seller, or any material
indenture, agreement or other instrument to which the Seller is a party
or by which it is bound; nor result in the creation or imposition of
any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Basic Documents); nor violate any law or, to the best of the Seller's
knowledge, any order, rule or regulation applicable to the Seller of
any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Seller or its properties.
SECTION 2.11. REPRESENTATIONS AND WARRANTIES OF THE HOLDER OF THE GP
INTEREST. ________________, as intended holder of the GP Interest, hereby
represents and warrants to the Owner Trustee, as of the Closing Date, that:
(a) It is duly organized and validly existing as a corporation
in good standing under the laws of the State of ________________ , with
corporate power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(b) It is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business shall require such
qualifications.
(c) It has the corporate power and authority to execute and
deliver this Agreement and to carry out its terms and the execution,
delivery and performance of this Agreement has been duly authorized by
all necessary corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under
its articles of incorporation or bylaws, or any indenture, agreement or
other instrument to which it is a party or by which it is bound; nor
result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or
other instrument; nor violate any law or, to the best of its knowledge,
any order, rule or regulation applicable to it of any court or of any
Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over it or its
properties.
(e) It has been duly capitalized by the delivery of a demand
note (the "Demand Note") from the Seller in the amount of $__________,
which Demand Note has not been canceled, waived or terminated. The
proceeds of such Demand Note have not been used and will not be used to
pay (i) any of the expenses of the holder of the GP Interest in
connection with the transactions contemplated by the Basic Documents or
(ii) the purchase price for the Certificates purchased pursuant to
Section 2.7. Such Demand Note is enforceable against the Seller,
subject to its terms, and subject to applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization and similar laws now
or hereafter in effect relating to creditors' rights generally or the
rights of creditors of banks the deposit accounts of which are insured
by the Federal Deposit Insurance Corporation and subject to general
principles of equity (whether applied in a proceeding at law or in
equity).
SECTION 2.12. FEDERAL INCOME TAX ALLOCATIONS. Net income of the Trust
for any month as determined for Federal income tax purposes (and each item of
income, gain, loss, credit and deduction entering into the computation thereof)
shall be allocated:
(a) to the extent of available net income, among the
Certificateholders as of the first Record Date following the end of
such month, in proportion to their ownership of principal amount of
Trust Certificates on such date, an amount of net income up to the sum
of (i) the Certificateholders' Monthly Interest Distributable Amount
for such month, (ii) interest on the excess, if any, of the
Certificateholders' Interest Distributable Amount for the preceding
Distribution Date over the amount in respect of interest at the
Certificate Rate that is actually deposited in the Certificate
Distribution Account on such preceding Distribution Date, to the extent
permitted by law, at the Certificate Rate from such preceding
Distribution Date through the current Distribution Date, and (iii) the
portion of the market discount on the Mortgage Loans accrued during
such month that is allocable to the excess of the initial aggregate
principal amount of the Trust Certificates over their initial aggregate
issue price; and
(b) to the holder of the GP Interest, to the extent of any
remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in clause (b). Net
losses of the Trust, if any, for any month as determined for Federal income tax
purposes (and each item of income, gain, loss, credit and deduction entering
into the computation thereof) shall be allocated to the holder of the GP
Interest to the extent the holder of the GP Interest is reasonably expected as
determined by the Master Servicer to bear the economic burden of such net
losses, then net losses shall be allocated among the Certificateholders as of
the first Record Date following the end of such month in proportion to their
ownership of principal amount of Trust Certificates on such Record Date until
the principal balance of the Trust Certificates is reduced to zero. The holder
of the GP Interest is authorized to modify the allocations in this paragraph if
necessary or appropriate, in its sole discretion, for the allocations to fairly
reflect the economic income, gain or loss to the holder of the GP Interest, the
Certificateholders, or as otherwise required by the Code.
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.1. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Seller pursuant to Section 2.5 and until the issuance of the
Trust Certificates, the Seller shall be the sole beneficiary of the Trust.
SECTION 3.2. THE TRUST CERTIFICATES. The Trust Certificates shall be
issued in denominations of $1,000 and integral multiples thereof; provided,
however, that (a) Trust Certificates may be issued to the holder of the GP
Interest pursuant to Section 2.7 in such denominations as to represent at least
1% of the initial Certificate Balance and (b) one Trust Certificate may be
issued in a denomination other than an integral multiple of $1,000. The Trust
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee. Trust Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefit of this
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery of such
Trust Certificates or did not hold such offices at the date of authentication
and delivery of such Trust Certificates. A transferee of a Trust Certificate
shall become a Certificateholder, and shall be entitled to the rights and
subject to the obligations of a Certificateholder hereunder, upon due
registration of such Trust Certificate in such transferee's name pursuant to
Section 3.4.
SECTION 3.3. AUTHENTICATION OF TRUST CERTIFICATES. Concurrently with
the initial sale of the Mortgage Loans to the Trust pursuant to the Master
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate principal amount equal to the initial Certificate Balance to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Seller, signed by its chairman of the board, its president
or any vice president, without further corporate action by the Seller, in
authorized denominations. No Trust Certificate shall entitle its holder to any
benefit under this Agreement, or shall be valid for any purpose, unless there
shall appear on such Trust Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or _____________, as the Owner Trustee's authenticating agent, by manual
signature; such authentication shall constitute conclusive evidence that such
Trust Certificate shall have been duly authenticated and delivered hereunder.
All Trust Certificates shall be dated the date of their authentication.
SECTION 3.4. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. The Owner
Trustee shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause ____________, as its
authenticating agent, to authenticate and deliver), in the name of the
designated transferee or transferees, one or more new Trust Certificates in
authorized denominations of a like class and aggregate face amount dated the
date of authentication by the Owner Trustee or any authenticating agent. At the
option of a Holder, Trust Certificates may be exchanged for other Trust
Certificates of the same class in authorized denominations of a like aggregate
amount upon surrender of the Trust Certificates to be exchanged at the office or
agency maintained pursuant to Section 3.8.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Certificateholder or his attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Certificate Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Trust Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
SECTION 3.5. MUTILATED, DESTROYED, LOST OR STOLEN TRUST CERTIFICATES.
If (a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate shall have been
acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust
shall execute and the Owner Trustee or _______________, as the Owner Trustee's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Certificate under this Section, the Owner Trustee or
the Certificate Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Certificate issued pursuant to this Section shall
constitute conclusive evidence of an ownership interest in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.
SECTION 3.6. PERSONS DEEMED CERTIFICATEHOLDERS. Every person by virtue
of becoming a Certificateholder or Owner in accordance with this Agreement shall
be deemed to be bound by the terms of this Agreement. Prior to due presentation
of a Trust Certificate for registration of transfer, the Owner Trustee or the
Certificate Registrar may treat the Person in whose name any Trust Certificate
shall be registered in the Certificate Register as the Owner of such Trust
Certificate for the purpose of receiving distributions pursuant to Section 5.2
and for all other purposes whatsoever, and neither the Owner Trustee nor the
Certificate Registrar shall be bound by any notice to the contrary.
SECTION 3.7. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Owner Trustee shall furnish or cause to be furnished to the
Master Servicer, the Seller and the holder of the GP Interest, within ____ days
after receipt by the Owner Trustee of a request therefor from the Master
Servicer, the Seller or the holder of the GP Interest in writing, a list, in
such form as the Master Servicer, the Seller or the holder of the GP Interest
may reasonably require, of the names and addresses of the Certificateholders as
of the most recent Record Date. If three or more Holders of Trust Certificates
or one or more Holders of Trust Certificates evidencing not less than 25% of the
Certificate Balance apply in writing to the Owner Trustee, and such application
states that the applicants desire to communicate with other Certificateholders
with respect to their rights under this Agreement or under the Trust
Certificates and such application is accompanied by a copy of the communication
that such applicants propose to transmit, then the Owner Trustee shall, within
five Business Days after the receipt of such application, afford such applicants
access during normal business hours to the current list of Certificateholders.
Each Holder, by receiving and holding a Trust Certificate, shall be deemed to
have agreed not to hold either the Seller or the Owner Trustee accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
SECTION 3.8. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee shall
maintain in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee initially designates _____________________ as
its principal corporate trust office for such purposes. The Owner Trustee shall
give prompt written notice to the Seller and to the Certificateholders of any
change in the location of the Certificate Register or any such office or agency.
SECTION 3.9. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.2 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the Owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent shall initially be the Owner
Trustee, and any co-paying agent chosen by the Owner Trustee, and acceptable to
the Master Servicer. The Paying Agent shall be permitted to resign upon 30 days'
written notice to the Owner Trustee and the Master Servicer. In the event that
the Owner Trustee shall no longer be the Paying Agent, the Owner Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company). The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Certificateholders in trust for the benefit
of the Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders. The Paying Agent shall return all unclaimed funds to the
Owner Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Owner Trustee. The provisions of
Sections 7.1, 7.3, 7.4 and 8.1 shall apply to the Owner Trustee also in its role
as Paying Agent, for so long as the Owner Trustee shall act as Paying Agent and,
to the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.
SECTION 3.10. RESERVED.
SECTION 3.11. RESERVED.
SECTION 3.12. DISPOSITION BY THE HOLDER OF THE GP Interest. On and
after the Closing Date, the holder of the GP Interest shall retain beneficial
and record ownership of Trust Certificates representing at least 1% of the
initial Certificate Balance. Any attempted transfer of any Trust Certificate
that would reduce such interest of the holder of the GP Interest below 1% of the
Certificate Balance shall be void. The Owner Trustee shall cause any Trust
Certificate issued to the holder of the GP Interest to contain a legend stating
"THIS CERTIFICATE IS NOT TRANSFERABLE".
SECTION 3.13. RESERVED.
SECTION 3.14. BOOK-ENTRY TRUST CERTIFICATES. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by or
on behalf of the Trust; provided, however, that one Definitive Certificate (as
defined below) may be issued to GP Holder, Inc., as holder of the GP Interest
pursuant to Section 2.7. Such Book-Entry Trust Certificate or Trust Certificates
shall initially be registered on the Certificate Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no beneficial owner (other
than the Seller and the holder of the GP Interest) will receive a definitive
Trust Certificate representing such beneficial owner's interest in such Trust
Certificate, except as provided in Section 3.16. Unless and until Definitive
Trust Certificates have been issued to beneficial owners pursuant to Section
3.16:
(i) the provisions of this Section shall be in full
force and effect;
(ii) the Certificate Registrar and the Owner Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Agreement relating to the Book-Entry Trust Certificates (including the
payment of principal of and interest on the Book-Entry Trust
Certificates and the giving of instructions or directions to Owners of
Book-Entry Trust Certificates) as the sole Holder of Book-Entry Trust
Certificates and shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of
this Section shall control;
(iv) the rights of the Owners of the Book-Entry Trust
Certificates shall be exercised only through the Clearing Agency and
shall be limited to those established by law and agreements between
such Owners and the Clearing Agency and/or the Clearing Agency
Participants. Pursuant to the Certificate Depository Agreement, unless
and until Definitive Trust Certificates are issued pursuant to Section
3.16, the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit payments of
principal of and interest on the Book-Entry Trust Certificates to such
Clearing Agency Participants; and
(v) whenever this Agreement requires or permits actions to be
taken based upon instructions or directions of Holders of Trust
Certificates evidencing a specified percentage of the Certificate
Balance, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such
effect from Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Book-Entry Trust Certificates and has delivered such
instructions to the Owner Trustee.
SECTION 3.15. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Owners is required under this Agreement, unless and until
Definitive Trust Certificates shall have been issued to Owners pursuant to
Section 3.16, the Owner Trustee shall give all such notices and communications
specified herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners, except to the holder of the GP Interest.
SECTION 3.16. DEFINITIVE TRUST CERTIFICATES. If (i) the Master
Servicer advises the Owner Trustee in writing that the Clearing Agency is no
longer willing or able to properly discharge its responsibilities with respect
to the Trust Certificates, and the Master Servicer is unable to locate a
qualified successor, (ii) the Master Servicer at its option advises the Owner
Trustee in writing that it elects to terminate the book-entry system through the
Clearing Agency or (iii) after the occurrence of an Event of Default, Owners of
Certificates representing beneficial interests aggregating at least a majority
of the Certificate Balance advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interest of the Owners of Trust Certificates, then the Clearing Agency
shall notify all Owners and the Owner Trustee of the occurrence of any such
event and of the availability of the Definitive Trust Certificates to Owners
requesting the same. Upon surrender to the Owner Trustee of the typewritten
Trust Certificate or Trust Certificates representing the Book-Entry Trust
Certificates by the Clearing Agency, accompanied by registration instructions,
the Owner Trustee shall execute and authenticate the Definitive Trust
Certificates in accordance with the instructions of the Clearing Agency. Neither
the Certificate Registrar nor the Owner Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Trust Certificates, the Owner Trustee shall recognize the Holders of the
Definitive Trust Certificates as Certificateholders. The Definitive Trust
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Owner Trustee, as evidenced
by its execution thereof.
ARTICLE IV
Actions by Owner Trustee
SECTION 4.1. PRIOR NOTICE TO OWNERS WITH RESPECT TO CERTAIN MATTERS.
With respect to the following matters, the Owner Trustee shall not take action
unless at least ___ days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Certificateholders shall not have notified the Owner Trustee in writing
prior to the _____ day after such notice is given that such Certificateholders
have withheld consent or provided alternative direction:
(a) the initiation of any material claim or lawsuit by the
Trust except claims or lawsuits brought in connection with the
collection of the Mortgage Loans and the compromise of any material
action, claim or lawsuit brought by or against the Trust (except with
respect to the aforementioned claims or lawsuits for collection of the
Mortgage Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute);
(c) the amendment of the Indenture by a supplemental
indenture in circumstances where the consent of any
Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required
and such amendment materially adversely affects the interest of the
Certificateholders;
(e) the amendment, change or modification of the Master
Servicing Agreement, except to cure any ambiguity or defect or to amend
or supplement any provision in a manner that would not materially
adversely affect the interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor
Trustee or the consent to the assignment by the Note Registrar, Paying
Agent or Trustee or Certificate Registrar of its obligations under the
Indenture or this Agreement, as applicable. The Owner Trustee shall
notify the Certificateholders in writing of any appointment of a
successor Note Registrar, Paying Agent or Certificate Registrar within
five Business Days thereof.
SECTION 4.2. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, to (a) remove the Master Servicer under the Master
Servicing Agreement pursuant to Section ____ thereof or (b) except as expressly
provided in the Basic Documents, sell the Mortgage Loans after the termination
of the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders.
SECTION 4.3. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to follow any such direction, if given.
SECTION 4.5. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Agreement may
be taken by the Holders of Trust Certificates evidencing not less than a
majority of the Certificate Balance. Except as expressly provided herein, any
written notice of the Certificateholders delivered pursuant to this Agreement
shall be effective if signed by Holders of Certificates evidencing not less than
a majority of the Certificate Balance at the time of the delivery of such
notice.
ARTICLE V
Application of Trust Funds: Certain Duties
SECTION 5.1. ESTABLISHMENT OF CERTIFICATE DISTRIBUTION ACCOUNT. The
Owner Trustee, for the benefit of the Certificateholders, shall establish and
maintain in the name of the Trust an Eligible Deposit Account (the "Certificate
Distribution Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders. Except as
otherwise provided herein, the Certificate Distribution Account shall be under
the sole dominion and control of the Owner Trustee for the benefit of the
Certificateholders.
SECTION 5.2. APPLICATION OF FUNDS IN CERTIFICATE
DISTRIBUTION ACCOUNT.
(a) On each Distribution Date, the Owner Trustee will, based
on the information contained in the Master Servicer's Certificate
delivered on the related Determination Date pursuant to Section ____ of
the Master Servicing Agreement, distribute to Certificateholders, to
the extent of the funds available, amounts deposited in the Certificate
Distribution Account pursuant to Section ____ of the Master Servicing
Agreement on such Distribution Date in the following order of priority:
(i) first, to the Certificateholders, on a pro
rata basis, an amount equal to the Certificateholders'
Interest Distributable Amount; and
(ii) second, to the Certificateholders, on a pro rata
basis, an amount equal to the Certificateholders' Principal
Distributable Amount.
(b) On each Distribution Date, the Owner Trustee shall send to
each Certificateholder the statement provided to the Owner Trustee by
the Master Servicer pursuant to Section ____ of the Master Servicing
Agreement on such Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a Certificateholder, such
tax shall reduce the amount otherwise distributable to the
Certificateholder in accordance with this Section. The Owner Trustee is
hereby authorized and directed to retain from amounts otherwise
distributable to the Certificateholders sufficient funds for the
payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Owner Trustee from contesting any
such tax in appropriate proceedings, and withholding payment of such
tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such
Certificateholder at the time it is withheld by the Trust and remitted
to the appropriate taxing authority. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-US Certificateholder), the Owner Trustee may in
it sole discretion withhold such amounts in accordance with this
clause (c). In the event that an Owner wishes to apply for a refund of
any such withholding tax, the Owner Trustee shall reasonably cooperate
with such Certificateholder in making such claim so long as such
Certificateholder agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred.
SECTION 5.3. RESERVED.
SECTION 5.4. METHOD OF PAYMENT. Subject to Section 9.1(c),
distributions required to be made to Certificateholders on any Distribution Date
shall be made to each Certificateholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if (i)
such Certificateholder shall have provided to the Certificate Registrar
appropriate written instructions at least five Business Days prior to such
Distribution Date and such Holder's Trust Certificates in the aggregate evidence
a denomination of not less than $____________ or (ii) such Certificateholder is
the holder of the GP Interest, or an Affiliate thereof, or, if not, by check
mailed to such Certificateholder at the address of such holder appearing in the
Certificate Register; provided, however, that, unless Definitive Certificates
have been issued pursuant to Section 3.16, with respect to Trust Certificates
registered on the Record Date in the name of the nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), distributions will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Notwithstanding the foregoing, the final distribution in respect of any
Trust Certificate (whether on the Final Scheduled Distribution Date or
otherwise) will be payable only upon presentation and surrender of such Trust
Certificate at the office or agency maintained for that purpose by the Owner
Trustee pursuant to Section 3.8.
SECTION 5.5. NO SEGREGATION OF MONIES; NO INTEREST. Subject to
Sections 5.1 and 5.2, monies received by the Owner Trustee hereunder need not be
segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law, and the
Owner Trustee shall not be liable for any interest thereon.
SECTION 5.6. ACCOUNTING AND REPORTS TO THE NOTEHOLDERS,
CERTIFICATEHOLDERS, THE INTERNAL REVENUE SERVICE AND OTHERS. Subject to Sections
____ and ____ of the Master Servicing Agreement, the holder of the GP Interest
shall (a) maintain (or cause to be maintained) the books of the Trust on a
calendar year basis on the accrual method of accounting, (b) deliver (or cause
to be delivered) to each Certificateholder, as may be required by the Code and
applicable Treasury Regulations, such information as may be required (including
Schedule K-1) to enable each Certificateholder to prepare its Federal and state
income tax returns, (c) file or cause to be filed such tax returns relating to
the Trust (including a partnership information return, Form 1065), and direct
the Owner Trustee to make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a partnership for
Federal income tax purposes and (d) collect or cause to be collected any
withholding tax as described in and in accordance with Section 5.2(c) with
respect to income or distributions to Certificateholders. The Owner Trustee
shall make all elections pursuant to this Section as directed by the holder of
the GP Interest. The Owner Trustee shall sign all tax information returns filed
pursuant to this Section 5.6 and any other returns as may be required by law,
and in doing so shall rely entirely upon, and shall have no liability for
information provided by, or calculations provided by, the holder of the GP
Interest. The Owner Trustee shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to the
Mortgage Loans. The Owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.7. SIGNATURE ON RETURNS; TAX MATTERS PARTNER. (a)
Notwithstanding the provisions of Section 5.6, the Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust, unless applicable law requires
a Certificateholder or an Owner to sign such documents, in which case such
documents shall be signed by the holder of the GP Interest.
(b) The holder of the GP Interest shall be the "tax matters
partner" of the Trust pursuant to the Code.
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.1. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Seller shall approve as
evidenced conclusively by the Owner Trustee's execution thereof, and on behalf
of the Trust, to direct the Trustee to authenticate and deliver [LIST THE
CLASSES OF NOTES AND AGGREGATE CURRENT PRINCIPAL AMOUNT(S)]. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, to take
all actions required of the Trust pursuant to the Basic Documents. The Owner
Trustee is further authorized from time to time to take such action as the
Master Servicer recommends with respect to the Basic Documents.
SECTION 6.2. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Master Servicing Agreement and to administer
the Trust in the interest of the Owners, subject to the Basic Documents and in
accordance with the provisions of this Agreement. Notwithstanding the foregoing,
the Owner Trustee shall be deemed to have discharged its duties and
responsibilities hereunder and under the Basic Documents to the extent the
Master Servicer has agreed in the Master Servicing Agreement to perform any act
or to discharge any duty of the Owner Trustee hereunder or under any Basic
Document, and the Owner Trustee shall not be liable for the default or failure
of the Master Servicer to carry out its obligations under the Master Servicing
Agreement.
SECTION 6.3. ACTION UPON INSTRUCTION.
(a) Subject to Article IV, the Certificateholders may, by
written instruction, direct the Owner Trustee in the management of the
Trust. Such direction may be exercised at any time by written
instruction of the Certificateholders pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or
is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of
this Agreement or any Basic Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction as to
the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Certificateholders received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not
have received appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but
shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall
deem to be in the best interests of the Certificateholders, and shall
have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or
any such provision is ambiguous as to its application, or is, or
appears to be, in conflict with any other applicable provision, or in
the event that this Agreement permits any determination by the Owner
Trustee or is silent or is incomplete as to the course of action that
the Owner Trustee is required to take with respect to a particular set
of facts, the Owner Trustee may give notice (in such form as shall be
appropriate under the circumstances) to the Certificateholders
requesting instruction and, to the extent that the Owner Trustee acts
or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account
of such action or inaction, to any Person. If the Owner Trustee shall
not have received appropriate instruction within 10 days of such notice
(or within such shorter period of time as reasonably may be specified
in such notice or may be necessary under the circumstances) it may, but
shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall
deem to be in the best interests of the Certificateholders, and shall
have no liability to any Person for such action or inaction.
SECTION 6.4. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT OR IN
INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee that are not
related to the ownership or the administration of the Owner Trust Estate.
SECTION 6.5. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6. RESTRICTIONS. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.1. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the
instructions of the Master Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur
any financial liability in the performance of any of its rights or
powers hereunder or under any Basic Document if the Owner Trustee shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Basic
Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Seller or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for
or in respect of the validity or sufficiency of the Basic Documents,
other than the certificate of authentication on the Trust Certificates,
and the Owner Trustee shall in no event assume or incur any liability,
duty or obligation to any Noteholder or to any Certificateholder, other
than as expressly provided for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Trustee or the Master Servicer under any of the Basic
Documents or otherwise and the Owner Trustee shall have no obligation
or liability to perform the obligations of the Trust under this
Agreement or the Basic Documents that are required to be performed by
the Trustee under the Indenture or the Master Servicer under the Master
Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or
otherwise or in relation to this Agreement or any Basic Document, at
the request, order or direction of any of the Certificateholders,
unless such Certificateholders have offered to the Owner Trustee
security or indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Owner Trustee therein or
thereby. The right of the Owner Trustee to perform any discretionary
act enumerated in this Agreement or in any Basic Document shall not be
construed as a duty, and the Owner Trustee shall not be answerable for
other than its negligence, bad faith or willful misconduct in the
performance of any such act.
SECTION 7.2. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 7.3. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Seller, for the benefit of the
Certificateholders, that:
(a) It is a duly organized and validly existing in good
standing under the laws of the _______________ and having an office
within the State of New York. It has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any federal, Delaware, New York or ____________ state
law, governmental rule or regulation governing the banking or trust
powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a
party or by which any of its properties may be bound.
SECTION 7.4. RELIANCE; ADVICE OF COUNSEL.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed by
the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body
of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and
effect. As to any fact or matter the method of the determination of
which is not specifically prescribed herein, the Owner Trustee may for
all purposes hereof rely on a certificate, signed by the president or
any vice president or by the treasurer, secretary or other authorized
officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance
thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this
Agreement or the Basic Documents, the Owner Trustee (i) may act
directly or through its agents or attorneys pursuant to agreements
entered into with any of them, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Owner Trustee
with reasonable care, and (ii) may consult with counsel, accountants
and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with the
written opinion or advice of any such counsel, accountants or other
such persons and not contrary to this Agreement or any Basic Document.
SECTION 7.5. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created acts solely as Owner
Trustee hereunder and not in its individual capacity and all Persons having any
claim against the Owner Trustee by reason of the transactions contemplated by
this Agreement or any Basic Document shall look only to the Owner Trust Estate
for payment or satisfaction thereof.
SECTION 7.6. OWNER TRUSTEE NOT LIABLE FOR TRUST CERTIFICATES OR
MORTGAGE LOANS. The recitals contained herein and in the Trust Certificates
(other than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Seller and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Owner Trustee on the Trust Certificates) or the Notes,
or of any Mortgage Loan or related documents. The Owner Trustee shall at no time
have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Mortgage Loan, or the perfection and priority
of any security interest created by any Mortgage Loan in any Mortgaged Property
or the maintenance of any such perfection and priority, or for or with respect
to the sufficiency of the Owner Trust Estate or its ability to generate the
payments to be distributed to Certificateholders under this Agreement or the
Noteholders under the Indenture, including, without limitation: the existence,
condition and ownership of any Mortgaged Property; the existence and
enforceability of any insurance thereon; the existence and contents of any
Mortgage Loan on any computer or other record thereof; the validity of the
assignment of any Mortgage Loan to the Trust or of any intervening assignment;
the completeness of any Mortgage Loan; the performance or enforcement of any
Mortgage Loan; the compliance by the Seller or the Master Servicer with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation or any action of
the Trustee or the Master Servicer or any subservicer taken in the name of the
Owner Trustee.
SECTION 7.7. OWNER TRUSTEE MAY OWN TRUST CERTIFICATES AND NOTES. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Trust Certificates or Notes and may deal with the Seller, the Trustee
and the Master Servicer in banking transactions with the same rights as it would
have if it were not Owner Trustee.
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.1. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Seller and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the holder
of the GP Interest for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder.
SECTION 8.2. INDEMNIFICATION. The holder of the GP Interest shall be
liable as primary obligor for, and shall indemnify the Owner Trustee and its
successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Basic Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the holder of the GP Interest shall not be liable for or required to
indemnify the Owner Trustee from and against Expenses arising or resulting from
any of the matters described in the third sentence of Section 7.1. The
indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the holder of the GP Interest, which approval shall
not be unreasonably withheld.
SECTION 8.3. PAYMENTS TO THE OWNER TRUSTEE. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.1. TERMINATION OF TRUST AGREEMENT.
(a) This Agreement (other than Article VIII) and the Trust
shall terminate and be of no further force or effect, (i) upon the
final distribution by the Owner Trustee of all moneys or other property
or proceeds of the Owner Trust Estate in accordance with the terms of
the Indenture, the Master Servicing Agreement and Article V or (ii) at
the time provided in Section 9.2. The bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder or Owner,
other than the holder of the GP Interest as described in Section 9.2,
shall not (x) operate to terminate this Agreement or the Trust, or (y)
entitle such Certificateholder's or Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any
court for a partition or winding up of all or any part of the Trust or
Owner Trust Estate or (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in clause (a), neither the Seller nor
the holder of the GP Interest nor any Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender
their Trust Certificates to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by
letter to Certificateholders mailed within five Business Days of
receipt of notice of such termination from the Master Servicer given
pursuant to Section ____ of the Master Servicing Agreement, stating
(i) the Distribution Date upon or with respect to which final payment
of the Trust Certificates shall be made upon presentation and
surrender of the Trust Certificates at the office of the Paying Agent
therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Distribution
Date is not applicable, payments being made only upon presentation and
surrender of the Trust Certificates at the office of the Paying Agent
therein specified. The Owner Trustee shall give such notice to the
Certificate Registrar (if other than the Owner Trustee) and the Paying
Agent at the time such notice is given to Certificateholders. Upon
presentation and surrender of the Trust Certificates, the Paying Agent
shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 5.2.
In the event that all of the Certificateholders shall not
surrender their Trust Certificates for cancellation within six months
after the date specified in the above mentioned written notice, the
Owner Trustee shall give a second written notice to the remaining
Certificateholders to surrender their Trust Certificates for
cancellation and receive the final distribution with respect thereto.
If within one year after the second notice all the Trust Certificates
shall not have been surrendered for cancellation, the Owner Trustee may
take appropriate steps, or may appoint an agent to take appropriate
steps, to contact the remaining Certificateholders concerning surrender
of their Trust Certificates, and the cost thereof shall be paid out of
the funds and other assets that shall remain subject to this Agreement.
Any funds remaining in the Trust after exhaustion of such remedies
shall be distributed, subject to applicable escheat laws, by the Owner
Trustee to the holder of the GP Interest.
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall
be distributed by the Owner Trustee to the holder of the GP Interest
(other than any amounts remaining in the Reserve Account which shall be
distributed to the Seller).
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by
filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Business Trust
Statute.
SECTION 9.2. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE GP
INTEREST. In the event that an Insolvency Event shall occur with respect to the
holder of the GP Interest, this Agreement shall be terminated in accordance with
Section 9.1 90 days after the date of such Insolvency Event, unless, before the
end of such 90-day period, the Owner Trustee shall have received written
instructions from Certificateholders holding a majority of the Certificate
Balance (other than the holder of the GP Interest) to the effect that each such
party disapproves of the liquidation of the Mortgage Loans and termination of
the Trust. Promptly after the occurrence of any Insolvency Event with respect to
the holder of the GP Interest, (i) the holder of the GP Interest shall give the
Trustee and the Owner Trustee written notice of such Insolvency Event, (ii) the
Owner Trustee shall, upon the receipt of such written notice from the holder of
the GP Interest, give prompt written notice to the Certificateholders and the
Trustee of the occurrence of such event and (iii) the Trustee shall, upon
receipt of written notice of such Insolvency Event from the Owner Trustee or the
holder of the GP Interest, give prompt written notice to the Noteholders of the
occurrence of such event; provided, however, that any failure to give a notice
required by this sentence shall not prevent or delay, in any manner, a
termination of the Trust pursuant to the first sentence of this Section 9.2.
Upon a termination pursuant to this Section, the Owner Trustee shall direct the
Trustee promptly to sell the assets of the Owner Trust Estate in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of such a
sale of the assets of the Trust shall be treated as collections under the Master
Servicing Agreement and shall be distributed in accordance with Section 9.1(b)
thereof.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation authorized to exercise corporate
trust powers; and having a combined capital and surplus of at least
$______________ and subject to supervision or examination by Federal or state
authorities. If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.2. In addition, at all
times the Owner Trustee or a co-trustee shall be a person that satisfies the
requirements of Section 3807(a) of the Business Trust Statute (the "Delaware
Trustee").
SECTION 10.2. RESIGNATION OR REMOVAL OF OWNER TRUSTEE. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Master Servicer. Upon receiving such
notice of resignation, the Master Servicer shall promptly appoint a successor
Owner Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and one copy to the successor
Owner Trustee. If no successor Owner Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Master Servicer, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Master Servicer may remove the Owner
Trustee. If the Master Servicer shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Master Servicer shall
promptly appoint a successor Owner Trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the outgoing Owner Trustee so
removed and one copy to the successor Owner Trustee and payment of all fees owed
to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Master Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Master Servicer and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Master Servicer and the predecessor Owner Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Master Servicer shall mail notice of the successor of such
Owner Trustee to all Certificateholders, the Trustee, the Noteholders and the
Rating Agencies. If the Master Servicer shall fail to mail such notice within 10
days after acceptance of appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Master Servicer.
SECTION 10.4. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
SECTION 10.5. APPOINTMENT OF CO-TRUSTEE OR SEPARATE Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Mortgaged Property may at the time be located,
the Master Servicer and the Owner Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more Persons
approved by the Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or separate trustee or separate trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Owner Trustee may consider necessary or desirable. If the
Master Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Owner Trustee alone shall have the
power to make such appointment. Pursuant to the Co- Trustee Agreement, dated as
of ______________, 199_, between and , the Owner Trustee shall appoint as a
co-trustee hereunder for the purpose of his acting as Delaware Trustee and such
agreement is hereby incorporated herein by reference. If the Delaware Trustee
shall die, become incapable of acting, resign or be removed, unless the Owner
Trustee is qualified to act as Delaware Trustee, a successor co-trustee shall
promptly be appointed in the manner specified in this Section 10.5 to act as
Delaware Trustee. No co-trustee or separate trustee under this Agreement shall
be required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Owner Trustee joining
in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed,
the Owner Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co- trustee, but solely at the direction of the
Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Master Servicer and the Owner Trustee acting jointly
may at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Master Servicer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI
Miscellaneous
SECTION 11.1. SUPPLEMENTS AND AMENDMENTS. This Agreement may be
amended by the Seller and the Owner Trustee, with prior written notice to the
Rating Agencies, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity or defect, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Seller and
the Owner Trustee, with prior written notice to the Rating Agencies, with the
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding Amount of the Notes and, to the extent affected thereby, the consent
of the Holders of Certificates evidencing not less than a majority of the
Certificate Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Mortgage Loans or distributions that shall be required to be made
for the benefit of the Noteholders or the Certificateholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes and the [Current
Principal Amount] required to consent to any such amendment, without the consent
of the Holders of all the outstanding Notes and Holders of all outstanding
Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Trustee and each of the
Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.2. NO LEGAL TITLE TO OWNER TRUST ESTATE IN
CERTIFICATEHOLDERS. The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided ownership interest therein
only in accordance with Articles V and IX. No transfer, by operation of law or
otherwise, of any right, title or interest of the Certificateholders to and in
their ownership interest in the Owner Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Owner
Trust Estate.
SECTION 11.3. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Seller, the Certificateholders, the Master Servicer and, to the
extent expressly provided herein, the Trustee and the Noteholders, and nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Owner Trust
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.4. NOTICES.
(a) Unless otherwise expressly specified or permitted by the
terms hereof, all notices shall be in writing and shall be deemed given
upon receipt personally delivered, delivered by overnight courier or
mailed certified mail, return receipt requested and shall be deemed to
have been duly given upon receipt, if to the Owner Trustee, addressed
to ______________________; if to the Seller, addressed to Structured
Asset Mortgage Investments Inc., 245 Park Avenue, New York, New York
10167, Attention: ____________; if to the holder of the GP Interest,
addressed to ___________________, Attention: _______________; or, as to
each party, at such other address as shall be designated by such party
in a written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid,
at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.5. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7. SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Seller,
the holder of the GP Interest, the Owner Trustee and its successors and each
Certificateholder and its successors and permitted assigns, all as herein
provided. Any request, notice, direction, consent, waiver or other instrument or
action by a Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.8. RESERVED.
SECTION 11.9. NO PETITION. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Trust Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that they will not at any time institute against the holder of the GP
Interest, or join in any institution against the holder of the GP Interest of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates, the Notes, this Agreement or any of the Basic Documents.
SECTION 11.10. NO RECOURSE. Each Certificateholder by accepting a
Trust Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Seller, the Master Servicer, the holder of the GP
Interest, the Owner Trustee, the Trustee or any Affiliate thereof and no
recourse may be had against such parties or their assets, except as may be
expressly set forth or contemplated in this Agreement, the Trust Certificates or
the Basic Documents.
SECTION 11.11. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE , WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. TRUST CERTIFICATE TRANSFER RESTRICTIONS. The Trust
Certificates may not be acquired by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title 1 of ERISA, (ii) a plan described in Section 4975(e) (1) of the Code, or
(iii) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
SECTION 11.14. MASTER SERVICER. The Master Servicer is authorized to
execute on behalf of the Trust all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the Trust to
prepare, file or deliver pursuant to the Basic Documents. Upon written request,
the Owner Trustee shall execute and deliver to the Master Servicer a power of
attorney appointing the Master Servicer the Trust's agent and attorney-in-fact
to execute all such documents, reports, filings, instruments, certificates and
opinions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized as of
the day and year first above written.
[OWNER TRUSTEE],
Owner Trustee
By: ____________________________
Name:
Title:
STRUCTURED ASSET MORTGAGE
INVESTMENTS INC.,
Seller
By: ____________________________
Name:
Title:
Accepted and Agreed with respect to the
provisions relating to the intended
holder of the GP Interest:
[INTENDED HOLDER OF GP INTEREST]
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT A
NUMBER
$-----------
R-___________ CUSIP NO.-------
SEE REVERSE FOR CERTAIN DEFINITIONS UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE PRINCIPAL
OF THIS TRUST CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS AS SET FORTH IN THE
TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS TRUST
CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS CERTIFICATE IS NOT TRANSFERABLE STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST
199_-_ MORTGAGE-BACKED CERTIFICATE evidencing a beneficial ownership interest in
certain distributions of the Trust, as defined below, the property of which
includes a pool of (i) mortgage loans or participations therein secured by one-
to four- family residential properties, (ii) loans or participations therein
secured by multifamily residential properties, (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,
(iv) conditional sales contracts and installment sales or loan agreements or
participations therein secured by manufactured housing, (v) mortgage
pass-through securities issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association, Freddie Mac (formerly,
Federal Home Loan Mortgage Corporation) or other governmental agencies or
government-sponsored agencies or (vi) privately issued mortgage-backed
securities sold to the Trust by Structured Asset Mortgage Investments Inc. (This
Trust Certificate does not represent an interest in or obligation of Structured
Asset Mortgage Investments Inc., or any of its Affiliates, except to the extent
described below.) THIS CERTIFIES THAT __________________________ is the
registered owner of _____________ DOLLARS nonassessable, fully paid, beneficial
ownership interest in certain distributions of Structured Asset Mortgage
Investments Trust 199_-_ (the "Trust") formed by Structured Asset Mortgage
Investments, Inc., a Delaware corporation (the "Seller"). The Trust Certificates
have a Certificate Rate of __________% per annum.
- - -----------------
1 To be inserted on the Certificate to be held by the holder of the GP Interest
<PAGE>
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
- - -------------------------- -------------------------
as Owner Trustee or as Owner Trustee
by: by:
Authenticating Agent
by:
The Trust was created pursuant to a Trust Agreement dated as of ____________,
199_ (the "Trust Agreement"), between the Seller and ________________, as owner
trustee (the "Owner Trustee"), a summary of certain of the pertinent provisions
of which is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the Trust
Agreement.
This Certificate is one of the duly authorized Trust Certificates designated as
Mortgage-Backed Certificates (herein called the "Trust Certificates"). Also
issued under the Indenture dated as of ____________, 199_, between the Trust and
____________, as trustee, are classes of Notes designated as [LIST THE CLASSES
OF NOTES]. This Trust Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which Trust Agreement the
holder of this Trust Certificate by virtue of the acceptance hereof assents and
by which such holder is bound. The property of the Trust includes (i) mortgage
loans or participations therein secured by one- to four-family residential
properties, (ii) loans or participations therein secured by multifamily
residential properties, (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, (iv)
conditional sales contracts and installment sales or loan agreements or
participations therein secured by manufactured housing, (v) mortgage
pass-through securities issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association, Freddie Mac (formerly,
Federal Home Loan Mortgage Corporation) or other governmental agencies or
government-sponsored agencies or (vi) privately issued mortgage-backed
securities (collectively, the "Mortgage Loans"), all monies received on the
Mortgage Loans on or after ___________, 199_, security interests in the
properties financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Trust Agreement and the Master Servicing Agreement.
Under the Trust Agreement, there will be distributed on the ______ day of each
month or, if such ______ day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing in ______________, 199_, to the Person in whose
name this Trust Certificate is registered at the close of business on the 14th
day of such month (the "Record Date") such Certificateholder's fractional
undivided interest in the amount to be distributed to Certificateholders on such
Distribution Date; provided, however, that principal will be distributed to the
Certificateholders on (to the extent of funds remaining after the Class ______
Notes have been paid in full) and after the date on which the Class _______
Notes have been paid in full. The holder of this Trust Certificate acknowledges
and agrees that its rights to receive distributions in respect of this Trust
Certificate are subordinated to the rights of the Noteholders as described in
the Master Servicing Agreement, the Indenture and the Trust Agreement, as
applicable.
It is the intent of the Seller, Master Servicer, holder of the GP Interest and
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders (including the holder of the
GP Interest) will be treated as partners in that partnership. The holder of the
GP Interest and the other Certificateholders by acceptance of a Trust
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Trust Certificates for such tax purposes as partnership
interests in the Trust.
Each Certificateholder, by its acceptance of a Trust Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
holder of the GP Interest, or join in any institution against the holder of the
GP Interest of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Trust Certificates, the Notes, the Trust Agreement or any of the Basic
Documents.
Distributions on this Trust Certificate will be made as provided in the Trust
Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Trust Certificate Register without the
presentation or surrender of this Trust Certificate or the making of any
notation hereon, except that with respect to Trust Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Trust Certificate will be made after due notice by
the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the [Borough of Manhattan,
The City of New York].
Reference is hereby made to the further provisions of this Trust Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by an
authorized officer of the Owner Trustee, by manual signature, this Trust
Certificate shall not entitle the holder hereof to any benefit under the Trust
Agreement or the Master Servicing Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Trust Certificate to be duly executed.
STRUCTURED ASSET MORTGAGE
INVESTMENTS TRUST 199_-_
By: ____________________________
as Owner Trustee
Dated: ___________________
By: ___________________
<PAGE>
(Reverse of Trust Certificate)
The Trust Certificates do not represent an obligation of, or an interest in, the
Seller, the Master Servicer, the holder of the GP Interest, the Owner Trustee or
any Affiliates of any of them and no recourse may be had against such parties or
their assets, except as may be expressly set forth or contemplated herein or in
the Trust Agreement, the Indenture or the Basic Documents. In addition, this
Trust Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections with
respect to the Mortgage Loans (and certain other amounts), all as more
specifically set forth herein and in the Master Servicing Agreement. The Trust
Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Master Servicing Agreement. A copy of each of the Master Servicing Agreement
and the Trust Agreement may be examined during normal business hours at the
principal office of the Seller, and at such other places, if any, designated by
the Seller, by any Certificateholder upon written request.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller and the rights of the Certificateholders under the Trust Agreement at any
time by the Seller and the Owner Trustee with the consent of the holders of the
Notes and the Trust Certificates evidencing not less than a majority of the
outstanding Notes and the [Certificate Balance]. Any such consent by the holder
of this Trust Certificate shall be conclusive and binding on such holder and on
all future holders of this Trust Certificate and of any Trust Certificate issued
upon the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Trust Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations therein
set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar
maintained by the Owner Trustee in [the Borough of Manhattan, The City of New
York], accompanied by a written instrument of transfer in form satisfactory to
the Owner Trustee and the Certificate Registrar duly executed by the holder
hereof or such holder's attorney duly authorized in writing, and thereupon one
or more new Trust Certificates in authorized denominations evidencing the same
aggregate interest in the Trust will be issued to the designated transferee.
The initial Certificate Registrar appointed under the Trust Agreement is
____________, ____________, ____________.
Except for Trust Certificates issued to the Seller and transferred to the holder
of the GP Interest, the Trust Certificates are issuable only as registered Trust
Certificates without coupons in denominations of $1,000 or integral multiples
thereof; except as otherwise provided in the Trust Agreement. As provided in the
Trust Agreement and subject to certain limitations therein set forth, Trust
Certificates are exchangeable for new Trust Certificates in authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Owner Trustee, the Certificate Registrar and any agent of the Owner Trustee
or the Certificate Registrar may treat the person in whose name this Trust
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Trust Agreement and the
Master Servicing Agreement and the disposition of all property held as part of
the Trust. The Seller of the Mortgage Loans may at its option purchase the
corpus of the Trust at a price specified in the Master Servicing Agreement, and
such purchase of the Mortgage Loans and other property of the Trust will effect
early retirement of the Trust Certificates; however, such right of purchase is
exercisable, subject to certain restrictions, only as of the last day of any
Collection Period as of which the Pool Balance is ___% or less of the Original
Pool Balance.
The Trust Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title 1
of ERISA, (b) a plan described in Section 4975(e) (l) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Trust Certificate, the Holder hereof shall be deemed to have represented and
warranted that it is not a Benefit Plan.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(Please print or type name and address, including postal zip code, of assignee)
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
Attorney to transfer said Trust Certificate on the books of the Trust
Certificate Registrar, with full power of substitution in the premises.
Dated: ____________________
*
Signature Guaranteed:
- - -------------------------
* NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatever. Such signature must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF TRUST OF
STRUCTURED ASSET MORTGAGE INVESTMENTS
TRUST 199_-_
THIS Certificate of Trust of Structured Asset Mortgage Investments Trust 199_-_
(the "Trust"), dated as of ______________, 199 , is being duly executed and
filed by _______________, a ___________, and _______________, a ____________, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST 199_-_.
2. Delaware Trustee. The name and business address of the
trustee of the Trust resident in the State of Delaware is
_______________.
3. This Certificate of Trust will be effective
_______________, 199_.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
______________________, not in its individual capacity but solely as owner
trustee of the Trust.
By: ______________________
Name: ______________________
Title:______________________
not in his individual capacity but solely as trustee of the Trust
Exhibit 5.1
Opinion and Consent of Stroock & Stroock & Lavan LLP
212-806-5400
June 16, 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.
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 10.1
MASTER SERVICING AGREEMENT
among
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST 199_-_,
Issuer,
STRUCTURED ASSET MORTGAGE INVESTMENTS INC.,
Seller,
and
----------------------,
Master Servicer
Dated as of ________________, 199_
<PAGE>
Exhibit 10.1
313 (a)..........................................................7.4
(b) (1).......................................................7.4
(b) (2)......................................................11.5
(c)...........................................................7.4
(d)...........................................................7.3
314 (a)........................................................11.15
(b)..........................................................11.1
(c) (1)......................................................11.1
(c) (2)......................................................11.1
(c) (3)......................................................11.1
(d)..........................................................11.1
(e)..........................................................11.1
(f)..........................................................11.1
315 (a)..........................................................6.1
(b).....................................................6.5; 11.5
(c)...........................................................6.1
(d)...........................................................6.1
(e)..........................................................5.13
316 (a) (last sentence)..........................................2.7
(a) (1) (A)..................................................5.11
(a) (1) (B)..................................................5.12
(a) (2).......................................................N A
(b)...........................................................5.7
(c)...........................................................N A
317 (a) (1)...................................................5.3
(a) (2).......................................................5.3
(b)...........................................................3.3
318 (a).........................................................11.7
1 Note: This Cross Reference Table shall not, for any purpose, be deemed
to be part of this Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions
SECTION 1.1. Definitions......................................1
SECTION 1.2. Other Definitional Provisions...................18
SECTION 1.3. Interest Calculations...........................18
ARTICLE II
Conveyance of Mortgage Loans
SECTION 2.1. Conveyance of Mortgage Loans....................18
SECTION 2.2. Acceptance by the Trustee.......................20
SECTION 2.3. Intentionally Omitted...........................21
SECTION 2.3. Representations and Warranties of the
Seller Regarding the Mortgage Loans..........21
SECTION 2.5. Substitution of Mortgage Loans..................21
ARTICLE III
Administration and Servicing of Mortgage Loans
SECTION 3.1. Duties of Master Servicer.......................22
SECTION 3.2. Collection and Allocation of Mortgage
Loan Payments.................................22
SECTION 3.3. Withdrawals from each Collection Account........23
SECTION 3.4. Maintenance of Hazard Insurance; Property
Protection Expenses...........................24
SECTION 3.5. Maintenance of Mortgage Impairment
Insurance Policy..............................25
SECTION 3.6. Fidelity Bond...................................25
SECTION 3.7. Management and Realization Upon
Defaulted Mortgage Loans.....................26
SECTION 3.8. Trustee to Cooperate............................26
SECTION 3.9. Servicing Fee...................................27
SECTION 3.10. Master Servicer's Certificate...................27
SECTION 3.11 Annual Statement as to Compliance;
Notice of Default.............................27
SECTION 3.12. Annual Independent Certified Public
Accountants' Report........................28
SECTION 3.13. Access to Certain Documentation and
Information Regarding Mortgage Loans.........28
SECTION 3.14. Master Servicer Expenses........................28
SECTION 3.15. Advances by the Master Servicer.................29
SECTION 3.16. Optional Purchase of Defaulted Mortgage Loans...29
SECTION 3.17. Superior Liens..................................30
SECTION 3.18. Payment of Taxes, Insurance and Other Charges...30
SECTION 3.18. Appointment of Sub-Servicer.....................30
ARTICLE IV
Distributions; Reserve Account; Statements to Certificateholders
and Noteholders
SECTION 4.1. Establishment of Trust Accounts.................31
SECTION 4.2. Intentionally Omitted...........................32
SECTION 4.3. Application of Collections......................32
SECTION 4.4. Additional Deposits.............................33
SECTION 4.5. Distributions...................................33
SECTION 4.6. Reserve Account.................................34
SECTION 4.7. Intentionally Omitted...........................34
SECTION 4.8 Statements to Certificateholders
and Noteholders...............................34
SECTION 4.9. Net Deposits....................................35
ARTICLE V
The Seller
SECTION 5.1. Representations of Seller.......................35
SECTION 5.2. Corporate Existence.............................36
SECTION 5.3 Liability of Seller; Indemnities................37
SECTION 5.4. Merger or Consolidation of, or Assumption
of the Obligations of, Seller................38
SECTION 5.5. Limitation on Liability of Seller and Others....39
SECTION 5.6. Seller May Own Certificates or Notes............39
ARTICLE VI
The Master Servicer
SECTION 6.1. Representations of Master Servicer..............39
SECTION 6.2. Indemnities of Master Servicer..................41
SECTION 6.3. Merger or Consolidation of, or Assumption
of the Obligations of, Master Servicer......41
SECTION 6.4. Limitation on Liability of Master
Servicer and Others...........................42
SECTION 6.5. ____________________ Not To Resign as
Master Servicer................................42
ARTICLE VII
Default
SECTION 7.1. Servicer Default................................43
SECTION 7.2. Appointment of Successor........................44
SECTION 7.3. Payment of Servicing Fee........................44
SECTION 7.4. Notification to Noteholders
and Certificateholders........................45
SECTION 7.5. Waiver of Past Defaults.........................45
ARTICLE VIII
Termination
SECTION 8.1. Optional Purchase of All Mortgage Loans.........45
ARTICLE IX
Administrative Duties of the Master Servicer
SECTION 9.1. Administrative Duties...........................46
SECTION 9.2. Records.........................................48
SECTION 9.3. Additional Information To Be
Furnished to the Issuer.......................48
ARTICLE X
Miscellaneous Provisions
SECTION 10.1. Amendment.......................................48
SECTION 10.2. Protection of Title to Trust....................49
SECTION 10.3. Notices.........................................51
SECTION 10.4. Assignment......................................51
SECTION 10.5. Limitations on Rights of Others.................51
SECTION 10.6. Severability....................................51
SECTION 10.7. Separate Counterparts...........................52
SECTION 10.8. Headings........................................52
SECTION 10.9. Governing Law...................................52
SECTION 10.10. Assignment to Trustee...........................52
SECTION 10.11. Nonpetition Covenant............................52
SECTION 10.12. Limitation of Liability of Owner
Trustee and Trustee.......................52
SECTION 10.13. Independence of the Master Servicer.............53
SECTION 10.14. No Joint Venture................................53
<PAGE>
MASTER SERVICING AGREEMENT dated as of _________________, 199_ , among
STRUCTURED ASSET MORTGAGE INVESTMENTS TRUST 199_-_, a Delaware business trust
(the "Issuer"), and STRUCTURED ASSET MORTGAGE INVESTMENTS INC., as Seller (the
"Seller"), and __________________________ as Master Servicer (the "Master
Servicer").
WHEREAS, The Issuer desires to purchase a portfolio of mortgage loans
from the Seller; and
WHEREAS, the Master Servicer is willing to service such mortgage
loans.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. DEFINITIONS. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Aggregate Net Losses" means with respect to a Due Period, the
aggregate principal balance of all Mortgage Loans newly designated during such
Due Period as Liquidated Mortgage Loans minus Liquidation Proceeds collected
during such Due Period with respect to all Liquidated Mortgage Loans.
"Agreement" means this Master Servicing Agreement, as the same may be
amended and supplemented from time to time.
"Assignment of Mortgage" means, with respect to any Mortgage, an
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Issuer, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loans secured by Mortgaged
Properties located in the same jurisdiction.
"Available Principal" means with respect to any Distribution Date, the
sum of the following amounts without duplication: (a) that portion of all
collections on the Mortgage Loans allocable to principal in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to the principal
amount of Mortgage Loans which became Liquidated Mortgage Loans during the
preceding Due Period in accordance with the Master Servicer's customary
servicing procedures; and (c) to the extent attributable to principal, the
Purchase Price of each Mortgage Loan repurchased by the Seller or purchased by
the Master Servicer during the preceding Due Period; provided, however, that in
calculating the Available Principal, all payments and proceeds (including
Liquidation Proceeds) of any Mortgage Loans repurchased by the Seller or
purchased by the Master Servicer the Purchase Price of which has been included
in the Available Principal in a prior Due Period shall be excluded.
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
the Indenture, the Depository Agreements and other documents and certificates
delivered in connection therewith.
"Business Day" means any day other than a Saturday or a Sunday or a
day on which banking institutions in The City of New York or
_______________________ are authorized or obligated by law, regulation or
executive order to remain closed.
"Certificate" means a Trust Certificate (as defined in the Trust
Agreement).
"Certificate Balance" equals, initially, $_______________ and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders.
"Certificate Distribution Account" has the meaning assigned to such
term in the Trust Agreement.
"Certificate Rate" means _____% per annum.
"Certificateholder" has the meaning assigned to such term in the Trust
Agreement.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest at the Certificate Rate that is
actually deposited in the Certificate Distribution Account on such preceding
Distribution Date, plus interest on such excess, to the extent permitted by law,
at the Certificate Rate from and including such preceding Distribution Date to
but excluding the current Distribution Date.
"Certificateholders' Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, 30 days of interest (or, in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the Certificate Rate on the
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all payments of principal to the Certificateholders on or prior to
such Distribution Date (or, in the case of the first Distribution Date, the
Certificate Balance on the Closing Date).
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distribution Amount or, with respect to any Distribution Date on or
after the Distribution Date on which the outstanding principal balance of the
Class ___ Notes is reduced to zero, _____% of the Principal Distribution Amount
(less any amount required on the first such Distribution Date to reduce the
outstanding principal balance of the Class ___ Notes to zero, which shall be
deposited into the Note Distribution Account).
"Certificateholders' Percentage" means 100% minus the Noteholders'
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Principal Distributable Amount for such Distribution Date and the
Certificateholders' Principal Carryover Shortfall as of the close of the
preceding Distribution Date; provided, however, that the Certificateholders'
Principal Distributable Amount shall not exceed the Certificate Balance. In
addition, on the Certificate Final Scheduled Distribution Date, the principal
required to be distributed to Certificateholders will include the lesser of (a)
any payments of principal due and remaining unpaid on each Mortgage Loan in the
Trust as of ___________, 199_ or (b) the portion of the amount that is necessary
(after giving effect to the other amounts to be deposited in the Certificate
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Certificate Balance to zero, in either case after giving effect to
any required distribution of the Noteholders' Principal Distributable Amount to
the Note Distribution Account. In addition, on any Distribution Date on which,
after giving effect to all distributions to the Master Servicer, the Noteholders
and the Certificateholders on such Distribution Date, (i) the outstanding
principal balance of the Notes is zero and (ii) the amount on deposit in the
Reserve Account is equal to or greater than the Certificate Balance,
Certificateholders' Principal Distributable Amount shall include an amount equal
to such Certificate Balance.
"Charge-off Rate" means, with respect to a Due Period, the Aggregate
Net Losses with respect to the Mortgage Loans expressed, on an annualized basis,
as a percentage of the average of (x) the Pool Balance on the last day of the
immediately preceding Due Period and (y) the Pool Balance on the last day in
such Due Period.
"Civil Relief Act" means the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended.
"Closing Date" means _____________, 199_.
"Collection Account" means the account designated as such, established
and maintained pursuant to Section 3.2(c).
"Cut-off Date" means ______________, 199_.
"Cut-off Date Principal Balance" means with respect to any Mortgage
Loan, the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute Mortgage
Loan pursuant to Section 2.2 or 2.4).
"Debt Service Reduction" means with respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan.
"Defective Mortgage Loan" means any Mortgage Loan subject to
repurchase or substitution pursuant to Section 2.2 or 2.4.
"Delinquency Percentage" means, with respect to a Due Period, the
ratio of (a) the outstanding principal balance of all outstanding Mortgage Loans
60 days or more delinquent (which amount shall include Mortgage Loans in respect
of Mortgaged Properties that have been repossessed but not yet sold or otherwise
liquidated) as of the last day of such Due Period, determined in accordance with
the Master Servicer's normal practices, divided by (b) the outstanding principal
balance of all Mortgage Loans on the last day of such Due Period.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9.105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trustee or its nominee
or custodian by physical delivery to the Trustee or its nominee or custodian
endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a financial intermediary (as
defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such certificated
securities as belonging to the Trustee or its nominee or custodian and the
sending by such financial intermediary of a confirmation of the purchase of such
certificated security by the Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the clearing
corporation of the certificated securities for the sole and exclusive account of
the financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section 8-102(4)
of the UCC) or the nominee of either subject to the clearing corporation's
exclusive control, the sending of a confirmation by the financial intermediary
of the purchase by the Trustee or its nominee or custodian of such securities
and the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S.
Treasury, Freddie Mac or Fannie Mae that is a book-entry security held through
the Federal Reserve System pursuant to federal book-entry regulations, the
following procedures, all in accordance with applicable law, including
applicable federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate book-entry account
maintained with a Federal Reserve Bank by a financial intermediary which is also
a "depository" pursuant to applicable federal regulations and issuance by such
financial intermediary of a deposit advice or other written confirmation of such
book-entry registration to the Trustee or its nominee or custodian of the
purchase by the Trustee or its nominee or custodian of such book-entry
securities; the making by such financial intermediary of entries in its books
and records identifying such book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations as belonging to the
Trustee or its nominee or custodian and indicating that such custodian holds
such Trust Account Property solely as agent for the Trustee or its nominee or
custodian; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that is
an uncertificated security under Article 8 of the UCC and that is not governed
by clause (b) above, registration on the books and records of the issuer thereof
in the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee or its nominee or custodian.
"Depository Agreements" mean the Certificate Depository Agreement and
the Note Depository Agreement.
"Determination Date" means, with respect to any Distribution Date, the
____ Business Day prior to each Distribution Date.
"Distribution Date" means, with respect to each Due Period, the ______
day of the following month, or if such day is not a Business Day, the
immediately following Business Day, commencing on ___________, 199_.
"Due Period" means a calendar month, except with respect to the first
Due Period, which shall be the period from the Cut-off Date to ____________,
199_. Any amount stated "as of the close of business on the last day of a Due
Period" shall give effect to the following calculations as determined as of the
end of the day on such last day: (1) all applications of collections and (2) all
distributions to be made on the immediately following Distribution Date.
"Eligible Deposit Account" means either (a) a segregated account with
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution (other than the Seller or any
affiliate of the Seller) organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), having corporate trust powers and acting as
trustee for funds deposited in such account, so long as any of the securities of
such depository institution have a credit rating from each Rating Agency in one
of its generic rating categories which signifies investment grade.
"Eligible Institution" means a depository institution (other than the
Seller or any affiliate of the Seller) organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), which has (i) either a long-term
senior unsecured debt rating of ____ or a short-term senior unsecured debt or
certificate of deposit rating of ____ or better by ________ and (ii) a long-term
senior unsecured debt rating of ___ or better and (2) a short-term senior
unsecured debt rating of ___ or better by _______, or any other long-term,
short-term or certificate of deposit rating acceptable to the Rating Agencies
and (ii) whose deposits are insured by the Federal Deposit Insurance
Corporation. If so qualified, the Owner Trustee or the Trustee may be considered
an Eligible Institution.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit
of any depository institution (including the Seller or any Affiliate of the
Seller) or trust company incorporated under the laws of the United States of
America or any state thereof or the District of Columbia (or any domestic branch
of a foreign bank) and subject to supervision and examination by federal or
state banking or depository institution authorities (including depository
receipts issued by any such institution or trust company as custodian with
respect to any obligation referred to in clause (a) above or portion of such
obligation for the benefit of the holders of such depository receipts);
provided, however, that at the time of the investment or contractual commitment
to invest therein (which shall be deemed to be made again each time funds are
reinvested following each Distribution Date), the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company
shall have a credit rating from ___________ of ___ and from __________ of ___;
(c) commercial paper (including commercial paper of the Seller
or any Affiliate of the Seller) having, at the time of the investment or
contractual commitment to invest therein, a rating from ____________ of ___ and
from ____________ of ___;
(d) investments in money market funds (including funds for
which the Seller, the Trustee or the Owner Trustee or any of their respective
Affiliates is investment manager or advisor) having a rating from ______________
of ___ and from ___________ of ___;
(e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are backed by
the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) referred to in clause (b) above; and
(g) any other investment which would not cause either Rating
Agency to downgrade or withdraw its then current rating of any class of Notes or
the Certificates.
"Eligible Substitute Mortgage Loan" means a Mortgage Loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance not in excess of and not
more than ___% less than the Principal Balance of the Defective Mortgage Loan;
(ii) have a current Mortgage Rate not less than the Mortgage Rate of the
Defective Mortgage Loan and not more than ___% in excess of the Mortgage Rate of
such Defective Mortgage Loan; (iii) have a Mortgage of the same or higher level
of lien priority as the Mortgage relating to the Defective Mortgage Loan at the
time such Mortgage was transferred to the Trust; (iv) have a remaining term to
maturity not more than six months earlier and not later than the remaining term
to maturity of the Defective Mortgage Loan; (v) comply with each representation
and warranty set forth in Section 2.4 (deemed to be made as of the date of
substitution); and (vi) have an original Loan-to-Value Ratio not greater than
that of the Defective Mortgage Loan.
"Fannie Mae" means Federal National Mortgage Association or any
successor thereto.
"Final Scheduled Distribution Date" means with respect to [List All
Classes of Notes] and their Respective Final Scheduled Distribution Dates .
"Final Scheduled Maturity Date" means __________, 20__.
"First Lien" means, with respect to any Mortgage Loan which is a
second priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.
"Foreclosure Profits" means, with respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of the related Net
Liquidation Proceeds exceeds (ii) the related Principal Balance (plus accrued
and unpaid interest thereon at the applicable Mortgage Rate from the date
interest was last paid through the date of receipt of the final Liquidation
Proceeds) of such Liquidated Mortgage Loan immediately prior to the final
recovery of its Liquidation Proceeds.
"Freddie Mac" means Freddie Mac (formerly Federal Home Loan Mortgage
Corporation) or any successor thereto.
"GP Interest" means the _____% interest in the Trust held by
___________________, a ______________, pursuant to the Trust Agreement.
"Indenture" means the Indenture dated as of ______________, 199_,
between the Issuer and the Trustee, as the same may be amended and supplemented
from time to time.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver
(including any receiver appointed under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended), liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the consent by
such Person to the entry of an order for relief in an involuntary case under any
such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its property,
or the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of any
of the foregoing.
"Insurance Proceeds" means proceeds paid by any insurer pursuant to
any insurance policy covering a Mortgage Loan, or amounts required to be paid by
the Master Servicer pursuant to Section 3.5, net of any component thereof (i)
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such proceeds, (ii) that is applied to the restoration
or repair of the related Mortgaged Property, (iii) released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures or (iv)
required to be paid to any holder of a mortgage senior to such Mortgage Loan.
"Interest Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts without duplication: (a) that portion of
all collections on the Mortgage Loans allocable to interest in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to interest on the
Mortgage Loans which became Liquidated Mortgage Loans during the preceding Due
Period in accordance with the Master Servicer's customary servicing procedures;
(c) the Purchase Price of each Mortgage Loan that became a Purchased Mortgage
Loan during the preceding Due Period to the extent attributable to accrued
interest on such Mortgage Loan; (d) Recoveries for such Due Period and (e)
Investment Earnings for such Distribution Date; provided, however, that in
calculating the Interest Distribution Amount, all payments and proceeds
(including Liquidation Proceeds) of any Purchased Mortgage Loans the Purchase
Price of which has been included in the Interest Distribution Amount in a prior
Due Period shall be excluded.
"Investment Earnings" means, with respect to any Distribution Date,
the investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts and the Certificate Distribution Account to be
deposited into the Collection Account on such Distribution Date pursuant to
Section 4.1(b).
"Issuer" means Structured Asset Mortgage Investments Trust 199_-_.
"Lien" means a security interest, lien, charge, pledge or encumbrance
of any kind, other than tax liens, mechanics' liens and any liens which attach
to the respective Mortgage Loan by operation of law as a result of any act or
omission by the related Mortgagor.
"Liquidated Mortgage Loan" means, as to any Distribution Date, any
Mortgage Loan with respect to which the Master Servicer has determined, in
accordance with the servicing procedures specified herein, as of the end of the
related Due Period that all Liquidation Proceeds which it expects to recover
with respect to the liquidation of the Mortgage Loan or disposition of the
related REO Property have been recovered.
"Liquidation Proceeds" means proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Mortgage Loan or related REO
Property, whether through trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio" means the fraction, expressed as a percentage,
the numerator of which is the original principal balance of the related Mortgage
Loan and the denominator of which is the Original Value of the related Mortgaged
Property.
"Master Servicer" means _______________, the Master Servicer of the
Mortgage Loans, and each successor to _________________ (in the same capacity)
pursuant to Section 6.3 or 7.2.
"Master Servicer's Certificate" means an Officers' Certificate of the
Master Servicer delivered pursuant to Section 3.10.
"Monthly Advance" means an advance made by the Master Servicer
pursuant to Section 3.15 hereof.
"Monthly Payment" means the scheduled monthly payment of principal
and/or interest required to be made by a Mortgagor on the related Mortgage Loan.
"Mortgage" means the mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
"Mortgage File" means, with respect to any Mortgage Loan,
collectively, the following documents (and any additional documents required to
be added to the Mortgage File pursuant to this Agreement): (i) The original
Mortgage Note, with all prior and intervening endorsements showing a complete
chain of endorsements from the originator of the Mortgage Loan to the Person so
endorsing the Mortgage Loan to the Trustee, endorsed by such Person "Pay to the
order of, ____________, as Trustee for Structured Asset Mortgage Investments
Trust 199_-_ without recourse" and signed, by facsimile or manual signature, in
the name of the Seller by a Responsible Officer; (ii) any of: (1) the original
Mortgage, and related power of attorney, if any, with evidence of recording
thereon, (2) a copy of the Mortgage and related power of attorney, if any,
certified as a true copy of the original Mortgage or power of attorney by a
Responsible Officer of the Seller or by the closing attorney by facsimile or
manual signature, or by an officer of the title insurer or agent of the title
insurer that issued the related title insurance policy if the original has been
transmitted for recording until such time as the original is returned by the
public recording office or (3) a copy of the Mortgage and related power of
attorney, if any, certified by the public recording office; (iii) the original
Assignment of Mortgage in recordable form, to "___________, as Trustee for
Structured Asset Mortgage Investments Trust 199_-_", provided that any such
Assignments of Mortgage may be made by blanket assignments for Mortgage Loans
secured by the Mortgaged Properties in the same county, if permitted by
applicable law; (iv) the original lender's policy of title insurance or a true
copy thereof, or if such original lender's title insurance policy has been lost,
a copy thereof certified by the appropriate title insurer to be true and
complete, or if such lender's title insurance policy has not been issued as of
the Closing Date, a marked up commitment (binder) to issue such policy; (v) all
intervening assignments, if any, showing a complete chain of assignments from
the originator to the Seller, including any recorded warehousing assignments,
with evidence of recording thereon, certified by a Responsible Officer of the
Seller by facsimile or manual signature as a true copy of the original of such
intervening assignments; and (vi) originals of all assumption, written
assurance, substitution and modification agreements, if any.
"Mortgage Loan" means a fixed rate mortgage loan identified in the
Mortgage Loan Schedule.
"Mortgage Loan Schedule" means with respect to any date, the schedule
of Mortgage Loans included in the Trust on such date. The initial schedule of
Mortgage Loans as of the Cut- off Date is the schedule set forth herein as
Exhibit A, which schedule sets forth as to each Mortgage Loan (i) the Cut-Off
Date Principal Balance, (ii) the account number, (iii) the original principal
amount, (iv) the Loan-to-Value Ratio as of the date of the origination of the
related Mortgage Loan, (v) the Due Date, (vi) the Mortgage Rate, (vii) the first
date on which a Monthly Payment is due under the Mortgage Note, (viii) the
original stated maturity date of the Mortgage Note, (ix) the remaining number of
months to maturity as of the Cut-off Date, (x) the state in which the related
Mortgaged Property is situated, (xi) the type of property, and (xii) the lien
status.
"Mortgage Note" means the originally executed note or other evidence
of indebtedness evidencing the indebtedness of a Mortgagor under the related
Mortgage Loan.
"Mortgage Rate" means the rate per annum at which interest accrues
with respect to a Mortgage Loan.
"Mortgaged Property" means the land and improvements securing the
indebtedness of a Mortgagor under the related Mortgage Loan.
"Mortgagor" means the obligor or obligors on a Mortgage Note.
"Net Liquidation Proceeds" means, with respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of unreimbursed Servicing Fees,
unreimbursed Servicing Advances and Monthly Advances with respect thereto.
"Net Rate" means, with respect to any Mortgage Loan as to any day, the
Mortgage Rate less the related Servicing Fee Rate.
"Nonrecoverable Advances" means, with respect to any Mortgage Loan,
(i) any Monthly Advance previously made and not reimbursed pursuant to Section
3.2(c) or 3.3(ii), or (ii) a Servicing Advance or Monthly Advance proposed to be
made in respect of a Mortgage Loan or REO Property which, in the good faith
business judgment of the Master Servicer, will not or, in the case of a proposed
advance, would not be ultimately recoverable pursuant to Sections 3.2(c) or
3.3(ii).
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 4.1.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Distribution Date, over the
amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus interest on the
amount of interest due but not paid to Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the respective Interest Rate borne by
each class of Notes from such preceding Distribution Date through the current
Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, the product of (i)(A) in the case of the Class
___ Notes, the product of the Interest Rate for such class and a fraction, the
numerator of which is the number of days elapsed from and including the prior
Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date and the
denominator of which is ______ and (B) in the case of each other class of Notes,
of the Interest Rate for such class (or, in the case of the first Distribution
Date, the Interest Rate for such class multiplied by a fraction, the numerator
of which is the number of days elapsed from and including the Closing Date to
but excluding such Distribution Date and the denominator of which is _______)
and (ii) the outstanding principal balance of the Notes of such class on the
immediately preceding Distribution Date, after giving effect to all
distributions of principal to Noteholders of such class on such Distribution
Date (or, in the case of the first Distribution Date, on the Closing Date).
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Noteholders' Percentage of the Principal
Distribution Amount.
"Noteholders' Percentage" means 100% until the point in time at which
[List All Classes of Notes] have been paid in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account.
"Noteholders' Principal Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholder's Monthly Principal
Distributable Amount for such Distribution Date and the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date;
provided, however, that the Noteholders' Principal Distributable Amount shall
not exceed the outstanding principal balance of the Notes. In addition, on the
Final Scheduled Distribution Date of each class of Notes, the principal required
to be deposited in the Note Distribution Account will include the amount
necessary (after giving effect to the other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Current Principal Amount of such class of Notes to zero.
"Officers' Certificate" means a certificate signed by (a) the chairman
of the board, the president, the vice chairman of the board, any executive vice
president, any senior vice president or any vice president and (b) a cashier,
assistant cashier, secretary or assistant secretary of the Seller or the Master
Servicer, as appropriate, provided that no one person may sign in a capacity
fulfilling both clause (a) and clause (b). "Opinion of Counsel" means one or
more written opinions of counsel who may be an employee of or counsel to the
Seller or the Master Servicer, which counsel shall be acceptable to the Trustee,
the Owner Trustee or the Rating Agencies, as applicable.
"Original Pool Balance" means the Pool Balance as of the Cut-off Date
which is $_____________.
"Original Value" means the value of the Mortgaged Property at the time
of origination of the related Mortgage Loan, such value being the lower of the
value of such property set forth in an appraisal acceptable to the originator of
the Mortgage Loan or the sales price of such property at the time of origination
or, in the case of a refinancing, the value of such property set forth in an
appraisal acceptable to the originator.
"Owner Trust Estate" has the meaning assigned to such term in the
Trust Agreement.
"Owner Trustee" means _______________, not in its individual capacity
but solely as Owner Trustee under the Trust Agreement, its successors in
interest or any successor Owner Trustee under the Trust Agreement.
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pool Balance" as of the close of business on the last day of a Due
Period means the aggregate Principal Balance of the Mortgage Loans (excluding
Purchased Mortgage Loans and Liquidated Mortgage Loans).
"Primary Mortgage Insurance Policy" means the certificate of primary
mortgage insurance relating to a particular Mortgage Loan, or any replacement
policy therefor.
"Principal Balance" means as to any Mortgage Loan other than a
Liquidated Mortgage Loan and any day, the related Cut-Off Date Principal Balance
(or unpaid principal balance as of the date of substitution), minus all
collections credited against the Principal Balance of any such Mortgage Loan.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have a Principal Balance equal to the Principal Balance of the related Mortgage
Loan immediately prior to the final recovery of related Liquidation Proceeds and
a Principal Balance of zero thereafter.
"Principal Distribution Amount" means, with respect to any
Distribution Date, the sum of the following amounts, without duplication, in
respect of the preceding Due Period: (a) that portion of all collections on
Mortgage Loans allocable to principal, (b) Liquidation Proceeds attributable to
the principal amount of Mortgage Loans which became Liquidated Mortgage Loans
during such Due Period in accordance with the Master Servicer's customary
servicing procedures, plus the amount of Realized Losses with respect to such
Liquidated Mortgage Loans, (c) to the extent attributable to principal, the
Purchase Price of each Mortgage Loan that became a Purchased Mortgage Loan
during such Due Period and (d) on the Final Scheduled Distribution Date for the
Certificates, any amounts advanced by the Master Servicer on such Final
Scheduled Distribution Date with respect to principal on the Mortgage Loans;
provided, however, that in calculating the Principal Distribution Amount the
following will be excluded: (i) all payments and proceeds (including Liquidation
Proceeds) of any Purchased Mortgage Loans the Purchase Price of which has been
included in the Principal Distribution Amount in a prior Due Period and (ii)
Recoveries.
"Purchase Price" means as to any Defective Mortgage Loan repurchased
on any date pursuant to Sections 2.2 or 2.4, an amount equal to the sum of (i)
the unpaid Principal Balance thereof, (ii) the greater of (a) all unpaid accrued
interest thereon and (b) _____ days' interest thereon, computed at the
applicable Mortgage Rate and (iii) any unreimbursed Servicing Advances with
respect to such Mortgage Loan; provided, however, that if at the time of
repurchase the Seller or an Affiliate is the Master Servicer, the amount
described in clause (ii) shall be computed at the Net Rate.
"Purchased Mortgage Loan" means a Mortgage Loan purchased as of the
close of business on the last day of a Due Period by the Master Servicer
pursuant to Section 3.16 or repurchased by the Seller pursuant to Section 2.2.
"Rating Agency" means __________ or ___________ and/or any other
rating agency requested by the Seller or an affiliate thereof to rate the Notes
and/or the Certificates. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Seller, notice of
which designation shall be given to the Trustee, the Owner Trustee and the
Master Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given ____ days' prior notice thereof (or such
shorter period as shall be acceptable to the Rating Agencies) and that neither
of the Rating Agencies shall have notified the Seller, the Master Servicer, the
Owner Trustee or the Trustee in writing that such action will, in and of itself,
result in a reduction or withdrawal of the then current rating of any class of
Notes, or the Certificates.
"Realized Losses" means the excess of the Principal Balance of any
Liquidated Mortgage Loan over Liquidation Proceeds to the extent allocable to
principal.
"Recoveries" means, with respect to any Liquidated Mortgage Loan,
monies collected in respect thereof, from whatever source, during any Due Period
following the Due Period in which such Mortgage Loan became a Liquidated
Mortgage Loan, net of the sum of any amounts expended by the Master Servicer for
the account of the Mortgagor and any amounts required by law to be remitted to
the Mortgagor.
"REO Property" means a Mortgaged Property that is acquired by the
Master Servicer on behalf of the Trustee in foreclosure or by deed-in-lieu of
foreclosure.
"Released Mortgaged Property Proceeds" means, as to any Mortgage Loan,
proceeds received by the Master Servicer in connection with (a) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise,
which are not released to the Mortgagor in accordance with applicable law,
mortgage servicing standards the Master Servicer would use in servicing mortgage
loans for its own account and this Agreement.
"Reserve Account" means the account designated as such, established
and maintained pursuant to Section 4.1.
"Reserve Account Initial Deposit" means, with respect to the Closing
Date, $________________.
"Reserve Account Transfer Amount" means an amount equal to the lesser
of (i) the amount of cash or other immediately available funds on deposit in the
Reserve Account on such Distribution Date (before giving effect to any
withdrawals therefrom relating to such Distribution Date) or (ii) the amount, if
any, by which (x) the sum of the Total Servicing Fee, the Noteholders' Interest
Distributable Amount, the Certificateholders' Interest Distributable Amount, the
Noteholders' Principal Distributable Amount and the Certificateholders'
Principal Distributable Amount for such Distribution Date exceeds (y) the sum of
the Interest Distribution Amount and the Available Principal for such
Distribution Date.
"Responsible Officer" means respect to any entity the President, any
Vice President or officer performing similar functions on behalf of such entity.
"Seller" means Structured Asset Mortgage Investments Inc., as the
seller of the Mortgage Loans, and each successor to Structured Asset Mortgage
Investments Inc. (in the same capacity) to the extent permitted hereunder.
"Servicer Default" means an event specified in Section 7.1.
"Servicing Advances" means all reasonable and customary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with the
obligations under Sections 3.4 or 3.7 and (v) in connection with the liquidation
of a Mortgage Loan, expenditures relating to the purchase or maintenance of the
First Lien pursuant to Section 3.17.
"Servicing Compensation" means the Servicing Fee, the Supplemental
Servicing Fee and any other amounts to which the Master Servicer is entitled
pursuant to Section 3.9.
"Servicing Fee" has the meaning specified in Section 3.9.
"Servicing Fee Rate" means a rate of _____% per annum.
"Servicing Officer" means any officer of the Master Servicer or a
sub-servicer through which all or part of the Master Servicer's servicing
responsibilities are carried out, involved in, or responsible for, the
administration and servicing of the Mortgage Loans whose name and specimen
signature appear on a list of servicing officers furnished to the Trustee by the
Master Servicer as such list may from time to time be amended in accordance with
the foregoing.
"Specified Reserve Account Balance" means, with respect to (i) any
Distribution Date prior to the Distribution Date on which the Current Principal
Amount of the Class ____ Notes has been paid in full, $______________ and (ii)
any Distribution Date on or after the Distribution Date on which the Current
Principal Amount of the Class ____ Notes has been paid in full, the greater of
(a) _________% of the sum of the aggregate outstanding principal amount of each
class of Notes plus the outstanding Certificate Balance on such Distribution
Date (after giving effect to all payments on the Notes and distributions with
respect to the Certificates to be made on such Distribution Date); or (b)
______% of the sum of the aggregate initial principal of the Notes plus the
initial Certificate Balance except that, if on any Distribution Date (x) the
average of the Charge off Rates for the _______ preceding Due Periods exceeds
____% or (y) the average of the Delinquency Percentages for the _______
preceding Due Periods exceeds _____%, then the Specified Reserve Account Balance
shall be an amount equal to ________% of the sum of the aggregate Current
Principal Amount of each class of Notes and the aggregate outstanding
Certificate Balance on such Distribution Date (after giving effect to all
payments on the Notes and distributions with respect to the Certificates to be
made on such Distribution Date).
"Supplemental Servicing Fee" means the fee payable to the Master
Servicer for certain services rendered during the respective Due Period,
determined pursuant to and defined in Section 3.9.
"Total Servicing Fee" means with respect to each Distribution Date the
Servicing Fee for the related Due Period and all accrued and unpaid Servicing
Fees for prior Due Periods.
"Total Distribution Amount" means, for each Distribution Date, the sum
of (i) the Interest Distribution Amount, (ii) the Available Principal and (iii)
the Reserve Account Transfer Amount, in each case in respect of such
Distribution Date; provided, however, that if on the Class ____ Final Scheduled
Distribution Date, the Total Distribution Amount (as defined above) would be
insufficient to pay the Total Servicing Fee, Noteholders' Interest Distributable
Amount, Certificateholders' Interest Distributable Amount and the Noteholders'
Principal Distributable Amount for such Distribution Date, then the Total
Distribution Amount for such Distribution Date will include, in addition to the
Total Distribution Amount (as defined above), an amount, up to the amount
necessary to pay any such items, of the Interest Distribution Amount and the
Available Principal on deposit (or, if the conditions specified in Section
3.2(c) have been satisfied, that would have been required to have been deposited
but for the satisfaction of such conditions) in the Collection Account on the
Determination Date relating to such Class A-1 Final Scheduled Distribution Date
which would have constituted the Interest Distribution Amount or Available
Principal, as the case may be, for the Due Period relating to the succeeding
Distribution Date and the Interest Distribution Amount and Available Principal,
as the case may be, for such succeeding Distribution Date will be reduced
accordingly.
"Transfer Date" means, with respect to any Distribution Date, the
Business Day preceding such Distribution Date.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, and all
proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 4.1.
"Trust Agreement" means the Trust Agreement dated as of __________,
199_ between the Seller and the Owner Trustee, as the same may be amended and
supplemented from time to time.
"Trust Officer" means, (i) in the case of the Trustee, any Officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject and (ii)
in the case of the Owner Trustee, any officer in the corporate trust office of
the Owner Trustee with direct responsibility for the administration of this
Agreement or any of the Basic Documents on behalf of the Owner Trustee.
"Trustee" means the Person acting as Trustee under the Indenture, its
successors in interest and any successor trustee under the Indenture, or, if at
the date of determination instruments acknowledging satisfaction and discharge
of the Indenture with respect to the Notes have been executed as provided in
Section 4.1 of the Indenture, then "Trustee" shall mean the Owner Trustee.
SECTION 1.2. OTHER DEFINITIONAL PROVISIONS. (a) Capitalized terms used
herein and not otherwise defined herein have the meanings assigned to them in
the Indenture, or, if not defined therein, in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed
hereby and in any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
SECTION 1.3. INTEREST CALCULATIONS. Unless otherwise provided in the
applicable Mortgage Note, Mortgage or Mortgage File, all calculations of
interest hereunder that are made in respect of the Principal Balance of a
Mortgage Loan or in respect of the Notes or the Certificates shall be made on
the basis of a 360-day year consisting of twelve 30-day months. The calculation
of the Servicing Fee shall be made on the basis of the actual number of days
elapsed and a year assumed to consist of 365 days.
ARTICLE II
Conveyance of Mortgage Loans
SECTION 2.1. Conveyance of Mortgage Loans. (a) In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the Certificates and the other
amounts to be distributed from time to time to the Seller in accordance with the
terms of this Agreement, the Seller does hereby sell, transfer, assign, set over
and otherwise convey to the Issuer, without recourse (subject to the obligations
herein): (A) all right, title and interest of the Seller in and to the Mortgage
Loans, and all moneys received thereon, on or after the Cut-off Date; (B) all
right, title and interest of the Seller in the security interests in the
Mortgaged Properties granted by Mortgagors pursuant to the Mortgage Loans and
any other interest of the Seller in the Mortgaged Properties; (C) the interest
of the Seller in any proceeds with respect to the Mortgage Loans from claims on
any physical damage, theft, credit life or disability insurance policies
covering Mortgaged Properties or Mortgagors; (D) all right, title and interest
in all funds on deposit from time to time in the Certificate Distribution
Account, in the Trust Accounts, including the Reserve Account Initial Deposit,
and in all investments and proceeds thereof (including all income thereon); and
(E) the proceeds of any and all of the foregoing. In connection with such
transfer, assignment and conveyance by the Seller, the Seller shall deliver to,
and deposit with the Trustee, on or before the Closing Date, the following
documents or instruments with respect to each Mortgage Loan (the "Related
Documents"): (i) The original Mortgage Note, with all prior and intervening
endorsements showing a complete chain of endorsements from the originator of the
Mortgage Loan to the Person so endorsing the Mortgage Loan to the Trustee,
endorsed by such Person "Pay to the order of ___________, as Trustee for Stearns
Mortgage Securities Trust 199_-_ without recourse" and signed, by facsimile or
manual signature, in the name of the Seller by a Responsible Officer; (ii) Any
of: (1) the original Mortgage, and related power of attorney, if any, with
evidence of recording thereon, (2) a copy of the Mortgage and related power of
attorney, if any, certified as a true copy of the original Mortgage or power of
attorney by a Responsible Officer of the Seller or by the closing attorney by
facsimile or manual signature, or by an officer of the title insurer or agent of
the title insurer that issued the related title insurance policy if the original
has been transmitted for recording until such time as the original is returned
by the public recording office or (3) a copy of the Mortgage and related power
of attorney, if any, certified by the public recording office; (iii) The
original Assignment of Mortgage in recordable form, to "__________ , as Trustee
for Structured Asset Mortgage Investments Trust 199_-_ ". Any such Assignments
of Mortgage may be made by blanket assignments for Mortgage Loans secured by the
Mortgaged Properties in the same county, if permitted by applicable law; (iv)
The original lender's policy of title insurance or a true copy thereof, or if
such original lender's title insurance policy has been lost, a copy thereof
certified by the appropriate title insurer to be true and complete, or if such
lender's title insurance policy has not been issued as of the Closing Date, a
marked up commitment (binder) to issue such policy; (v) All intervening
assignments, if any, showing a complete chain of assignments from the originator
to the Seller, including any recorded warehousing assignments, with evidence of
recording thereon, certified by a Responsible Officer of the Seller by facsimile
or manual signature as a true copy of the original of such intervening
assignments; and (vi) Originals of all assumption, written assurance,
substitution and modification agreements, if any. In instances where the
original recorded Mortgage cannot be delivered by the Seller to the Trustee
prior to or concurrently with the execution and delivery of this Agreement due
to a delay in connection with recording, the Seller may in lieu of delivering
such original recorded Mortgage, deliver to the Trustee a copy thereof, provided
that the Seller certifies that the original Mortgage has been delivered to a
title insurance company for recordation after receipt of its policy of title
insurance or binder therefor. In all such instances, the Seller will deliver or
cause to be delivered the original recorded Mortgage to the Trustee promptly
upon receipt of the original recorded Mortgage but in no event later than one
year after the Closing Date.
(b) The Trustee agrees, for the benefit of the Noteholders and the
Certificateholders, within 90 days after execution and delivery of this
Agreement, to review the Mortgage Files to ascertain that all required documents
set forth in paragraphs (i) -- (v) of Section 2.1(a) have been executed and
received, and that the Mortgage Notes have been endorsed as set forth in Section
2.1(a), and that such documents relate to the Mortgage Loans identified on the
Mortgage Loan Schedule and in so doing the Trustee may rely on the purported due
execution and genuineness of any signature thereon. If within such 90-day period
the Trustee finds any document constituting a part of a Mortgage File not to
have been executed or received or to be unrelated to the Mortgage Loans
identified in said Mortgage Loan Schedule or, if in the course of its review,
the Trustee determines that such Mortgage File is otherwise defective in any
material respect, the Trustee shall promptly upon the conclusion of its review
notify the Seller, and the Seller shall have a period of 90 days after such
notice within which to correct or cure any such defect.
(c) The Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in Section 2.1(b). Without limiting
the effect of the preceding sentence, in reviewing any Mortgage File pursuant to
such subsection, the Trustee shall have no responsibility for determining
whether any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form (except, if applicable, to determine
if the Trustee is the assignee or endorsee), whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded, but shall not be required to determine whether any Person
executing any document is authorized to do so or whether any signature thereon
is genuine.
SECTION 2.2. Acceptance by Trustee. The Trustee hereby acknowledges,
subject to the review and period for delivery provided for in Section 2.1, its
receipt of the Mortgage Files, and declares that the Trustee holds and will hold
such documents and all amounts received by it thereunder and hereunder in trust,
upon the terms herein set forth, for the use and benefit of all present and
future Noteholders and Certificateholders. If the Seller is given notice under
Section 2.1(c) above and if the Seller does not correct or cure such omission or
defect within the 90-day period specified in Section 2.1(c) above, the Seller
shall substitute one or more Eligible Substitute Mortgage Loans therefor as
provided in Section 2.5 hereof or purchase such Mortgage Loan from the Trustee
on the Determination Date in the month following the month in which such 90-day
period expired at the Purchase Price of such Mortgage Loan. The Purchase Price
for the purchased Mortgage Loan shall be deposited in the Collection Account no
later than the applicable Determination Date or the Business Day preceding the
expiration of such 90-day period, as the case may be, and, upon receipt by the
Trustee of written notification of such deposit signed by an officer of the
Seller, the Trustee shall release to the Seller the related Mortgage File and
the Trustee shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
Seller or its designee any Mortgage Loan released pursuant hereto. It is
understood and agreed that the obligation of the Seller to cure, substitute for
or purchase any Mortgage Loan as to which a material defect in or omission of a
constituent document exists shall constitute the sole remedy against the Seller
respecting such defect or omission available to the Issuer.
SECTION 2.4. Intentionally Omitted.
SECTION 2.4. REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING
THE MORTGAGE LOANS. The Seller represents and warrants to the Issuer as follows
as of the Closing Date: [Insert representations and warranties regarding the
Mortgage Loans.].
SECTION 2.5. SUBSTITUTION OF MORTGAGE LOANS. (a) On a Determination
Date within two years following the Closing Date and which is on or before the
date on which the Seller would otherwise be required to repurchase a Mortgage
Loan under Section 2.2 or 2.4, the Seller may deliver to the Trustee one or more
Eligible Substitute Mortgage Loans in substitution for any one or more of the
Defective Mortgage Loans which the Seller would otherwise be required to
repurchase pursuant to Sections 2.2 or 2.4. (b) The Seller shall notify the
Issuer, the Owner Trustee, the Servicer and the Trustee in writing not less than
five Business Days before the related Determination Date which is on or before
the date on which the Seller would otherwise be required to repurchase such
Mortgage Loan pursuant to Section 2.2 or 2.4 of its intention to effect a
substitution under this Section. On such Determination Date (the "Substitution
Date"), the Seller shall deliver to the Issuer (1) the Eligible Substitute
Mortgage Loans to be substituted for the Original Mortgage Loans, (2) a list of
the Original Mortgage Loans to be substituted for by such Eligible Substitute
Mortgage Loans, (3) an Officers' Certificate (A) stating that no failure by the
Servicer described in Section 7.1 shall have occurred and be continuing, (B)
stating that all conditions precedent to such substitution specified in
subsection (a) have been satisfied and attaching as an exhibit a supplemental
Mortgage Loan schedule (the "Supplemental Mortgage Loan Schedule") setting forth
the same type of information as appears on the Mortgage Loan Schedule and
representing as to the accuracy thereof and (C) confirming that the
representations and warranties contained in Section 2.4 are true and correct in
all material respects with respect to the Substitute Mortgage Loans on and as of
such Determination Date, provided that remedies for the inaccuracy of such
representations are limited as set forth in Sections 2.2, 2.4 and this Section
2.5 and (4) a certificate stating that cash in the amount of the related
Substitution Adjustment, if any, has been deposited to the Collection Account.
Upon receipt of the foregoing, the Issuer shall release such Original Mortgage
Loans to the Seller. (c) Concurrently with the satisfaction of the conditions
set forth in Section 2.5(a) and (b) above and the grant of such Eligible
Substitute Mortgage Loans to the Trustee pursuant to Section 2.5(a) above,
Exhibit A to this Agreement shall be deemed to be amended to exclude all
Mortgage Loans being replaced by such Eligible Substitute Mortgage Loans and to
include the information set forth on the Supplemental Mortgage Loan Schedule
with respect to such Eligible Substitute Mortgage Loans, and all references in
this Agreement to Mortgage Loans shall include such Eligible Substitute Mortgage
Loans and be deemed to be made on or after the related Substitution Date, as the
case may be, as to such Eligible Substitute Mortgage Loans.
ARTICLE III
Administration and Servicing of Mortgage Loans
SECTION 3.1. DUTIES OF MASTER SERVICER. (a) The Master Servicer, as
agent for the Issuer (to the extent provided herein) shall supervise, or take
such actions as are necessary to ensure, the servicing and administration of the
Mortgage Loans and any REO Property in accordance with this Agreement and the
customary and usual standards of an institution prudently servicing mortgage
loans for its own account and shall have full authority to do anything it
reasonably deems appropriate in connection with such servicing and
administration. The Master Servicer shall maintain servicing standards
equivalent to those required for approval by Fannie Mae or Freddie Mac. The
Master Servicer may perform its responsibilities relating to servicing through
other agents or independent contractors, but shall not thereby be released from
any of its responsibilities as hereinafter set forth. The authority of the
Master Servicer, in its capacity as Master Servicer, shall include the power to
(i) supervise the filing and collection of insurance claims and take or cause to
be taken such actions on behalf of the insured person thereunder as shall be
reasonably necessary to prevent the denial of coverage thereunder, and (ii)
effectuate foreclosure or other conversion of the ownership of the Mortgaged
Property securing a related Mortgage Loan, including the employment of
attorneys, the institution of legal proceedings, the collection of deficiency
judgments, the acceptance of compromise proposals, the filing of claims under
any Primary Insurance Policy and any other matter pertaining to a delinquent
Mortgage Loan. The authority of the Master Servicer shall include, in addition,
the power to (i) execute and deliver customary consents or waivers and other
instruments and documents, (ii) consent to transfers of any related Mortgaged
Property and assumptions of the related Mortgage Notes and Security Instruments
(but only in the manner provided in this Agreement) and (iii) collect any
Insurance Proceeds and Liquidation Proceeds. Without limiting the generality of
the foregoing, the Master Servicer is authorized and empowered to execute and
deliver, on behalf of itself, the Issuer, the Owner Trustee, the Trustee, the
Certificateholders and the Noteholders or any of them, any and all instruments
of satisfaction or cancellation, or partial or full release or discharge, and
all other comparable instruments, with respect to such Mortgage Loans or to the
Mortgaged Properties securing such Mortgage Loans.
(b) Notwithstanding the provisions of Subsection 3.1(a), the Master
Servicer shall not take any action inconsistent with the interest of the
Noteholders or the Certificateholders in the Mortgage Loans or with the rights
and interests of the Owner Trustee, the Trustee, the Noteholders or the
Certificateholders under this Agreement.
(c) The Owner Trustee shall furnish the Master Servicer with any
powers of attorney and other documents in form as provided to it necessary or
appropriate (as certified to the Owner Trustee by the Master Servicer) to enable
the Master Servicer to service and administer the related Mortgage Loans and REO
Property.
SECTION 3.2. COLLECTION AND ALLOCATION OF MORTGAGE LOAN PAYMENTS. (a)
The Master Servicer shall make reasonable efforts to collect all payments called
for under the terms and provisions of the Mortgage Loans as and when the same
shall become due and shall follow such collection procedures as it follows with
respect to all mortgage loans in its servicing portfolio comparable to the
Mortgage Loans that it services for itself or others.
(b) Consistent with the terms of this Agreement, the Master Servicer
may waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Master Servicer's determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Noteholders and the Certificateholders; provided, however,
that the Master Servicer may not permit any modification with respect to any
Mortgage Loan that would change the Mortgage Rate, defer or forgive the payment
of any principal or interest (unless in connection with the liquidation of the
related Mortgage Loan) or extend the Final Scheduled Maturity Date on the
Mortgage Loan. No costs incurred by the Master Servicer in respect of Servicing
Advances shall for the purposes of distributions to Noteholders or
Certificateholders be added to the amount owing under the related Mortgage Loan.
(c) The Master Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the Trustee an
Eligible Deposit Account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Noteholders and the Certificateholders. The Collection Account shall
initially be established with the Trustee. The Master Servicer shall on the
Closing Date deposit into the Collection Account any amounts representing
payments on and any collections in respect of the Mortgage Loans received on or
after the Cut-off Date and prior to the Closing Date, and thereafter shall use
its best efforts to deposit within one Business Day, and shall in any event
deposit within _______ Business Days following receipt thereof the following
payments and collections received or made by it (without duplication) with
respect to the Mortgage Loans: (i) all payments received on and after the
Cut-off Date on account of principal on the Mortgage Loans and all full or
partial prepayments collected after the Cut-off Date; (ii) all payments received
on and after the Cut-off Date on account of interest on the Mortgage Loans;
(iii) all Net Liquidation Proceeds net of Foreclosure Profits; (iv) all
Insurance Proceeds; (v) all Released Mortgaged Property Proceeds; (vi) any
amounts payable in connection with the repurchase of any Mortgage Loan; and
(vii) any amount required to be deposited in the Collection Account pursuant to
Sections 3.5, 3.7, 3.15, 3.16 or 8.1; provided, however, that (x) with respect
to each Due Period, the Master Servicer shall be permitted to retain from
payments in respect of interest on the Mortgage Loans, the Servicing Fee for
such Due Period and (y) the Master Servicer shall be permitted to retain late
collections, including Liquidation Proceeds, Released Mortgaged Property
Proceeds and Insurance Proceeds, to the extent of any unpaid Servicing Fees,
unreimbursed Monthly Advances and/or Servicing Advances with respect to the
related Mortgage Loan. The foregoing requirements respecting deposits to the
Collection Account are exclusive, it being understood that, without limiting the
generality of the foregoing, the Master Servicer need not deposit in the
Collection Account amounts representing Foreclosure Profits, fees (including
annual fees), late charges or penalties payable by Mortgagors, or amounts
received by the Master Servicer for the accounts of Mortgagors for application
towards the payment of taxes, insurance premiums, assessments and similar items.
SECTION 3.3. WITHDRAWALS FROM EACH COLLECTION Account. The Trustee
shall withdraw or cause to be withdrawn funds from the Collection Account for
the following purposes with respect to the Mortgage Loans: (i) the deposits and
distributions required by Section 4.5(d); (ii) to the extent not retained by the
Master Servicer as provided in Section 3.2(c), to reimburse the Master Servicer
for any accrued unpaid Servicing Fees and for unreimbursed Monthly Advances and
Servicing Advances. The Master Servicer's right to reimbursement for unpaid
Servicing Fees and unreimbursed Servicing Advances shall be limited to late
collections on the related Mortgage Loan, including Liquidation Proceeds,
Released Mortgaged Property Proceeds, Insurance Proceeds and such other amounts
as may be collected by the Master Servicer from the related Mortgagor or
otherwise relating to the Mortgage Loan in respect of which such reimbursed
amounts are owed. If a Monthly Advance was made net of the Servicing Fee as
permitted by Section 3.15 hereof, no additional Servicing Fee for the related
Mortgage loan and Due Period shall be payable. The Master Servicer's right to
reimbursement from such Collection Account for unreimbursed Monthly Advances
shall be limited to late collections of interest on any Mortgage Loan and to
Liquidation Proceeds and Insurance Proceeds on related Mortgage Loans; (iii) to
withdraw any amount received from a Mortgagor that is recoverable and sought to
be recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code in accordance with a final, nonappealable order of
a court having competent jurisdiction; (iv) (a) to make investments in Eligible
Investments and (b) to pay to the Master Servicer interest earned in respect of
Eligible Investments or on funds deposited in the Collection Account; (v) to
withdraw any funds deposited in such Collection Account that were not required
to be deposited therein (such as Servicing Compensation) or were deposited
therein in error and to pay such funds to the appropriate Person; (vi) to pay
the Master Servicer Servicing Compensation pursuant to Section 3.9 hereof to the
extent not retained or paid pursuant to Section 3.2(c); (vii) to withdraw funds
necessary for the conservation and disposition of REO Property pursuant to
Section 3.7; and (viii) to clear and terminate such Collection Account upon the
termination of this Agreement and to pay any amounts remaining therein in
accordance with Section 8.1(b).
SECTION 3.4. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Master Servicer shall cause to be maintained for each Mortgage
Loan fire and hazard insurance naming the Master Servicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time, (ii) the combined principal balance owing on
such Mortgage Loan and any related First Lien and (iii) the minimum amount
required to compensate for damage or loss on a replacement cost basis. The
Master Servicer shall also maintain on property acquired upon foreclosure, or by
deed in-lieu of foreclosure, hazard insurance with extended coverage in an
amount which is at least equal to the lesser of (i) the maximum insurable value
from time to time of the improvements which are a part of such property, (ii)
the combined principal balance owing on such Mortgage Loan and any related First
Lien and (iii) the minimum amount required to compensate for damage or loss on a
replacement cost basis at the time of such foreclosure, fire and or deed in lieu
of foreclosure plus accrued interest and the good-faith estimate of the Master
Servicer of related Servicing Advances to be incurred in connection therewith.
Amounts collected by the Master Servicer under any such policies shall be
deposited in the Collection Account to the extent called for by Section 3.2. In
cases in which any Mortgaged Property is located in a federally designated flood
area, the hazard insurance to be maintained for the related Mortgage Loan shall
include flood insurance to the extent such flood insurance is available and the
Master Servicer has determined such insurance to be necessary in accordance with
accepted mortgage loan servicing standards for mortgage loans comparable to the
Mortgage Loans. All such flood insurance shall be in amounts equal to the least
of the amount in clause (i) above, clause (ii) above and the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
The Master Servicer shall be under no obligation to require that any Mortgagor
maintain earthquake or other additional insurance and shall be under no
obligation itself to maintain any such additional insurance on property acquired
in respect of a Mortgage Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance.
SECTION 3.5. MAINTENANCE OF MORTGAGE IMPAIRMENT INSURANCE POLICY. In
the event that the Master Servicer shall obtain and maintain a blanket policy
with an insurer having a General Policy rating of A:VIII or better in Best's Key
Rating Guide insuring against fire and hazards of extended coverage on all of
the Mortgage Loans, then, to the extent such policy names the Master Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance, and otherwise
complies with the requirements of Section 3.4, the Master Servicer shall be
deemed conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage under Section 3.4, it being understood and agreed that
such blanket policy may contain a deductible clause, in which case the Master
Servicer shall, in the event that there shall not have been maintained on the
related Mortgaged Property a policy complying with Section 3.4, and there shall
have been a loss which would have been covered by such policy, deposit in the
Collection Account the difference, if any, between the amount that would have
been payable under a policy complying with Section 3.4 and the amount paid under
such blanket policy. Upon the request of the Owner Trustee or the Trustee, the
Master Servicer shall cause to be delivered to the Owner Trustee or the Trustee
a certified true copy of such policy. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Master Servicer agrees to
prepare and present, on behalf of itself, the Owner Trustee, the Trustee, the
Noteholders and the Certificateholders, claims under any such policy in a timely
fashion in accordance with the terms of such policy.
SECTION 3.6. FIDELITY BOND. The Master Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, in a minimum amount acceptable to Fannie
Mae or Freddie Mac or otherwise in an amount as is commercially available at a
cost that is not generally regarded as excessive by industry standards, with
broad coverage on all officers, employees or other persons acting in any
capacity requiring such persons to handle funds, money, documents or papers
relating to the Mortgage Loans ("Master Servicer Employees"). Any such fidelity
bond and errors and omissions insurance shall protect and insure the Master
Servicer against losses, including losses resulting from forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such Master
Servicer Employees. Such fidelity bond shall also protect and insure the Master
Servicer against losses in connection with the release or satisfaction of a
Mortgage Loan without having obtained payment in full of the indebtedness
secured thereby. No provision of this Section 3.6 requiring such fidelity bond
and errors and omissions insurance shall diminish or relieve the Master Servicer
from its duties and obligations as set forth in this Agreement. Upon the request
of the Owner Trustee or the Trustee, the Master Servicer shall cause to be
delivered to the Owner Trustee or the Trustee a certified true copy of such
fidelity bond and insurance policy.
SECTION 3.7. MANAGEMENT AND REALIZATION UPON DEFAULTED MORTGAGE LOANs.
On behalf of the Issuer, the Master Servicer shall manage, conserve, protect and
operate each REO Property for the Noteholders and the Certificateholders solely
for the purpose of its prudent and prompt disposition and sale. The Master
Servicer shall, either itself or through an agent selected by the Master
Servicer, manage, conserve, protect and operate the REO Property in the same
manner that it manages, conserves, protects and operates other foreclosed
property for its own account, and in the same manner that similar property in
the same locality as the REO Property is managed. The Master Servicer shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Master Servicer deems to be in the best interests of the
Noteholders and the Certificateholders. The Master Servicer shall cause to be
deposited, no later than ________ Business Days after the receipt thereof, in
the Collection Account, all revenues received with respect to the related REO
Property and shall retain, or cause the Trustee to withdraw therefrom funds
necessary for the proper operation, management and maintenance of the REO
Property and the fees of any managing agent acting on behalf of the Master
Servicer. The disposition of REO Property shall be carried out by the Master
Servicer for cash at such price, and upon such terms and conditions, as the
Master Servicer deems to be in the best interests of the Noteholders and the
Certificateholders and, as soon as practicable thereafter, the expenses of such
sale shall be paid. The cash proceeds of sale of the REO Property shall be
promptly deposited in the Collection Account, net of Foreclosure Profits and of
any related unreimbursed Servicing Advances, accrued and unpaid Servicing Fees
and unreimbursed Monthly Advances payable to the Master Servicer in accordance
with Section 3.3, for distribution to the Noteholders and the Certificateholders
in accordance with Section 4.5 hereof. The Master Servicer shall foreclose upon
or otherwise comparably convert to ownership Mortgaged Properties securing such
of the Mortgage Loans as come into and continue in default when no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.2. In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Owner Trustee, or to its nominee on behalf of the
Noteholders and the Certificateholders.
SECTION 3.8. TRUSTEE TO COOPERATE. Upon payment in full of any
Mortgage Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.1, if the related Assignment of Mortgage
has been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage, which instrument of satisfaction shall be recorded by the
Master Servicer if required by applicable law and be delivered to the Person
entitled thereto. It is understood and agreed that no expenses incurred in
connection with such instrument of satisfaction or transfer shall be reimbursed
from amounts deposited in the Collection Account. If the Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Trustee shall, upon request of the Master
Servicer and delivery to the Trustee of a Request for Release, in the form
approved by the Trustee signed by a Servicing Officer, release the related
Mortgage File to the Master Servicer, and the Trustee shall execute such
documents, in the forms provided by the Master Servicer, as shall be necessary
to the prosecution of any such proceedings or the taking of other servicing
actions. Such Request for Release shall obligate the Master Servicer to return
the Mortgage File to the Trustee when the need therefor by the Master Servicer
no longer exists unless the Mortgage Loan shall be liquidated, in which case,
upon receipt of a certificate of a Servicing Officer similar to that hereinabove
specified, the Request for Release shall be released by the Trustee to the
Master Servicer. In order to facilitate the foreclosure of the Mortgage securing
any Mortgage Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Master Servicer, execute an appropriate
assignment in the form provided to the Trustee by the Master Servicer to assign
such Mortgage Loan for the purpose of collection to the Master Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit or credit the Net
Liquidation Proceeds, exclusive of Foreclosure Profits, received with respect
thereto in the Collection Account. In the event that all delinquent payments due
under any such Mortgage Loan are paid by the Mortgagor and any other defaults
are cured then the assignee for collection shall promptly reassign such Mortgage
Loan to the Trustee and return it to the place where the related Mortgage File
was being maintained.
SECTION 3.9. SERVICING FEE. The servicing fee for a Distribution Date
shall equal the product of (a) one-twelfth, (b) the Servicing Fee Rate and (c)
the Pool Balance as of the first day of the preceding Due Period (the "Servicing
Fee"). The Master Servicer shall also be entitled to all late payment charges
and other administrative fees or similar charges, including without limitation,
Foreclosure Profits, allowed by applicable law with respect to Mortgage Loans,
collected (from whatever source) on the Mortgage Loans (the "Supplemental
Servicing Fee"). The Master Servicer also shall be entitled to and may retain
from Collections the Servicing Fee, as provided herein. The Master Servicer, in
its discretion at its election, may defer receipt of all or any portion of the
Servicing Fee or Supplemental Servicing Fee for any Due Period to and until a
later Due Period for any reason, including in order to avoid a shortfall in any
payments due on any Notes or Certificates. Any such deferred amount shall be
payable to (or may be retained from subsequent collections by) the Master
Servicer on demand.
SECTION 3.10. MASTER SERVICER'S CERTIFICATE. On each Determination
Date, the Master Servicer shall deliver to the Owner Trustee, the Trustee and
the Seller, with a copy to the Rating Agencies, a Master Servicer's Certificate
containing all information necessary to make the distributions pursuant to
Sections 4.5 and 4.6 for the Due Period preceding the date of such Master
Servicer's Certificate. Mortgage Loans to be purchased by the Master Servicer or
to be repurchased by the Seller shall be identified by the Master Servicer by
account number with respect to such Mortgage Loan (as specified in Exhibit A).
SECTION 3.11 ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT. (a)
The Master Servicer shall deliver to the Owner Trustee and the Trustee, on or
before of each year beginning _________, 199__, an Officers' Certificate, dated
as of December 31 of the preceding year, stating that (i) a review of the
activities of the Master Servicer during the preceding twelve-month period (or,
in the case of the first such report, during the period from the Closing Date to
December 31, 199__) and of its performance under this Agreement has been made
under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Master Servicer has fulfilled all its
obligations under this Agreement throughout such year or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officers and the nature and status thereof. The Trustee shall send
a copy of such certificate and the report referred to in Section 3.10 to the
Rating Agencies. A copy of such certificate and the report referred to in
Section 3.10 may be obtained by any Certificateholder by a request in writing to
the Owner Trustee addressed to the Corporate Trust Office (as defined in the
Trust Agreement) or by any Noteholder by a request in writing to the Trustee
addressed to the Corporate Trust Office. Upon the telephone request of the Owner
Trustee, the Trustee will promptly furnish the Owner Trustee a list of
Noteholders as of the date specified by the Owner Trustee.
(b) The Master Servicer shall deliver to the Owner Trustee, the
Trustee and the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than _____ Business Days thereafter, written
notice in an Officers' Certificate of any event which with the giving of notice
or lapse of time, or both, would become a Servicer Default under Section 7.1(a)
or (b).
SECTION 3.12. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT.
The Master Servicer shall cause a firm of independent certified public
accountants, which may also render other services to the Master Servicer or the
Seller, to deliver to the Seller, the Owner Trustee and the Trustee on or before
of each year beginning __________, 199__, a letter addressed to the Master
Servicer, the Seller, the Owner Trustee and the Trustee and each Rating Agency,
to the effect that such firm has with respect to the Master Servicer's overall
servicing operations examined such operations in accordance with the
requirements of the Uniform Single Audit Program for Mortgage Bankers during the
preceding calendar year (or, in the case of the first such report, during the
period from the Closing Date to December 31, 199__), and stating such firm's
conclusions relating thereto. Such report will also indicate that the firm is
independent of the Master Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
SECTION 3.13. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING MORTGAGE LOANS. The Master Servicer shall provide to the
Certificateholders and Noteholders access to the Mortgage Files in such cases
where the Certificateholders or Noteholders shall be required by applicable
statutes or regulations to review such documentation as demonstrated by evidence
satisfactory to the Master Servicer in its reasonable judgment. Access shall be
afforded without charge, but only upon reasonable request and during the normal
business hours at the respective offices of the Master Servicer. Nothing in this
Section 3.13 shall affect the obligation of the Master Servicer to observe any
applicable law prohibiting disclosure of information regarding the Mortgagors
and the failure of the Master Servicer to provide access to information as
provided in this Section 3.13 as a result of such obligation shall not
constitute a breach of this Section 3.13.
SECTION 3.14. MASTER SERVICER EXPENSES. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its activities
hereunder, including fees and disbursements of independent accountants, taxes
imposed on the Master Servicer and expenses incurred in connection with
distributions and reports to Certificateholders and Noteholders.
SECTION 3.15. ADVANCES BY THE MASTER SERVICER. (a) Not later than the
close of business on the _______ Business Day preceding each Distribution Date,
the Master Servicer shall remit to the Trustee for deposit in the Collection
Account an amount, to be distributed on the related Distribution Date pursuant
to Section 4.5(d), equal to the sum of (a) the interest accrued on each Mortgage
Loan at the Mortgage Rate (or at such lower rate as may be in effect for such
Mortgage Loan pursuant to application of the Civil Relief Act and/or any Debt
Service Reduction) through the related Due Date, but not received as of the
close of business on the Determination Date for such Distribution Date (net of
the Servicing Fee) and (b) with respect to each REO Property which was acquired
during or prior to the related Due Period and as to which a final disposition
did not occur during the related Due Period, an amount equal to the excess, if
any, of interest on the Principal Balance of such REO Property at the Net Rate
for the most recently ended Due Period prior to the related Determination Date
for the related Mortgage Loan over the net income from the REO Property
transferred to the Collection Account for such Distribution Date pursuant to
Section 3.4; such sum being defined herein as the "Monthly Advance." The Master
Servicer may fund all or a portion of the Monthly Advance with respect to the
Mortgage Loans by instructing the Trustee on such Determination Date to use
funds deposited in the Collection Account which are not part of the Total
Distribution Amount for the related Distribution Date; provided that if such
funds are so used the Master Servicer shall replace such funds on or before any
subsequent Determination Date on which such funds are required to be part of the
Total Distribution Amount.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the Master
Servicer determines that such Servicing Advance or Monthly Advance would, if
made, constitute a Nonrecoverable Advance.
SECTION 3.16. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE Loans. The
Master Servicer, in its sole discretion, shall have the right to elect (by
written notice sent to the Seller, the Owner Trustee and the Trustee) to
purchase for its own account from the Issuer any Mortgage Loan which is 90 days
or more delinquent in the manner and at the price specified in Section 2.2. The
Purchase Price for any Mortgage Loan purchased hereunder shall be deposited in
the Collection Account and the Trustee, upon receipt of such deposit, shall
release or cause to be released to the Master Servicer or its designee the
related Mortgage File and shall execute and deliver such instruments of transfer
or assignment prepared by the purchaser of such Mortgage Loan, in each case
without recourse, as shall be necessary to vest in the purchaser of such
Mortgage Loan any Mortgage Loan released pursuant hereto and the purchaser of
such Mortgage Loan shall succeed to all the Issuer's right, title and interest
in and to such Mortgage Loan and all security and documents related thereto.
Such assignment shall be an assignment outright and not for security. The
purchaser of such Mortgage Loan shall thereupon own such Mortgage Loan, and all
security and documents, free of any further obligation to the Owner Trustee, the
Trustee, the Noteholders or the Certificateholders with respect thereto.
SECTION 3.16. SUPERIOR LIENS. The Master Servicer shall file (or cause
to be filed) of record a request for notice of any action by a superior
lienholder under a First Lien for the protection of the Issuer's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. If the Master
Servicer is notified that any superior lienholder has accelerated or intends to
accelerate the obligations secured by the First Lien, or has declared or intends
to declare a default under the mortgage or the promissory note secured thereby,
or has filed or intends to file an election to have the Mortgaged Property sold
or foreclosed, the Master Servicer shall take, on behalf of the Trust, whatever
actions are necessary to protect the interests of the Noteholders and the
Certificateholders, and/or to preserve the security of the related Mortgage
Loan. The Master Servicer shall advance the necessary funds to cure the default
or reinstate the superior lien, if the Master Servicer reasonably believes such
advance is in the best interests of the Noteholders and the Certificateholders.
The Master Servicer shall not make such an advance except to the extent that it
determines in its reasonable good faith judgment that the advance would be
recoverable from Liquidation Proceeds on the related Mortgage Loan.
SECTION 3.17. PAYMENT OF TAXES, INSURANCE AND OTHER Charges. With
respect to each Mortgage Loan, the Master Servicer shall maintain accurate
records reflecting fire and hazard insurance coverage. With respect to each
Mortgage Loan as to which the Master Servicer maintains escrow accounts, the
Master Servicer shall maintain accurate records reflecting the status of ground
rents, taxes, assessments, water rates and other charges which are or may become
a lien upon the Mortgaged Property and the status of primary mortgage guaranty
insurance premiums, if any, and fire and hazard insurance coverage and shall
obtain, from time to time, all bills for the payment of such charges (including
renewal premiums) and shall effect payment thereof prior to the applicable
penalty or termination date and at a time appropriate for securing maximum
discounts allowable, employing for such purpose deposits of the Mortgagor in any
escrow account which shall have been estimated and accumulated by the Master
Servicer in amounts sufficient for such purposes, as allowed under the terms of
the Mortgage. To the extent that a Mortgage does not provide for escrow
payments, the Master Servicer shall, if it has received notice of a default or
deficiency, monitor such payments to determine if they are made by the
Mortgagor.
SECTION 3.18. APPOINTMENT OF SUB-SERVICER. The Master Servicer may at
any time appoint a sub-servicer to perform all or any portion of its obligations
as Master Servicer hereunder; provided, however, that the Rating Agency
Condition shall have been satisfied in connection therewith; provided further
that the Master Servicer shall remain obligated and be liable to the Issuer, the
Owner Trustee, the Trustee, the Certificateholders and the Noteholders for the
servicing and administering of the Mortgage Loans in accordance with the
provisions hereof without diminution of such obligation and liability by virtue
of the appointment of such sub-servicer and to the same extent and under the
same terms and conditions as if the Master Servicer alone were servicing and
administering the Mortgage Loans. The fees and expenses of the sub-servicer
shall be as agreed between the Master Servicer and its sub-servicer from time to
time and none of the Issuer, the Owner Trustee, the Trustee, the
Certificateholders or the Noteholders shall have any responsibility therefor.
ARTICLE IV
Distributions; Reserve Account; Statements to Certificateholders
and Noteholders
SECTION 4.1. ESTABLISHMENT OF TRUST ACCOUNTS. (a) (i) The Master
Servicer, for the benefit of the Noteholders, shall establish and maintain in
the name of the Trustee an Eligible Deposit Account (the "Note Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Noteholders. The Note Distribution
Account shall initially be established with the Trustee.
(ii) The Master Servicer, for the benefit of the
Noteholders and the Certificateholders, shall establish and maintain in the name
of the Trustee an Eligible Deposit Account (the "Reserve Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Noteholders and the Certificateholders. The Reserve Account shall
be maintained with the Trustee as long as the Trustee is an Eligible
Institution.
(b) Funds on deposit in the Collection Account, the Note
Distribution Account and the Reserve Account (collectively, the "Trust
Accounts") and the Certificate Distribution Account shall be invested by the
Trustee with respect to Trust Accounts and by the Owner Trustee with respect to
the Certificate Distribution Account (or any custodian with respect to funds on
deposit in any such account) in Eligible Investments selected in writing by the
Master Servicer (pursuant to standing instructions or otherwise); provided,
however, it is understood and agreed that neither the Trustee nor the Owner
Trustee shall be liable for any loss arising from such investment in Eligible
Investments. All such Eligible Investments shall be held by or on behalf of the
Trustee or the Owner Trustee, as applicable, for the benefit of the Noteholders
and the Certificateholders, the Noteholders or the Certificateholders, as
applicable; provided that on each Distribution Date all interest and other
investment income (net of losses and investment expenses) on funds on deposit
therein shall be deposited into the Collection Account and shall be deemed to
constitute a portion of the Interest Distribution Amount. Other than as
permitted by the Rating Agencies, funds on deposit in the Collection Account,
the Note Distribution Account, the Certificate Distribution Account and the
Reserve Account shall be invested in Eligible Investments that will mature so
that such funds will be available at the close of business on the Transfer Date
preceding the following Distribution Date. Funds deposited in a Trust Account or
the Certificate Distribution Account on a Transfer Date which immediately
precedes a Distribution Date upon the maturity of any Eligible Investments are
not required to be invested overnight.
(c) (i) The Trustee shall possess all right, title and interest
in all funds on deposit from time to time in the Trust Accounts and in all
proceeds thereof (including all income thereon) and all such funds, investments,
proceeds and income shall be part of the Owner Trust Estate. Except as otherwise
provided herein, the Trust Accounts shall be under the sole dominion and control
of the Trustee for the benefit of the Noteholders and the Certificateholders, or
the Noteholders, as the case may be. If, at any time, any of the Trust Accounts
or the Certificate Distribution Account ceases to be an Eligible Deposit
Account, the Trustee (or the Master Servicer on its behalf) or the Owner
Trustee, as applicable, shall within ____ Business Days (or such longer period
as to which each Rating Agency may consent) establish a new Trust Account or a
new Certificate Distribution Account, as applicable, as an Eligible Deposit
Account and shall transfer any cash and/or any investments to such new Trust
Account or a new Certificate Distribution Account, as applicable. In connection
with the foregoing, the Master Servicer agrees that, in the event that any of
the Trust Accounts are not accounts with the Trustee, the Master Servicer shall
notify the Trustee in writing promptly upon any of such Trust Accounts ceasing
to be an Eligible Deposit Account.
(iii) With respect to the Trust Account
Property, the Trustee, and with respect to the Certificate Distribution Account,
the Owner Trustee, agrees, by its respective acceptance hereof, that: (A) any
Trust Account Property or any property in the Certificate Distribution Account
that is held in deposit accounts shall be held solely in the Eligible Deposit
Accounts subject to the penultimate sentence of Section 4.1(c)(i); and, except
as otherwise provided herein, each such Eligible Deposit Account shall be
subject to the exclusive custody and control of the Trustee with respect to the
Trust Accounts and the Owner Trustee with respect to the Certificate
Distribution Account, and the Trustee or the Owner Trustee, as applicable, shall
have sole signature authority with respect thereto; (B) any Trust Account
Property that constitutes Physical Property shall be delivered to the Trustee in
accordance with paragraph (a) of the definition of "Delivery" and shall be held,
pending maturity or disposition, solely by the Trustee or a financial
intermediary (as such term is defined in Section 8-313(4) of the UCC) acting
solely for the Trustee; (C) any Trust Account Property that is a book-entry
security held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee, pending
maturity or disposition, through continued book-entry registration of such Trust
Account Property as described in such paragraph; and (D) any Trust Account
Property that is an "uncertificated security" under Article 8 of the UCC and
that is not governed by clause (C) above shall be delivered to the Trustee in
accordance with paragraph (c) of the definition of "Delivery" and shall be
maintained by the Trustee, pending maturity or disposition, through continued
registration of the Trustee's (or its nominee's) ownership of such security.
(iv) The Master Servicer shall have the power,
revocable by the Trustee or by the Owner Trustee with the consent of the
Trustee, to instruct the Trustee to make withdrawals and payments from the Trust
Accounts for the purpose of permitting the Master Servicer or the Owner Trustee
to carry out its respective duties hereunder or permitting the Trustee to carry
out its duties under the Indenture.
SECTION 4.2. INTENTIONALLY OMITTED.
SECTION 4.3. APPLICATION OF COLLECTIONS. All collections for the Due
Period shall be applied by the Master Servicer to interest and then to
principal. All Liquidation Proceeds shall be applied to the related Mortgage
Loan in accordance with the Master Servicer's customary servicing procedures.
SECTION 4.4. ADDITIONAL DEPOSITS. The Master Servicer and the Seller
shall deposit or cause to be deposited in the Collection Account the aggregate
Purchase Price with respect to Purchased Mortgage Loans and the Seller shall
deposit therein all amounts to be paid under Section 8.1. The Master Servicer
will deposit the aggregate Purchase Price with respect to Purchased Mortgage
Loans within ________ Business Days after such obligations become due, unless
the Master Servicer shall not be required to make deposits within two Business
Days of receipt pursuant to Section 3.2(c) (in which case such deposit will be
made by the related Transfer Date). All such other deposits shall be made on the
Transfer Date following the end of the related Due Period.
SECTION 4.5. DISTRIBUTIONS. (a) On each Distribution Date, the Trustee
shall cause to be transferred to the Collection Account, in immediately
available funds, the aggregate prepayments for the related Due Period, pursuant
to Sections 4.3, and any additional amounts required by Section 4.4, in the
amounts set forth in the Master Servicer's Certificate for such Distribution
Date. A single, net transfer may be made.
(b) On each Determination Date, the Master Servicer shall
calculate all amounts required to determine the amounts to be deposited from the
Reserve Account into the Collection Account and from the Collection Account into
the Note Distribution Account and the Certificate Distribution Account.
(c) On or before each Distribution Date, the Master Servicer
shall instruct the Trustee (based on the information contained in the Master
Servicer's Certificate delivered on the related Determination Date pursuant to
Section 3.10) to withdraw from the Reserve Account and deposit in the Collection
Account and the Trustee shall so withdraw and deposit the Reserve Account
Transfer Amount for such Distribution Date.
(d) On each Distribution Date, the Master Servicer shall
instruct the Trustee (based on the information contained in the Master
Servicer's Certificate delivered on the related Determination Date pursuant to
Section 3.10) to make, and the Trustee shall make, the following deposits and
distributions from the Collection Account for deposit in the applicable Account
by ________ [A.M.][P.M.], to the extent of the Total Distribution Amount, in the
following order of priority: (i) to the Master Servicer, from the Total
Distribution Amount, the Total Servicing Fee; (ii) to the Note Distribution
Account, from the Total Distribution Amount remaining after the application of
clause (i), the Noteholders' Interest Distributable Amount; (iii) to the Owner
Trustee for deposit in the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i) and clause
(ii), the Certificateholders' Interest Distributable Amount; (iv) to the Note
Distribution Account, from the Total Distribution Amount remaining after the
application of clauses (i) through (iii), the Noteholders' Principal
Distributable Amount; and (v) to the Owner Trustee for deposit in the
Certificate Distribution Account, from the Total Distribution Amount remaining
after the application of clauses (i) through (iv), the Certificateholders'
Principal Distributable Amount; provided, however, that following the occurrence
of an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iv) or 5.1(v) of
the Indenture, an acceleration of the Notes pursuant to Section 5.2 of the
Indenture or an Insolvency Event with respect to the holder of the GP Interest,
amounts on deposit in the Collection Account will be deposited in the Note
Distribution Account to the extent necessary to pay accrued and unpaid interest
on the Notes and then, to the extent funds are available therefore, principal on
the Notes until the principal balance of each class of Notes has been reduced to
zero, before any amounts are deposited in the Certificate Distribution Account.
Following the payment in full of the Notes, amounts on deposit in the Collection
Account will be deposited in the Certificate Distribution Account to the extent
necessary to pay accrued and unpaid interest on the Certificates and then, to
the extent funds are available therefore, principal on the Certificates until
the principal balance thereof has been reduced to zero. In the event that the
Collection Account is maintained with an institution other than the Trustee, the
Master Servicer shall instruct and cause such institution to make all deposits
and distributions pursuant to this Section 4.5(c) on the related Transfer Date.
SECTION 4.6. RESERVE ACCOUNT. (a) On the Closing Date, the Seller
shall deposit the Reserve Account Initial Deposit into the Reserve Account.
(b) If the amount on deposit in the Reserve Account on any
Distribution Date (after giving effect to any withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, the Master Servicer shall instruct the Trustee to
distribute, and the Trustee shall distribute, the amount of the excess to the
Seller. Amounts properly distributed to the Seller pursuant to this Section
4.6(b) shall be deemed released from the Trust and the security interest therein
granted to the Trustee and the Seller shall in no event thereafter be required
to refund any such distributed amounts.
SECTION 4.7. INTENTIONALLY OMITTED .
SECTION 4.8. STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS. On each
Determination Date, the Master Servicer shall provide to the Trustee (with a
copy to the Rating Agencies) for the Trustee to forward to each Noteholder of
record, to each Paying Agent, if any, and to the Owner Trustee for the Owner
Trustee to forward to each Certificateholder of record, a statement setting
forth at least the following information as to the Notes and the Certificates to
the extent applicable: (i) the amount of such distribution allocable to
principal of each class of Notes and to the Certificate Balance of the
Certificates; (ii) the amount of such distribution allocable to interest on or
with respect to each class of Notes and to the Certificates; (iii) the aggregate
outstanding principal balance of each class of the Notes and the Certificate
Balance after giving effect to payments allocated to principal reported under
(i) above; (iv) the amount of the Total Servicing Fee paid to the Master
Servicer with respect to the related Due Period; (v) The amount of the Monthly
Advances payment to be made on the Determination Date; (vi) the amount of the
aggregate Realized Losses, if any, for such Due Period; (vii) the Reserve
Account Transfer Amount, if any, for such Distribution Date, the average of the
Charge-off Rates and the Delinquency Percentages for the three preceding Due
Periods, the Specified Reserve Account Balance for such Distribution Date, the
amount distributed to the Seller from the Reserve Account on such Distribution
Date, and the balance of the Reserve Account (if any) on such Distribution Date,
after giving effect to changes therein on such Distribution Date; (viii) the
Noteholders' Interest Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall, the Noteholders' Principal Carryover Shortfall, and the
Certificateholders' Principal Carryover Shortfall; (ix) the amounts which are
reimbursable to the Master Servicer for Reimbursable Amounts and Nonrecoverable
Advances; (x) the amount of Servicing Advances for the preceding Due Period; and
(xi) the aggregate Purchase Price paid by the Seller or the Master Servicer with
respect to the related Due Period. Each amount set forth pursuant to paragraph
(i), (ii), (vi) or (xi) above shall be expressed as a dollar amount per $1,000
of the initial principal balance of the Notes (or class thereof) or the initial
Certificate Balance, as applicable.
SECTION 4.9. NET DEPOSITS. As an administrative convenience, unless
the Master Servicer is required to remit collections within _____ Business Days
of receipt thereof, the Master Servicer will be permitted to make the deposit of
collections on the Mortgage Loans and Purchase Prices for or with respect to the
Due Period net of distributions to be made to the Master Servicer with respect
to the Due Period. The Master Servicer, however, will account to the Owner
Trustee, the Trustee, the Noteholders and the Certificateholders as if all
deposits, distributions and transfers were made individually.
ARTICLE V
The Seller
SECTION 5.1. REPRESENTATIONS OF SELLER. The Seller makes the following
representations on which the Issuer is deemed to have relied in acquiring the
Mortgage Loans. The representations speak as of the execution and delivery of
this Agreement and shall survive the sale of the Mortgage Loans to the Issuer
and the pledge thereof to the Trustee pursuant to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Seller is duly
organized and validly existing as a corporation in good standing under the laws
of the State of New York with the corporate power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the power, authority and legal right to acquire and own the Mortgage Loans.
(b) DUE QUALIFICATION. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(c) POWER AND AUTHORITY OF THE SELLER. The Seller has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under each of the Basic Documents to which the Seller is
a party; the Seller has full corporate power and authority to sell and assign
the property to be sold and assigned to and deposited with the Issuer and the
Seller has duly authorized such sale and assignment to the Issuer by all
necessary corporate action; and the execution, delivery and performance of each
of the Basic Documents to which the Seller is a party has been duly authorized
by the Seller by all necessary corporate action.
(d) BINDING OBLIGATION. This Agreement and each of the Basic
Documents to which the Seller is a party constitute legal, valid and binding
obligations of the Seller, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and similar laws now or hereafter in effect relating to
creditors' rights generally and subject to general principles of equity (whether
applied in a proceeding at law or in equity).
(e) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, the certificate of
incorporation or by-laws of the Seller, or any material indenture, agreement or
other instrument to which the Seller is a party or by which it shall be bound;
or result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); or violate any law or, to the best
of its knowledge, any order, rule or regulation applicable to the Seller of any
court or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending against the Seller or, to its best knowledge, threatened against the
Seller, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (i) asserting the invalidity of this Agreement or any of the Basic
Documents, the Notes or the Certificates, (ii) seeking to prevent the issuance
of the Notes or the Certificates or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to have a material and
adverse effect on the performance by the Seller of its obligations under, or the
validity or enforceability of the Basic Documents, the Notes or the Certificates
or (iv) seeking to affect adversely the federal or state income tax or ERISA
attributes of the Issuer, the Notes or the Certificates.
(g) ALL CONSENTS. All authorizations, consents, orders or
approvals of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Seller in connection with the execution and
delivery by the Seller of this Agreement or any of the Basic Documents to which
it is a party and the performance by the Seller of the transactions contemplated
by this Agreement or any of the Basic Documents to which it is a party, have
been duly obtained, effected or given and are in full force and effect, except
where failure to obtain the same would not have a material adverse effect upon
the rights of the Issuer, the Noteholders or the Certificateholders.
SECTION 5.2. CORPORATE EXISTENCE. (a) During the term of this
Agreement, the Seller will keep in full force and effect its existence, rights
and franchises as a corporation under the laws of the jurisdiction of its
incorporation and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Basic Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall
observe the applicable legal requirements for the recognition of the Seller as a
legal entity separate and apart from its Affiliates, including as follows: (i)
the Seller shall maintain corporate records and books of account separate from
those of its Affiliates; (ii) except as otherwise provided in this Agreement,
the Seller shall not commingle its assets and funds with those of its
Affiliates; (iii) the Seller shall hold such appropriate meetings of its Board
of Directors as are necessary to authorize all the Seller's corporate actions
required by law to be authorized by the Board of Directors, shall keep minutes
of such meetings and of meetings of its stockholder(s) and observe all other
customary corporate formalities (and any successor Seller not a corporation
shall observe similar procedures in accordance with its governing documents and
applicable law); and (iv) the Seller shall at all times hold itself out to the
public under the Seller's own name as a legal entity separate and distinct from
its Affiliates.
SECTION 5.3 LIABILITY OF SELLER; INDEMNITIES. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee and the Trustee and their respective officers,
directors, employees and agents from and against any taxes that may at any time
be asserted against any such Person with respect to the transactions
contemplated in this Agreement and any of the Basic Documents (except any income
taxes arising out of fees paid to the Owner Trustee or the Trustee and except
any taxes to which the Owner Trustee or the Trustee may otherwise be subject
to), including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes (but, in the case of the Issuer, not
including any taxes asserted with respect to, and as of the date of, the sale of
the Mortgage Loans to the Owner Trustee on behalf of the Issuer or the issuance
and original sale of the Certificates and the Notes, or asserted with respect to
ownership of the Mortgage Loans or federal or other income taxes arising out of
distributions on the Certificates and the Notes) and costs and expenses in
defending against the same or in connection with any application relating to the
Notes or Certificates under any state securities laws.
(b) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee, the Trustee, the Certificateholders and the
Noteholders and the officers, directors, employees and agents of the Issuer, the
Owner Trustee and the Trustee from and against any and all costs, expenses,
losses, claims, damages and liabilities to the extent arising out of, or imposed
upon such Person through (i) the Seller's willful misfeasance, bad faith or
negligence in the performance of its duties under this Agreement, or by reason
of reckless disregard of its obligations and duties under this Agreement and
(ii) the Seller's or the Issuer's violation of federal or state securities laws
in connection with the offering and sale of the Notes and the Certificates or in
connection with any application relating to the Notes or Certificates under any
state securities laws.
(c) The Seller shall be liable as primary obligor for, and
shall indemnify, defend and hold harmless the Owner Trustee and its officers,
directors, employees and agents from and against any and all costs, expenses,
losses, claims, damages and liabilities arising out of, or incurred in
connection with, this Agreement or any of the Basic Documents, the Owner Trust
Estate, the acceptance or performance of the trusts and duties set forth herein
and in the Trust Agreement or the action or the inaction of the Owner Trustee
hereunder and under the Trust Agreement, except to the extent that such cost,
expense, loss, claim, damage or liability: (i) shall be due to the willful
misfeasance, bad faith or negligence of the Owner Trustee, (ii) shall arise from
any breach by the Owner Trustee of its covenants under this Agreement or any of
the Basic Documents; or (iii) shall arise from the breach by the Owner Trustee
of any of its representations or warranties set forth in Section 7.3 of the
Trust Agreement. Such liability shall survive the termination of the Trust. In
the event of any claim, action or proceeding for which indemnity will be sought
pursuant to this paragraph, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Seller, which approval shall not be unreasonably
withheld.
(d) The Seller shall pay any and all taxes levied or assessed
upon all or any part of the Trust Estate (other than those taxes expressly
excluded from the Seller's responsibilities pursuant to the parentheticals in
paragraph (a) above). Indemnification under this Section shall survive the
resignation or removal of the Owner Trustee or the Trustee and the termination
of this Agreement or the Indenture or the Trust Agreement, as applicable, and
shall include reasonable fees and expenses of counsel and other expenses of
litigation. If the Seller shall have made any indemnity payments pursuant to
this Section and the Person to or on behalf of whom such payments are made
thereafter shall collect any of such amounts from others, such Person shall
promptly repay such amounts to the Seller, without interest.
SECTION 5.4. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SELLER. Any Person (a) into which the Seller may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Seller shall be a party or (c) which may succeed to the properties and assets of
the Seller substantially as a whole, shall be the successor to the Seller
without the execution or filing of any document or any further act by any of the
parties to this Agreement; provided, however, that the Seller hereby covenants
that it will not consummate any of the foregoing transactions except upon
satisfaction of the following: (i) the surviving Seller (if other than
Structured Asset Mortgage Investments Inc.) executes an agreement of assumption
to perform every obligation of the Seller under this Agreement, (ii) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 2.4 or 5.1 shall have been breached, (iii) the Seller shall
have delivered to the Owner Trustee and the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section and that all
conditions precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, and that the Rating Agency Condition shall
have been satisfied with respect to such transaction, (iv) the surviving Seller
shall have a consolidated net worth at least equal to that of the predecessor
Seller, (v) such transaction will not result in a material adverse federal or
state tax consequence to the Issuer, the Noteholders or the Certificateholders
and (vi) unless Delta Funding Corporation, is the surviving entity, the Seller
shall have delivered to the Owner Trustee and the Trustee an Opinion of Counsel
either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interest of the
Owner Trustee and Trustee, respectively, in the Mortgage Loans and reciting the
details of such filings, or (B) stating that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interests.
SECTION 5.5. LIMITATION ON LIABILITY OF SELLER AND OTHERS. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
under any Basic Document (provided that such reliance shall not limit in any way
the Seller's obligations under Sections 2.2 and 2.5). The Seller shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
SECTION 5.6. SELLER MAY OWN CERTIFICATES OR NOTES. The Seller and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates or Notes with the same rights as it would have if it
were not the Seller or an Affiliate thereof, except as expressly provided herein
or in any Basic Document.
ARTICLE VI
The Master Servicer
SECTION 6.1. REPRESENTATIONS OF MASTER SERVICER. The Master Servicer
makes the following representations on which the Issuer is deemed to have relied
in acquiring the Mortgage Loans. The representations speak as of the execution
and delivery of the Agreement and shall survive the sale of the Mortgage Loans
to the Issuer and the pledge thereof to the Trustee pursuant to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Master Servicer is
duly organized and validly existing as a corporation in good standing under the
laws of the State of __________ with the corporate power and authority to own
its properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant times,
and has, the power, authority and legal right to service the Mortgage Loans.
(b) DUE QUALIFICATION. The Master Servicer is duly qualified
to do business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the servicing of the Mortgage Loans as required by this
Agreement) shall require such qualifications.
(c) POWER AND AUTHORITY OF THE MASTER SERVICER. The Master
Servicer has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, and the execution, delivery
and performance of this Agreement have been duly authorized by the Master
Servicer by all necessary corporate action. All authorizations, consents, orders
or approvals of or registrations or declarations with any court, regulatory
body, administrative agency or other government instrumentality required to be
obtained, effected or given by the Master Servicer in connection with the
execution and delivery by the Master Servicer of this Agreement or any of the
Basic Documents to which it is a party and the performance by the Master
Servicer of the transactions contemplated by this Agreement or any of the Basic
Documents to which it is a party, have been duly obtained, effected or given and
are in full force and effect, except where failure to obtain the same would not
have a material adverse effect upon the rights of the Seller, the Issuer, the
Noteholders or the Certificateholders.
(d) BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of the Master Servicer, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization and similar laws now or hereafter in
effect relating to creditors' rights generally, and subject to general
principles of equity (whether applied in a proceeding of law or in equity).
(e) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under its charter document
or by-laws of the Master Servicer, or any material indenture, agreement or other
instrument to which the Master Servicer is a party or by which it shall be
bound; nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); or violate any law or,
to the best of its knowledge, any order, rule or regulation applicable to the
Master Servicer of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Master Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending against the Master Servicer, or, to its best knowledge, threatened
against the Master Servicer, before any court, regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the Master
Servicer or its properties: (i) asserting the invalidity of this Agreement or
any of the Basic Documents, the Notes or the Certificates, (ii) seeking to
prevent the issuance of the Notes or the Certificates or the consummation of any
of the transactions contemplated by this Agreement or any of the Basic
Documents, (iii) seeking any determination or ruling that could reasonably be
expected to have a material and adverse effect on the performance by the Master
Servicer of its obligations under, or the validity or enforceability of this
Agreement or any of the Basic Documents, the Notes or the Certificates or (iv)
seeking to affect adversely the federal or state income tax or ERISA attributes
of the Issuer, the Notes or the Certificates.
(g) NO AMENDMENT OR WAIVER. No provision of any Mortgage Loan
has been waived, altered or modified in any respect, except pursuant to a
document, instrument or writing included in the relevant Mortgage File, and no
such amendment, waiver, alteration or modification causes such Mortgage Loan not
to conform to the other warranties contained in this Section or those of the
Seller contained in Section 2.4.
SECTION 6.2. INDEMNITIES OF MASTER SERVICER. (a) The Master Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Master Servicer under this Agreement. The Master
Servicer shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, the Trustee, the Seller, the Certificateholders and the Noteholders and
any of the officers, directors, employees and agents of the Issuer, the Owner
Trustee, the Trustee or the Seller from any and all costs, expenses, losses,
claims, damages and liabilities (including reasonable attorneys' fees and
expenses) to the extent arising out of, or imposed upon any such Person through,
the negligence, willful misfeasance or bad faith of the Master Servicer in the
performance of its obligations and duties under this Agreement or in the
performance of the obligations and duties of any sub-servicer under any
sub-servicing agreement or by reason of the reckless disregard of its
obligations and duties under this Agreement or by reason of the reckless
disregard of the obligations of any sub-servicer under any sub-servicing
agreement, where the final determination that any such cost, expense, loss,
claim, damage or liability arose out of, or was imposed upon any such Person
through, any such negligence, willful misfeasance, bad faith or recklessness on
the part of the Master Servicer or any sub-servicer, is established by a court
of law, by an arbitrator or by way of settlement agreed to by the Master
Servicer. Notwithstanding the foregoing, if the Master Servicer is rendered
unable, in whole or in part, by virtue of an act of God, act of war, fires,
earthquake or other natural disasters, to satisfy its obligations under this
Agreement, the Master Servicer shall not be deemed to have breached any such
obligation upon the sending of written notice of such event to the other parties
hereto, for so long as the Master Servicer remains unable to perform such
obligation as a result of such event. This provision shall not be construed to
limit the Master Servicer's or any other party's rights, obligations,
liabilities, claims or defenses which arise as a matter of law or pursuant to
any other provision of this Agreement. The Master Servicer shall indemnify,
defend and hold harmless the Issuer, the Owner Trustee, the Trustee, the Seller,
the Certificateholders and the Noteholders or any of the officers, directors,
employees and agents of the Issuer, the Owner Trustee, the Trustee or the Seller
from any and all costs, expenses, losses, claims, damages and liabilities
(including reasonable attorneys' fees and expenses) to the extent arising out of
or imposed upon any such Person as a result of any compensation payable to any
sub-servicer (including any fees payable in connection with the termination of
the servicing activities of such sub-servicer with respect to any Mortgage Loan)
whether pursuant to the terms of any sub-servicing agreement or otherwise.
SECTION 6.3. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, MASTER SERVICER. Any Person (a) into which the Master Servicer
may be merged or consolidated, (b) which may result from any merger or
consolidation to which the Master Servicer shall be a party or (c) which may
succeed to the properties and assets of the Master Servicer, substantially as a
whole, shall be the successor to the Master Servicer without the execution or
filing of any document or any further act by any of the parties to this
Agreement; provided, however, that the Master Servicer hereby covenants that it
will not consummate any of the foregoing transactions except upon satisfaction
of the following: (i) the surviving Master Servicer (if other than
_____________) executes an agreement of assumption to perform every obligation
of the Master Servicer under this Agreement, (ii) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 6.1 shall have been breached and no Servicer Default, and no event that,
after notice or lapse of time, or both, would become a Servicer Default shall
have occurred and be continuing, (iii) the Master Servicer shall have delivered
to the Owner Trustee and the Trustee an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with, and that the Rating Agency Condition shall have been
satisfied with respect to such transaction, (iv) the surviving Master Servicer
shall have a consolidated net worth at least equal to that of the predecessor
Master Servicer, and (v) such transaction will not result in a material adverse
federal or state tax consequence to the Issuer, the Noteholders or the
Certificateholders.
SECTION 6.4. LIMITATION ON LIABILITY OF MASTER SERVICER AND OTHERS.
Neither the Master Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Issuer, the Noteholders or the
Certificateholders, except as provided under this Agreement, for any action
taken or for refraining from the taking of any action by the Master Servicer or
any sub-servicer pursuant to this Agreement or for errors in judgment; provided,
however, that this provision shall not protect the Master Servicer or any such
person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under this Agreement. The
Master Servicer or any sub-servicer and any of their respective directors,
officers, employees or agents may rely in good faith on any document of any kind
prima facie properly executed and submitted by any Person respecting any matters
arising under this Agreement. Except as provided in this Agreement the Master
Servicer shall not be under any obligation to appear in, prosecute or defend any
legal action that shall be incidental to its duties to service the Mortgage
Loans in accordance with this Agreement, and that in its opinion may involve it
in any expense or liability; provided, however, that the Master Servicer, may
(but shall not be required to) undertake any reasonable action that it may deem
necessary or desirable in respect of the Basic Documents to protect the
interests of the Certificateholders under this Agreement and the Noteholders
under the Indenture.
SECTION 6.5. ______________ NOT TO RESIGN AS MASTER SERVICER. Subject
to the provisions of Section 6.3, ____________________, hereby agrees not to
resign from the obligations and duties hereby imposed on it as Master Servicer
under this Agreement except upon determination that the performance of its
duties hereunder shall no longer be permissible under applicable law or if such
resignation is required by regulatory authorities. Notice of any such
determination permitting the resignation of ____________________, as Master
Servicer shall be communicated to the Owner Trustee and the Trustee at the
earliest practicable time (and, if such communication is not in writing, shall
be confirmed in writing at the earliest practicable time) and any such
determination shall be evidenced by an Opinion of Counsel to such effect
delivered to the Owner Trustee and the Trustee concurrently with or promptly
after such notice. No such resignation shall become effective until the earlier
of the Trustee or a successor Master Servicer having assumed the
responsibilities and obligations of the resigning Master Servicer in accordance
with Section 7.2 or the date upon which any regulatory authority requires such
resignation.
ARTICLE VII
Default
SECTION 7.1. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") shall occur and be continuing: (a) any failure by the Master
Servicer to deliver to the Trustee for deposit in any of the Trust Accounts or
the Certificate Distribution Account any required payment or to direct the
Trustee to make any required distributions therefrom (other than a Monthly
Advance required to be made from its own funds) that shall continue unremedied
for a period of ______ Business Days after written notice of such failure is
received by the Master Servicer from the Owner Trustee or the Trustee or after
discovery of such failure by an Authorized Officer of the Master Servicer; or
(b) failure by the Master Servicer to make any required Servicing Advance which
failure continues unremedied for a period of ____ days, or failure on the part
of the Master Servicer duly to observe or to perform in any material respect any
other covenants or agreements of the Master Servicer set forth in this Agreement
or any other Basic Document, which failure shall (i) materially and adversely
affect the rights of either the Certificateholders or Noteholders and (ii)
continue unremedied for a period of ____ days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
(A) to the Master Servicer by the Owner Trustee or the Trustee or (B) to the
Master Servicer and to the Owner Trustee and the Trustee by the Holders of Notes
evidencing not less than ____% of the Current Principal Amount of the Notes or
Holders of Certificates evidencing not less than ____% of the outstanding
Certificate Balance, as applicable (or for such longer period, not in excess of
____ days, as may be reasonably necessary to remedy such default; provided that
such default is capable of remedy within _____ days and the Master Servicer
delivers an Officers' Certificate to the Owner Trustee and the Trustee to such
effect and to the effect that the Master Servicer has commenced or will promptly
commence, and will diligently pursue, all reasonable efforts to remedy such
default); or (c) any failure of the Master Servicer to pay any Monthly Advance
required to be made from its own funds pursuant to Section 3.15 that continues
unremedied for a period of one Business Day; or (d) an Insolvency Event occurs
with respect to the Master Servicer or any successor; then, and in each and
every case, so long as the Servicer Default shall not have been remedied, either
the Trustee, or the Holders of Notes evidencing not less than ____% of the
Current Principal Amount of the Notes, by notice then given in writing to the
Master Servicer and the Owner Trustee (and to the Trustee if given by the
Noteholders) may terminate all the rights and obligations (other than the
obligations set forth in Section 6.2) of the Master Servicer under this
Agreement. On or after the receipt by the Master Servicer of such written
notice, all authority and power of the Master Servicer under this Agreement,
whether with respect to the Notes, the Certificates or the Mortgage Loans or
otherwise, shall, without further action, pass to and be vested in the Trustee
or such successor Master Servicer as may be appointed under Section 7.2; and,
without limitation, the Trustee and the Owner Trustee are hereby authorized and
empowered to execute and deliver, on behalf of the predecessor Master Servicer,
as attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, whether to complete the
transfer and endorsement of the Mortgage Loans and related documents, or
otherwise. The predecessor Master Servicer shall cooperate with the successor
Master Servicer, the Trustee and the Owner Trustee in effecting the termination
of the responsibilities and rights of the predecessor Master Servicer under this
Agreement, including the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Master Servicer for deposit, or shall thereafter be received by it
with respect to a Mortgage Loan. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Mortgage Files to
the successor Master Servicer and amending this Agreement to reflect such
succession as Master Servicer pursuant to this Section shall be paid by the
predecessor Master Servicer upon presentation of reasonable documentation of
such costs and expenses. Upon receipt of notice of the occurrence of a Servicer
Default, the Owner Trustee shall give notice thereof to the Rating Agencies.
SECTION 7.2. APPOINTMENT OF SUCCESSOR. (a) Upon the Master Servicer's
receipt of notice of termination, pursuant to Section 7.1 or the Master
Servicer's resignation in accordance with the terms of this Agreement, the
predecessor Master Servicer shall continue to perform its functions as Master
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the earlier of (x) the date _____ days from the delivery to
the Owner Trustee and the Trustee of written notice of such resignation (or
written confirmation of such notice) in accordance with the terms of this
Agreement and (y) the date upon which the predecessor Master Servicer shall
become unable to act as Master Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Master
Servicer's termination hereunder, the Trustee shall appoint a successor Master
Servicer, and the successor Master Servicer shall accept its appointment by a
written assumption in form acceptable to the Owner Trustee and the Trustee. In
the event that a successor Master Servicer has not been appointed at the time
when the predecessor Master Servicer has ceased to act as Master Servicer in
accordance with this Section, the Trustee without further action shall
automatically be appointed the successor Master Servicer and the Trustee shall
be entitled to the Servicing Fee. Notwithstanding the above, the Trustee shall,
if it shall be unwilling or unable so to act, appoint or petition a court of
competent jurisdiction to appoint, any established institution, having a net
worth of not less than $_____________ and whose regular business shall include
the servicing of Mortgage Loans and REO Property, as the successor to the Master
Servicer under this Agreement.
(b) Upon appointment, the successor Master Servicer (including
the Trustee acting as successor Master Servicer) shall be the successor in all
respects to the predecessor Master Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Master Servicer and shall be entitled to the Servicing
Fee and all the rights granted to the predecessor Master Servicer by the terms
and provisions of this Agreement. No successor Master Servicer shall be liable
for any acts or omissions of any predecessor Master Servicer.
(c) The Master Servicer may not resign unless it is prohibited
from serving as such by law or by requirement of any regulatory authority.
SECTION 7.3. PAYMENT OF SERVICING FEE. If the Master Servicer shall
change, the predecessor Master Servicer shall be entitled to receive any accrued
and unpaid Servicing Fees through the date of the successor Master Servicer's
acceptance hereunder in accordance with Section 3.9.
SECTION 7.4. NOTIFICATION TO NOTEHOLDERS AND CERTIFICATEHOLDERS. Upon
any termination of, or appointment of a successor to, the Master Servicer
pursuant to this Article VII, the Owner Trustee shall give prompt written notice
thereof to Certificateholders and the Trustee shall give prompt written notice
thereof to Noteholders subject to the Rating Agency Condition.
SECTION 7.5. WAIVER OF PAST DEFAULTS. The Holders of Notes evidencing
not less than a majority of the Current Principal Amount of the Notes (or the
Holders (as defined in the Trust Agreement) of Certificates evidencing not less
than a majority of the outstanding Certificate Balance, as applicable, in the
case of any default which does not adversely affect the Trustee or the
Noteholders) may, on behalf of all Noteholders and Certificateholders, waive in
writing any default by the Master Servicer in the performance of its obligations
hereunder and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with this Agreement.
Upon any such waiver of a past default, such default shall cease to exist, and
any Servicer Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto.
ARTICLE VIII
Termination
SECTION 8.1. OPTIONAL PURCHASE OF ALL MORTGAGE Loans. (a) On the last
day of any Due Period immediately preceding a Determination Date as of which the
then outstanding Pool Balance is _____% or less of the Original Pool Balance,
the Seller shall have the option to purchase the Owner Trust Estate, other than
the Trust Accounts and the Certificate Distribution Account. To exercise such
option, the Seller shall deposit pursuant to Section 4.4 in the Collection
Account an amount which, when added to the amounts on deposit in the Collection
Account for such Distribution Date, equals the sum of (a) the unpaid principal
amount of the then outstanding Class __ Notes, plus accrued and unpaid interest
thereon, plus (b) the Certificate Balance plus accrued and unpaid interest
thereon. The Class ___ Notes and the Certificates will be redeemed concurrently
therewith.
(b) Upon any sale of the assets of the Trust pursuant to
Section 9.2 of the Trust Agreement, the Master Servicer shall instruct the
Trustee to deposit the proceeds from such sale after all payments and reserves
therefrom (including the expenses of such sale) have been made (the "Insolvency
Proceeds") in the Collection Account. On the Distribution Date on which the
Insolvency Proceeds are deposited in the Collection Account (or, if such
proceeds are not so deposited on a Distribution Date, on the Distribution Date
immediately following such deposit), the Master Servicer shall instruct the
Trustee to make, and the Trustee shall make, the following deposits and
distributions (after the application on such Distribution Date of the Total
Distribution Amount pursuant to Section 4.5) from the Insolvency Proceeds and
any funds remaining on deposit in the Reserve Account (including the proceeds of
any sale of investments therein): (i) to the Note Distribution Account, any
portion of the Noteholders' Interest Distributable Amount not otherwise
deposited into the Note Distribution Account on such Distribution Date; (ii) to
the Note Distribution Account, the outstanding principal balance of the Notes
(after giving effect to the reduction in the outstanding principal balance of
the Notes to result from the deposits made in the Note Distribution Account on
such Distribution Date); (iii) to the Owner Trustee for deposit in the
Certificate Distribution Account, any portion of the Certificateholders'
Interest Distributable Amount not otherwise deposited into the Certificate
Distribution Account on such Distribution Date; and (iv) to the Owner Trustee
for deposit in the Certificate Distribution Account, the Certificate Balance and
any Certificateholders' Principal Carryover Shortfall Amount (after giving
effect to the reduction in the Certificate Balance to result from the deposits
made in the Certificate Distribution Account on such Distribution Date). Any
Insolvency Proceeds remaining after the deposits described above shall be paid
to the GP Holder.
(c) Notice of any termination of the Trust shall be given by
the Master Servicer to the Owner Trustee, the Trustee and the Rating Agencies as
soon as practicable after the Master Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the Indenture
and the payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Trustee pursuant to this Agreement.
ARTICLE IX
Administrative Duties of the Master Servicer
SECTION 9.1. ADMINISTRATIVE DUTIES. (a) DUTIES WITH RESPECT TO THE
INDENTURE AND DEPOSITORY AGREEMENTS. The Master Servicer shall perform all its
duties and the duties of the Issuer under the Depository Agreements. In
addition, the Master Servicer shall consult with the Owner Trustee as the Master
Servicer deems appropriate regarding the duties of the Issuer under the
Indenture and the Depository Agreements. The Master Servicer shall monitor the
performance of the Issuer and shall advise the Owner Trustee when action is
necessary to comply with the Issuer's duties under the Indenture and the
Depository Agreements. The Master Servicer shall prepare for execution by the
Issuer or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture
and the Depository Agreements. In furtherance of the foregoing, the Master
Servicer shall take all appropriate action that is the duty of the Issuer to
take pursuant to the Indenture.
(b) DUTIES WITH RESPECT TO THE ISSUER. (i) In addition to the
duties of the Master Servicer set forth in this Agreement or any of the Basic
Documents, the Master Servicer shall perform such calculations and shall prepare
for execution by the Issuer or the Owner Trustee or shall cause the preparation
by other appropriate Persons of all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the Issuer or
the Owner Trustee to prepare, file or deliver pursuant to this Agreement or any
of the Basic Documents, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant to this
Agreement or any of the Basic Documents. In accordance with the directions of
the Owner Trustee, the Master Servicer shall administer, perform or supervise
the performance of such other activities in connection with the Collateral
(including the Basic Documents) as are not covered by any of the foregoing
provisions and as are expressly requested by the Owner Trustee and are
reasonably within the capability of the Master Servicer.
(ii) Notwithstanding anything in this Agreement
or any of the Basic Documents to the contrary, the Master Servicer shall be
responsible for promptly notifying the Owner Trustee in the event that any
withholding tax is imposed on the Issuer's payments (or allocations of income)
to an Owner (as defined in the Trust Agreement) as contemplated in Section
5.2(c) of the Trust Agreement. Any such notice shall specify the amount of any
withholding tax required to be withheld by the Owner Trustee pursuant to such
provision.
(iii) Notwithstanding anything in this
Agreement or the Basic Documents to the contrary, the Master Servicer shall be
responsible for performance of the duties of the Owner Trustee and the holder of
the GP Interest set forth in Section 5.6(a), (b), (c) and (d) of the Trust
Agreement with respect to, among other things, accounting and reports to Owners
(as defined in the Trust Agreement); provided, however, that the Owner Trustee
shall retain responsibility for the distribution of the Schedule K necessary to
enable each Certificateholder to prepare its federal and state income tax
returns.
(iv) The Master Servicer shall perform the duties
of the Master Servicer specified in Section 10.2 of the Trust Agreement required
to be performed in connection with the resignation or removal of the Owner
Trustee, and any other duties expressly required to be performed by the Master
Servicer under this Agreement or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its
other obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in the
Master Servicer's opinion, no less favorable to the Issuer in any material
respect.
(c) TAX MATTERS. The Master Servicer shall prepare and file,
on behalf of the holder of the GP Interest, all tax returns, tax elections,
financial statements and such annual or other reports of the Issuer as are
necessary for preparation of tax reports as provided in Article V of the Trust
Agreement, including without limitation forms 1099 and 1066. All tax returns
will be signed by the holder of the GP Interest.
(d) NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall have
notified the Owner Trustee and the Trustee of the proposed action and the Owner
Trustee and, with respect to items (A), (B), (C) and (D) below, the Trustee
shall not have withheld consent or provided an alternative direction. For the
purpose of the preceding sentence, "non-ministerial matters" shall include: (A)
the amendment of or any supplement to the Indenture; (B) the initiation of any
claim or lawsuit by the Issuer and the compromise of any action, claim or
lawsuit brought by or against the Issuer (other than in connection with the
collection of the Mortgage Loans); (C) the amendment, change or modification of
this Agreement or any of the Basic Documents; (D) the appointment of successor
Note Registrars, successor Paying Agents and successor Trustees pursuant to the
Indenture or the appointment of successor Master Servicers or the consent to the
assignment by the Note Registrar, Paying Agent or Trustee of its obligations
under the Indenture; and (E) the removal of the Trustee.
(e) EXCEPTIONS. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Basic
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders or
Certificateholders under the Basic Documents, (2) sell the Indenture Trust
Estate pursuant to Section 5.4 of the Indenture, (3) take any other action that
the Issuer directs the Master Servicer not to take on its behalf or (4) in
connection with its duties hereunder assume any indemnification obligation of
any other Person.
SECTION 9.2. RECORDS. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for inspection
by the Issuer at any time during normal business hours.
SECTION 9.3. ADDITIONAL INFORMATION TO BE FURNISHED TO THE ISSUER. The
Master Servicer shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
ARTICLE X
Miscellaneous Provisions
SECTION 10.1. AMENDMENT. This Agreement may be amended by the Seller,
the Master Servicer and the Owner Trustee, with the consent of the Trustee
(which consent may not be unreasonably withheld), but without the consent of any
of the Noteholders or the Certificateholders, to cure any ambiguity or defect,
to correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel delivered to the Owner Trustee and
the Trustee, adversely affect in any material respect the interests of any
Noteholder or Certificateholder. This Agreement may also be amended from time to
time by the Seller, the Master Servicer and the Owner Trustee, with the consent
of the Trustee, the consent of the Holders of Notes evidencing not less than a
majority of the Current Principal Amount of the Notes and the consent of the
Holders (as defined in the Trust Agreement) of Certificates evidencing not less
than a majority of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Mortgage Loans or distributions that shall
be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Current
Principal Amount of the Notes and the Certificate Balance, the Holders of which
are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes and the Holders (as defined in the Trust
Agreement) of all the outstanding Certificates of each class affected thereby.
Prior to the execution of any such amendment or consent, the Owner Trustee shall
furnish written notification of the substance of such amendment or consent to
the Rating Agencies. Promptly after the execution of any such amendment or
consent, the Owner Trustee shall furnish written notification of the substance
of such amendment or consent to each Certificateholder and the Trustee. It shall
not be necessary for the consent of Certificateholders or Noteholders pursuant
to this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement and that all conditions precedent to the execution and
delivery of such amendment have been satisfied and the Opinion of Counsel
referred to in Section 10.2(i)(1) has been delivered. The Owner Trustee and the
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's or the Trustee's, as applicable, own rights, duties
or immunities under this Agreement or otherwise.
SECTION 10.2. PROTECTION OF TITLE TO TRUST. (a) The Seller shall
execute and file such financing statements and cause to be executed and filed
such continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Issuer and the interests of the Trustee in the Mortgage Loans and in the
proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Owner Trustee and the Trustee file-stamped copies of, or filing receipts for,
any document filed as provided above, as soon as available following such
filing.
(b) Neither the Seller nor the Master Servicer shall change
its name, identity or corporate structure in any manner that would, could or
might make any financing statement or continuation statement filed in accordance
with paragraph (a) above seriously misleading within the meaning of Section
9-402(7) of the UCC, unless it shall have given the Owner Trustee and the
Trustee at least ________ days' prior written notice thereof and shall have
promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) Each of the Seller and the Master Servicer shall have an
obligation to give the Owner Trustee and the Trustee at least _____ days' prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall promptly file any such
amendment. The Master Servicer shall at all times maintain each office from
which it shall service Mortgage Loans, and its principal executive office,
within the United States of America.
(d) The Master Servicer shall maintain accounts and records as
to each Mortgage Loan accurately and in sufficient detail to permit (i) the
reader thereof to know at any time the status of such Mortgage Loan, including
payments and recoveries made and payments owing (and the nature of each) and
(ii) reconciliation between payments or recoveries on (or with respect to) each
Mortgage Loan and the amounts from time to time deposited in the Collection
Account in respect of such Mortgage Loan.
(e) The Master Servicer shall maintain its computer systems so
that, from and after the time of sale under this Agreement of the Mortgage
Loans, the Master Servicer's master computer records (including any backup
archives) that refer to a Mortgage Loan shall indicate clearly the interest of
the Issuer and the Trustee in such Mortgage Loan and that such Mortgage Loan is
owned by the Issuer and has been pledged to the Trustee. Indication of the
Issuer's and the Trustee's interest in a Mortgage Loan shall be deleted from or
modified on the Master Servicer's computer systems when, and only when, the
related Mortgage Loan shall have been paid in full or repurchased by the Seller
or purchased by the Master Servicer.
(f) If at any time the Seller or the Master Servicer shall
propose to sell, grant a security interest in or otherwise transfer any interest
in mortgage loans to any prospective purchaser, lender or other transferee, the
Master Servicer shall give to such prospective purchaser, lender or other
transferee computer tapes, records or printouts (including any restored from
backup archives) that, if they shall refer in any manner whatsoever to any
Mortgage Loan, shall indicate clearly that such Mortgage Loan has been sold and
is owned by the Issuer and has been pledged to the Trustee.
(g) The Master Servicer shall permit the Trustee and its
agents at any time during normal business hours to inspect, audit and make
copies of and abstracts from the Master Servicer's records regarding any
Mortgage Loan.
(h) Upon request at any time the Owner Trustee or the Trustee
shall have reasonable grounds to believe that such request is necessary in
connection with the performance of its duties under this Agreement or any of the
Basic Documents, the Master Servicer shall furnish to the Owner Trustee or to
the Trustee, within _____ Business Days, a list of all Mortgage Loans (by
contract number and name of Mortgagor) then held as part of the Trust, together
with a reconciliation of such list to the Mortgage Loan Schedule and to each of
the Master Servicer's Certificates furnished before such request indicating
removal of Mortgage Loans from the Trust.
(i) The Master Servicer shall deliver to the
Owner Trustee and the Trustee: (1) promptly after the execution and delivery of
this Agreement and of each amendment thereto, an Opinion of Counsel either (A)
stating that, in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Owner Trustee and the Trustee in the
Mortgage Loans, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest; and (2) within _____ days after the beginning of each
calendar year beginning with the first calendar year beginning more than three
months after the Cut-off Date, an Opinion of Counsel, dated as of a date during
such _____-day period, either (A) stating that, in the opinion of such counsel,
all financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interest of the Owner
Trustee and the Trustee in the Mortgage Loans, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (B) stating that, in the opinion of such counsel, no such action shall
be necessary to preserve and protect such interest. Each Opinion of Counsel
referred to in clause (l) or (2) above shall specify any action necessary (as of
the date of such opinion) to be taken in the following year to preserve and
protect such interest.
(i) The Seller shall, to the extent required by applicable
law, cause the Certificates and the Notes to be registered with the Commission
pursuant to Section 12(b) or Section 12(g) of the Exchange Act within the time
periods specified in such sections.
SECTION 10.3. NOTICES. All demands, notices and communications upon or
to the Seller, the Master Servicer, the Owner Trustee, the Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, sent by
overnight courier or mailed by certified mail, return receipt requested, and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller to Structured Asset Mortgage Investments Inc., 345 Park Avenue, New York,
New York 10167, Attention: __________, (b) in the case of the Master Servicer to
__________________, Attention: ___________, (c) in the case of the Issuer or the
Owner Trustee, at the Corporate Trust Office (as defined in the Trust
Agreement), (c) in the case of the Trustee, at _____________________, (d) in the
case of the Rating Agencies to __________________, Attention: ________________.
SECTION 10.4. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.4 and 6.3 and as provided in
the provisions of this Agreement concerning the resignation of the Master
Servicer, this Agreement may not be assigned by the Seller or the Master
Servicer.
SECTION 10.5. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Seller, the Master Servicer, the
Issuer, the Owner Trustee and for the benefit of the Certificateholders
(including the holder of the GP Interest), the Trustee and the Noteholders, as
third-party beneficiaries, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 10.6. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.7. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 10.8. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 10.9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK , WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.10. ASSIGNMENT TO TRUSTEE. The Seller hereby acknowledges
and consents to any mortgage, pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the benefit
of the Noteholders of all right, title and interest of the Issuer in, to and
under the Mortgage Loans and/or the assignment of any or all of the Issuer's
rights and obligations hereunder to the Trustee.
SECTION 10.11. NONPETITION COVENANT. Notwithstanding any prior
termination of this Agreement, the Master Servicer and the Seller shall not,
prior to the date which is one year and one day after the termination of this
Agreement with respect to the Issuer, acquiesce, petition or otherwise invoke or
cause the Issuer to invoke the process of any court or government authority for
the purpose of commencing or sustaining a case against the Issuer under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
SECTION 10.12. LIMITATION OF LIABILITY OF OWNER TRUSTEE AND TRUSTEE.
(a) Notwithstanding anything contained herein to the contrary, this Agreement
has been countersigned by the Owner Trustee not in its individual capacity but
solely in its capacity as Owner Trustee of the Issuer and in no event shall the
Owner Trustee in its individual capacity or, except as expressly provided in the
Trust Agreement, as Owner Trustee have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer. For
all purposes of this Agreement, in the performance of its duties or obligations
hereunder or in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by the Trustee not in its individual capacity
but solely as Trustee and in no event shall the Trustee have any liability for
the representations, warranties, covenants, agreements or other obligations of
the Issuer hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Issuer.
SECTION 10.13. INDEPENDENCE OF THE MASTER SERVICER. For all purposes
of this Agreement, the Master Servicer shall be an independent contractor and
shall not be subject to the supervision of the Issuer or the Owner Trustee with
respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer, the Master
Servicer shall have no authority to act for or represent the Issuer or the Owner
Trustee in any way and shall not otherwise be deemed an agent of the Issuer or
the Owner Trustee.
SECTION 10.14. NO JOINT VENTURE. Nothing contained in this Agreement
(i) shall constitute the Master Servicer and either of the Issuer or the Owner
Trustee as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
<PAGE>
WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
STRUCTURED ASSET MORTGAGE
INVESTMENTS TRUST 199_-_
By:______________________________________,
not in its individual capacity but solely
as Owner Trustee on behalf of the Trust
By:________________________________________
Name:
Title:
STRUCTURED ASSET MORTGAGE
INVESTMENTS INC., Seller
By:_______________________________________
Name:
Title:
______________________________, Master Servicer
By:_______________________________________
Name:
Title:
Acknowledged and Accepted:
_______________ , not in its individual
capacity but solely as Trustee,
By: ______________________________
Name:
Title:
Acknowledged and Accepted:
_______________, not in its individual
capacity but solely as Owner Trustee,
By:_________________________________
Name:
Title:
_______________, 199_
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE>
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 Identification No.)
bank)
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
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
