<PAGE> 1
FILED PURSUANT RULE 424(b)(5)
REGISTRATION NO. 33-47912
PROSPECTUS SUPPLEMENT TO
PROSPECTUS DATED SEPTEMBER 26, 1997
$278,242,362
(APPROXIMATE)
CMC SECURITIES CORPORATION IV
ISSUER
NORTH AMERICAN MORTGAGE COMPANY
MASTER SERVICER
COLLATERALIZED MORTGAGE OBLIGATIONS, SERIES 1997-NAMC 3
<TABLE>
<CAPTION>
Initial Security Security Interest Initial Security Security Interest
Class Principal Balance(1) Rate Class Principal Balance(1) Rate
----- -------------------- ----------------- ----- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
Class FXA-1 Securities $30,303,753 7.25 Class A-1 Securities $23,013,349 6.60
Class FXA-2 Securities $42,890,000 7.25 Class A-2 Securities (2) 7.25
Class FXA-3 Securities $28,034,220 7.00 Class A-3 Securities $ 7,802,000 7.25
Class FXA-4 Securities $ 2,548,566 10.00 Class A-4 Securities $24,641,327 7.25
Class FXA-5 Securities $25,799,934 7.25 Class A-5 Securities $ 6,257,404 7.25
Class FXA-6 Securities $ 5,994,000 7.25 Class A-6 Securities $ 3,000,000 7.25
Class FXA-7 Securities $ 3,979,000 7.25 Class A-7 Securities $30,570,762 7.25
Class FXP Securities $ 5,749 (3) Class A-8 Securities $25,233,795 7.25
Class FXS Securities (2) 7.25 Class A-9 Securities $ 2,688,000 7.25
Class R Securities $ 100 7.25 Class P Securities $ 155,182 (3)
Class RP Securities $ 100 7.25 Class S Securities (2) 7.25
Class B-1 Securities $ 9,982,419 7.25
Class B-2 Securities $ 3,655,534 7.25
Class B-3 Securities $ 1,687,169 7.25
</TABLE>
Footnotes appear on next page.
The Series 1997-NAMC 3 Collateralized Mortgage Obligations (the "Securities")
will consist of the following Classes: (i) Class FXA-1, Class FXA-2, Class
FXA-3, Class FXA-4, Class FXA-5, Class FXA-6, Class FXA-7 (the "Class FXA
Securities"), (ii) Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8 and Class A-9 (the "Class A Securities"), (iii) Class
FXP and Class P (the "Principal Only Securities"), (iv) Class FXS, and Class S
(together with the Class A-2 Securities, the "Strip Securities"), (v) Class
B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 (the "Subordinate
Securities") and (vi) Class R and Class RP (the "Residual Securities"). The
Class FXA, Class FXS, Class FXP and Residual Securities are sometimes referred
to as the "Class FX Securities" and the Class A, Class S and Class P Securities
are sometimes referred to as the "Class II Securities." The Class FXA
Securities, Class A Securities, Strip Securities, Principal Only Securities and
Residual Securities are sometimes referred to as the "Senior Securities." The
Class FXA-5 Securities are sometimes referred to herein as the "Class FXA-5
Lockout Securities" and the Class A-4 Securities are sometimes referred to as
the "Class A-4 Lockout Securities." Only the Senior Securities and the Class
B-1, Class B-2 and Class B-3 Securities (collectively, the "Offered
Securities") are offered hereby. The Class B-4, Class B-5 and Class B-6
Securities are not offered hereby.
(Continued on next page)
------------------------------
THE SECURITIES WILL BE NONRECOURSE OBLIGATIONS SOLELY OF THE ISSUER AND DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE LOAN SELLER, THE MASTER SERVICER,
THE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE SECURITIES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE ISSUER, THE LOAN
SELLER, THE MASTER SERVICER, THE CERTIFICATE TRUSTEE, THE INDENTURE TRUSTEE,
THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES.
------------------------------
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FACTORS SET
FORTH UNDER "RISK FACTORS," COMMENCING AT PAGE 18 OF THE PROSPECTUS AND AT PAGE
S-26 OF THIS PROSPECTUS SUPPLEMENT.
The Offered Securities are being offered by the Underwriter from time to time
to the public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Issuer are expected to be
approximately $281,682,544 plus accrued interest on the Offered Securities
(other than the Principal Only Securities) from September 1, 1997 to the
Closing Date, before deducting issuance expenses payable by the Issuer which
are estimated to be approximately $175,000.
The Offered Securities are offered when, as and if delivered to and accepted
by the Underwriter, and subject to various conditions, including the
Underwriter's right to reject orders in whole or in part. It is expected that
the Offered Securities (other than the Class FXS, Class S, Principal Only and
Residual Securities) will be delivered in book-entry form through the Same Day
Funds Settlement System of The Depository Trust Company as further discussed
herein, and that the Principal Only, Class FXS, Class S, and Residual
Securities delivered in registered and certificated form at the office of
Donaldson, Lufkin & Jenrette Securities Corporation, New York, New York, on or
about September 30, 1997 against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus Supplement is September 26, 1997.
<PAGE> 2
(Cover continued from previous page)
(1) Approximate. The initial Security Principal Balance of each Class of
the Securities as of the Closing date is subject to a variance of
+-5.0%.
(2) Based on the related Notional Amount, as described herein.
(3) Will not be entitled to payments of interest.
The Securities will be collateralized by mortgage pass-through
certificates (the "Certificates") evidencing the beneficial ownership interest
in entire pools (each, a "mortgage pool" and collectively, the "Mortgage Pool")
of certain conventional, fixed-rate, fully-amortizing, one-to four-family,
first lien mortgage loans (the "Mortgage Loans") originated or acquired by
North American Mortgage Company ("NAMC" or the "Loan Seller"), a Delaware
corporation. The Mortgage Loans will have an aggregate principal balance as of
September 1, 1997 (the "Cut-off Date") of approximately $281,194,913 and will
have original terms to maturity from the due dates of their first scheduled
monthly payment of interest and principal of not more than 30 years. The
Mortgage Pool consists of two groups (each, a "Mortgage Loan Group"): "Group
I" or the "Group I Mortgage Loans" generally consists of Mortgage Loans
underwritten pursuant to the Loan Seller's "Flex Extra Program" (as further
described herein), with an aggregate principal balance as of the Cut-off Date
of approximately $149,257,138, and "Group II" or the "Group II Mortgage Loans"
generally consists of Mortgage Loans underwritten pursuant to the Loan Seller's
"Gold Flex Program" (as further described herein), with an aggregate principal
balance as of the Cut-off Date of approximately $131,937,775. On or prior to
the date of initial issuance of the Securities (the "Closing Date"), the Loan
Seller will sell all of the Mortgage Loans to DLJ Mortgage Capital, Inc.
("DLJMC"), an affiliate of the Underwriter, and DLJMC will, in turn, sell the
Mortgage Loans to Capstead Capital Corporation ("CCC"), a Delaware corporation
that is a wholly-owned limited purpose finance subsidiary of Capstead Mortgage
Corporation ("CMC"), a Maryland corporation, and CCC will, in turn sell the
Mortgage Loans to CMC Securities Corporation IV (the "Issuer"), a Delaware
corporation that is a wholly-owned limited purpose finance subsidiary of CMC.
The Issuer will deposit the Mortgage Loans into a trust (the "Trust") pursuant
the terms of a pooling and servicing agreement (the "Pooling and Servicing
Agreement") among the Issuer, as depositor, NAMC, as master servicer (the
"Master Servicer"), and The First National Bank of Chicago, as trustee (the
"Certificate Trustee"). The Trust will create the Certificates for the benefit
of the Issuer in exchange for the Mortgage Loans. The Issuer will pledge the
Certificates to The First National Bank of Chicago, as indenture trustee (the
"Indenture Trustee") under the terms of an indenture (the "Indenture") between
the Issuer and the Indenture Trustee. The Certificates constitute a series of
"Non-Agency Certificates" as described in the Prospectus. The Pooling and
Servicing Agreement constitutes a "Pooling and Administration Agreement" as
described in the Prospectus.
The Mortgage Loans will be serviced by the Master Servicer pursuant to
the Pooling and Servicing Agreement. Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
The Securities constitute a Series of "Bonds" that are "Special
Allocation Bonds," as each term is described in the Prospectus, and will be
non-recourse obligations of the Issuer. Proceeds from the Certificates pledged
as collateral to secure the Securities under the lien of the Indenture (the
"Trust Estate") are the sole source of payments on the Securities. Neither the
Securities nor the Certificates are insured or guaranteed by any government
agency or instrumentality, CMC, CCC, the Issuer, NAMC, DLJMC, the Certificate
Trustee, the Indenture Trustee, the Underwriter or any other person or entity.
Each Class of Senior Securities constitutes a "Senior Class" of
"Senior Bonds" as described in the Prospectus and each Class of Subordinate
Securities constitutes a "Junior Class" of "Junior Bonds" as described in the
Prospectus. The primary credit support for the Senior Securities is the
subordination of the Subordinate Securities. In addition, the Senior
Securities, other than the related Lockout Securities and Principal Only
Securities, will be allocated all or a disproportionately large share of the
principal payments and prepayments received on the related Mortgage Loan Group
for a period of time, as described herein. The primary credit support for the
Class B-1, Class B-2 and Class B-3 Securities is the subordination of the
Classes of Subordinate Securities with higher numerical designations. The
rights of the holders of the Class B-1 Securities to receive payments with
respect to the Mortgage Loans will be subordinate
S-2
<PAGE> 3
to such rights of the holders of the Senior Securities, the rights of the
holders of the Class B-2 Securities to receive payments with respect to the
Mortgage Loans will be subordinate to such rights of the holders of the Senior
and Class B-1 Securities, and the rights of the holders of the Class B-3
Securities to receive payments with respect to the Mortgage Loans will be
subordinate to such rights of the holders of the Senior, Class B-1 and Class
B-2 Securities, in each case as and to the extent described herein. Realized
Losses on the Mortgage Loans will be allocated first to the Non-Offered
Subordinate Securities in reverse numerical order, second to the Offered
Subordinated Securities in reverse numerical order, and then to the Senior
Securities, in each case as described herein, The weighted average lives of and
yield on the Class B-1, Class B-2 and Class B-3 Securities will be sensitive to
Realized Losses on the Mortgage Loans. Similarly, following the reduction of
the aggregate Security Principal Balance (as defined herein) of the Subordinate
Securities to zero, the yield to maturity on the Senior Securities will be
extremely sensitive to all Realized Losses on the Mortgage Loans in the related
Mortgage Loan Group and certain Realized Losses on the Mortgage Loans in the
other Mortgage Loan Group. See "Description of the Securities -- Subordination
and Allocation of Losses" herein.
Payments in respect of the Offered Securities will be made on the 25th
day of each month or, if such day is not a business day, then on the next
succeeding business day, commencing in October 1997 (each, a "Payment Date").
As more fully described herein, interest payments on the Offered Securities
(other than the Principal Only and Accretion Securities) will be based on the
Security Principal Balances thereof (or on the applicable Notional Amount (as
defined herein), in the case of the Strip Securities) and the related Security
Interest Rates. Interest accruing on each Class of Securities (other than the
Principal Only Securities) during each Interest Accrual Period after the first
Interest Accrual Period will be calculated on the assumption that principal
payments on, and allocation of losses to, such Securities are made (and accrued
interest added to the principal of the Accretion Bonds) on the last day of the
preceding Interest Accrual Period, and not on the following Payment Date when
actually made or added. On each Payment Date through the applicable Accretion
Termination Date, the interest accrued on each Component of the Class A-9
Securities (the "Accretion Securities" or the "Companion Securities") during
the related Interest Accrual Period will not be paid to such Securities but
will instead be added to the Security Principal Balance thereof and will be
applied to pay principal on the Class A-7 and Class A-8 Securities to the
extent described herein under "Description of the Offered Securities --
Priority of Payments." On each Payment Date after the applicable Accretion
Termination Date, interest will be paid on the applicable Component of the
Accretion Securities and will not be added to the Security Principal Balance
thereof. In general, interest payments in respect of the Class FX Securities
will be made from distributions in respect of the Group I Mortgage Loans,
interest payments in respect of the Class II Securities will be made from
distributions in respect of the Group II Mortgage Loans and interest payments
in respect of the Subordinate Securities will be made from distributions in
respect of the Mortgage Pool. The Security Interest Rates on the Offered
Securities will be equal to the rates and calculations specified above. The
Principal Only Securities will not be entitled to receive payments of interest.
Payments of principal will be allocated among the Securities (other than the
Strip Securities) as described herein. In general, payments of principal on
the Class FX Securities will be made from distributions in respect of the Group
I Mortgage Loans, payments of principal on the Class II Securities will be made
from distributions in respect of the Group II Mortgage Loans and payments of
principal on the Subordinate Securities will be made from distributions in
respect of the Mortgage Pool. No principal prepayments in respect of the Group
I Mortgage Loans will be paid to the holders of the Class FXA-5 Securities
prior to the Payment Date occurring in October 2002 unless the Security
Principal Balances of the Class FXA Securities (other than the Class FXA-5
Securities) have been reduced to zero. No scheduled principal payments or
principal prepayments in respect of the Group II Mortgage Loans will be paid to
the holders of the Class A-4 Securities prior to the Payment Date occurring in
October 2002, unless the Security Principal Balances of the Class A Securities
(other than the Class A-4 Securities) have been reduced to zero. No principal
prepayments in respect of the Mortgage Loans will be paid to the holders of
the Subordinate Securities prior to the Payment Date occurring in October 2002
and no principal prepayments in respect of the Mortgage Loans will be paid to
the holders of the Subordinate Securities thereafter if certain criteria
relating to the extent of available subordination and the delinquency and loss
performance of the Mortgage Loans described herein are not satisfied, unless in
either case the Class FXA Securities, with respect to prepayments in respect of
the Group I Mortgage Loans, or the Class A Securities, with respect to
prepayments in respect of the Group II Mortgage Loans, have been reduced to
zero.
The yields to maturity on the Strip Securities and Principal Only
Securities will be extremely sensitive to the level of prepayments on the
Mortgage Loans in the related Loan Group, with respect to the Class FXS and
Class S Securities, and the rate of principal payments on the Class A-1
Securities, with respect to the Class A-2 Securities. The interest payable to
the Class FXS Securities is based on the weighted average of the Stripped
Interest Rates (as defined
S-3
<PAGE> 4
herein) of the Group I Premium Rate Mortgage Loans (as defined herein). The
interest payable to the Class S Securities is based on the weighted average of
the Stripped Interest Rates of the Group II Premium Rate Mortgage Loans (as
defined herein). Therefore, the yield to maturity on the Class FXS and Class S
Securities will generally decrease as a result of faster than expected
prepayments on such Group I or Group II Premium Rate Mortgage Loans,
respectively. The interest payable to the Class A-2 Securities is equal to the
sum of the Component Principal Balances of the Class A-1 Components,
multiplied by 0.65% per annum. Therefore, the yield to maturity on the Class
A-2 Securities will generally decrease as a result of faster than expected
principal payments on the Class A-1 Components. Prospective investors should
fully consider the risks associated with an investment in the Strip Securities,
including the possibility that if the rate of prepayments on the Group I or
Group II Premium Rate Mortgage Loans or the related Classes of Securities, as
applicable, is more rapid than anticipated, such investors may not fully recoup
their initial investments. Moreover, because the principal payable with
respect to the Class FXP Securities (which are entitled to receive payments of
principal only) is derived from Group I Mortgage Loans with Net Rates less than
7.25% per annum, the yield to maturity on the Class FXP Securities will be
adversely affected by slower than expected prepayments of such Mortgage Loans.
Because the principal payable with respect to the Class P Securities (which are
entitled to receive payments of principal only) is derived from Group II
Mortgage Loans with Net Rates less than 7.25% per annum, the yield to maturity
on the Class P Securities will be adversely affected by slower than expected
prepayments of such Mortgage Loans. Because the interest payable on the Class
FXS and Class S Securities and the principal distributable to the Class FXP and
Class P Securities are in part derived from different Mortgage Loans within the
related Mortgage Loan Group, it is possible that faster than expected
prepayments with respect to the Class FXS and Class S Securities may occur at
the same time as slower than expected prepayments with respect to the Principal
Only Securities. See "Certain Yield and Prepayment Considerations" and "Yield
Considerations with respect to the Strip Securities and Principal Only
Securities" herein.
It is a condition to the issuance of the Offered Securities that each
Class of Class FXA Securities, Residual Securities and Class A Securities
(other than the Class A-2 Securities) be rated "AAA" by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
Duff & Phelps Credit Rating Co. ("DCR," and together with S&P, the "Rating
Agencies"), that the Strip Securities and Principal Only Securities be rated
"AAA" by DCR and "AAAr" by S&P, that the Class B-1 Securities be rated not
lower than "AA" by DCR, that the Class B-2 Securities be rated not lower than
"A" by DCR, and that the Class B-3 Securities be rated not lower than "BBB" by
DCR.
As described herein, two real estate mortgage investment conduit
("REMIC") elections will be made with respect to the Securities for federal
income tax purposes (such REMICs being referred to as the "Upper REMIC" and
"Lower REMIC," respectively). The Securities (other than the Residual
Securities) will constitute "regular interests" in the Upper REMIC and "REMIC
Regular Bonds" for purposes of the Prospectus. The Class R and Class RP
Securities will constitute the "residual interest" in the Upper REMIC and the
Lower REMIC, respectively, and "Residual Bonds" for purposes of the Prospectus.
The Holders of the Residual Securities will be required to report on their
federal income tax returns any net income or loss of the related REMIC and may
experience a highly negative after-tax return. See "Special Tax Considerations"
herein.
The Class B-2 and Class B-3 Securities will not constitute
"mortgage-related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), because those Classes are not rated in one
of the two highest rating categories by a nationally-recognized rating agency.
The Class B-3 Securities, Strip Securities and Residual Securities may
not be transferred to Plans (as defined herein), persons acting on behalf of
Plans, or persons using assets of Plans (each of the foregoing, a "Plan
Investor"), except as described herein. Each purchaser of a Class B-3
Security, a Strip Security or a Residual Security will be deemed to represent,
by virtue of its acquisition thereof, that it is not a Plan Investor, unless
such purchaser provides a Benefit Plan Opinion or, in the case of an insurance
company, a representation letter as described herein. The Subordinate and
Residual Securities may not be suitable investments for Plan Investors and are
not offered to Plan Investors. See "ERISA Considerations" herein and "ERISA
Matters" in the Prospectus. The Residual Securities are subject to additional
transfer restrictions. See "Restrictions on Purchase and Transfer of the
Residual Securities" herein.
S-4
<PAGE> 5
There is currently no secondary market for the Offered Securities.
Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter") intends
to make a secondary market in the Offered Securities but has no obligation to
do so. There can be no assurance that a secondary market for the Offered
Securities will develop or, if it does develop, that it will continue or will
provide investors with a sufficient level of liquidity. The Offered Securities
will not be listed on any securities exchange. See "Risk Factors" herein and
in the Prospectus.
The information set forth herein under "Summary of Prospectus
Supplement -- The Mortgage Pool," "Description of the Mortgage Pool," "The Loan
Seller" and "Pooling and Servicing Agreement -- The Master Servicer" has been
provided by the Loan Seller. No representation is made by the Issuer, DLJMC,
the Underwriter, the Certificate Trustee, the Indenture Trustee or any of their
respective affiliates as to the accuracy or completeness of the information
provided by the Loan Seller.
THE OFFERED SECURITIES MAY NOT BE SUITABLE INVESTMENTS FOR ALL
INVESTORS DUE TO THEIR COMPLEX NATURE. NO INVESTOR SHOULD PURCHASE THE OFFERED
SECURITIES UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT,
YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES.
------------------------------
No person is authorized in connection with this offering to give any
information or to make any representation about the Issuer, the Loan Seller,
DLJMC, the Master Servicer, the Certificate Trustee, the Indenture Trustee, the
Offered Securities, or any other matter referred to herein, other than those
contained in this Prospectus Supplement or the Prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by the Issuer,
the Loan Seller, DLJMC, the Master Servicer, the Certificate Trustee or the
Indenture Trustee. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy securities
other than the Offered Securities, or an offer to sell or a solicitation of an
offer to buy securities in any jurisdiction or to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale hereunder or thereunder
shall, under any circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent to their
respective dates.
------------------------------
S-5
<PAGE> 6
THE OFFERED SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL BE
PART OF A SEPARATE SERIES OF SECURITIES BEING OFFERED BY THE ISSUER PURSUANT TO
ITS PROSPECTUS DATED SEPTEMBER 26, 1997, OF WHICH THIS PROSPECTUS SUPPLEMENT IS
A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS
CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED
HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL.
UNTIL THE EXPIRATION OF 90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY
REQUIREMENT 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.
------------------------------
REPORTS TO SECURITYHOLDERS
With respect to the Senior Securities (other than the Strip, Principal
Only and Residual Securities), unless and until definitive certificates are
issued, monthly reports containing information concerning the Trust and
prepared by the Indenture Trustee, will be sent to Cede & Co. ("Cede"), as
nominee of DTC and registered holder of such Senior Securities, pursuant to the
Pooling and Servicing Agreement (as defined herein). Such reports may be
available to beneficial owners of Senior Securities (other than the Strip,
Principal Only and Residual Securities) in accordance with the regulations and
procedures of DTC.
------------------------------
The Issuer will file with the Commission certain materials relating to
the Mortgage Pool and the Offered Securities on Form 8-K. Such materials were
prepared by the Underwriter for certain prospective investors, and, unless
otherwise specified in such Form 8-K, the information included in such
materials is subject to and is superseded by, the information set forth in this
Prospectus Supplement.
S-6
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
REPORTS TO SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . S-6
SUMMARY OF PROSPECTUS
SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Limited Obligations . . . . . . . . . . . . . . . . . . . . . . S-25
Prepayment and Yield
Considerations . . . . . . . . . . . . . . . . . . . . . S-25
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Geographic Concentration of the
Mortgaged Premises . . . . . . . . . . . . . . . . . . S-27
The Status of the Mortgage Loans in
the Event of Insolvency . . . . . . . . . . . . . . . . S-27
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . S-27
DESCRIPTION OF THE MORTGAGE
POOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .S-28
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Underwriting Standards . . . . . . . . . . . . . . . . . . . . . S-46
DESCRIPTION OF INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . S-51
Primary Mortgage Insurance
Policies . . . . . . . . . . . . . . . . . . . . . . . . S-51
Standard Hazard Insurance Policies,
Fire Insurance Policies and
Flood Insurance Policies . . . . . . . . . . . . . . . . S-51
Title Insurance Policies . . . . . . . . . . . . . . . . . . . . S-52
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . S-52
THE LOAN SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
DESCRIPTION OF THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . S-53
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . S-54
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . S-55
Priority of Payments . . . . . . . . . . . . . . . . . . . . . . S-55
Interest Payments . . . . . . . . . . . . . . . . . . . . . . . S-59
Principal Payments . . . . . . . . . . . . . . . . . . . . . . . S-60
Subordination and Allocation of
Losses . . . . . . . . . . . . . . . . . . . . . . . . . S-67
Optional Purchase of Delinquent
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . S-69
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Example of Payments on the
Securities . . . . . . . . . . . . . . . . . . . . . . . S-70
Optional Redemption of the
Securities . . . . . . . . . . . . . . . . . . . . . . . S-71
Special Redemption of the
Securities . . . . . . . . . . . . . . . . . . . . . . . S-71
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . S-71
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
Weighted Average Life. . . . . . . . . . . . . . . . . . . . . . S-75
YIELD CONSIDERATIONS WITH RESPECT TO THE STRIP
SECURITIES AND PRINCIPAL
ONLY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . S-77
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..S-80
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-80
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . S-80
POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . . S-80
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-80
Assignment of Mortgage Loans . . . . . . . . . . . . . . . . . . S-80
The Master Servicer . . . . . . . . . . . . . . . . . . . . . . S-82
Servicing and Other Compensation and
Payment of Expenses . . . . . . . . . . . . . . . . . . S-83
Special Servicing Agreements . . . . . . . . . . . . . . . . . . S-84
Events of Default . . . . . . . . . . . . . . . . . . . . . . . S-84
Rights Upon Event of Default . . . . . . . . . . . . . . . . . . S-84
Limitation on Resignation of the Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . . S-85
Limitation on Liability of the Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . . S-85
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
The Certificate Trustee . . . . . . . . . . . . . . . . . . . . S-86
SPECIAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . S-86
Residual Securityholders . . . . . . . . . . . . . . . . . . . . S-86
Regular Securityholders . . . . . . . . . . . . . . . . . . . . S-87
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE
RESIDUAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . S-88
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
INDEX OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
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SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. The "Index of Terms" appearing at the end of the Prospectus
Supplement indicates the page number on which each definition in the Prospectus
Supplement appears. The "Glossary of Principal Terms"appearing at the
beginning of the Prospectus indicates the page number on which each definition
in the Prospectus appears.
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TITLE OF SECURITIES . . . . . . . . . . . . . . . . Collateralized Mortgage Obligations, Series 1997-NAMC 3.
ISSUER . . . . . . . . . . . . . . . . . . . . . . CMC Securities Corporation IV ("CMCSC IV" or the "Issuer"). See
"The Issuer" in the Prospectus.
MASTER SERVICER . . . . . . . . . . . . . . . . . . North American Mortgage Company ("NAMC" or the "Master
Servicer"). Notwithstanding anything to the contrary in the
Prospectus, the Master Servicer will provide all customary
servicing functions with respect to the Mortgage Loans pursuant
to the Pooling and Servicing Agreement. The Master Servicer
will be entitled to: (i) a monthly fee with respect to each
Mortgage Loan payable on each Payment Date in an amount equal
to one-twelfth of 0.26% per annum (the "Servicing Fee Rate")
multiplied by the Scheduled Principal Balance of such Mortgage
Loan on the first day of the Due Period relating to such
Payment Date, (ii) any interest or investment income earned on
funds deposited in the Custodial Account for the period ending
on such Payment Date, and (iii) additional servicing
compensation described herein. See "Pooling and Servicing
Agreement -- The Master Servicer" herein.
CERTIFICATE TRUSTEE . . . . . . . . . . . . . . . . The First National Bank of Chicago (the "Certificate Trustee").
See "Pooling and Servicing Agreement -- The Certificate
Trustee" herein.
INDENTURE TRUSTEE . . . . . . . . . . . . . . . . . The First National Bank of Chicago, as Indenture Trustee under
the Indenture. The Indenture Trustee will also perform
securities administration functions for the Issuer under the
Indenture, including, among other things, monitoring the
amounts on deposit in the Security Account and other accounts
established in accordance with the Indenture and maintained
with the Indenture Trustee, calculating amounts distributable
to Securityholders on each Payment Date, the preparation of and
distribution to Securityholders of monthly statements and other
reports as provided in the Indenture, and filing periodic
reports with the Commission.
LOAN SELLER . . . . . . . . . . . . . . . . . . . . North American Mortgage Company (the "Loan Seller"). See "The
Loan Seller" herein.
CUT-OFF DATE . . . . . . . . . . . . . . . . . . . September 1, 1997.
CLOSING DATE . . . . . . . . . . . . . . . . . . . On or about September 30, 1997.
PAYMENT DATE . . . . . . . . . . . . . . . . . . . The 25th day of each month, or if such day is not a business
day, then the next succeeding business day, beginning in
October 1997 (each, a "Payment Date").
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RECORD DATE . . . . . . . . . . . . . . . . . . . . With respect to each Payment Date, the "Record Date" is the
last business day of the month preceding the month in which
such Payment Date occurs.
DUE PERIOD . . . . . . . . . . . . . . . . . . . . With respect to each Payment Date, the "Due Period" is the
period commencing on the second day of the month preceding the
month in which such Payment Date occurs and ending on the first
day of the month in which such Payment Date occurs.
PREPAYMENT PERIOD . . . . . . . . . . . . . . . . . With respect to each Payment Date and (i) each prepayment in
full, the related "Prepayment Period" commences on the 15th day
of the month preceding the month in which such Payment Date
occurs (or in the case of the first Payment Date, commencing on
the day after the Cut-off Date) and ends on the 14th day of the
month in which such Payment Date occurs, and (ii) each partial
prepayment, the "Prepayment Period" is the month preceding the
month in which such Payment Date occurs.
DESIGNATIONS:
Class FXA Securities . . . . . . . . . . . . . . Class FXA-1, Class FXA-2, Class FXA-3, Class FXA-4, Class FXA-
5, Class FXA-6 and Class FXA-7 Securities.
Class A Securities . . . . . . . . . . . . . . . Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class-A-
6, Class A-7, Class A-8 and Class A-9 Securities.
Principal Only Securities . . . . . . . . . . . Class FXP and Class P Securities.
Strip Securities . . . . . . . . . . . . . . . . Class FXS, Class S and Class A-2 Securities.
Class FX Securities . . . . . . . . . . . . . . Class FXA, Class FXP, Class FXS and Residual Securities.
Class II Securities . . . . . . . . . . . . . . Class A, Class P and Class S Securities.
Subordinate Securities . . . . . . . . . . . . . Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 Securities.
Residual Securities . . . . . . . . . . . . . . Class R and Class RP Securities.
Senior Securities . . . . . . . . . . . . . . . Class FXA, Class A, Principal Only, Strip and Residual
Securities.
Accretion-Directed Securities
and TAC Securities . . . . . . . . . . . . . Class A-7 and Class A-8 Securities.
PAC Securities . . . . . . . . . . . . . . . . . Class A-1 Securities (including Class A-1 Component 1 and Class
A-1 Component 2).
Accretion Securities and Companion Securities . Class A-9 Securities (including Class A-9 Component 1 and Class
A-9 Component 2).
Component Securities . . . . . . . . . . . . . . Class A-1, Class A-2 and Class A-9 Securities.
Class FXA-5 Lockout Securities . . . . . . . . . Class FXA-5 Securities.
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Class A-4 Lockout Securities . . . . . . . . . . Class A-4 Securities.
Lockout Securities . . . . . . . . . . . . . . . Class FXA-5 Lockout Securities and Class A-4 Lockout
Securities.
Offered Securities . . . . . . . . . . . . . . . Senior, Class B-1, Class B-2 and Class B-3 Securities.
Offered Subordinate Securities . . . . . . . . . Class B-1, Class B-2 and Class B-3 Securities.
Non-Offered Subordinate Securities . . . . . . . Class B-4, Class B-5 and Class B-6 Securities.
DENOMINATIONS . . . . . . . . . . . . . . . . . . . The Class FXA-6, Class FXA-7, Class A-3, Class A-6 and
Principal Only Securities will be issued in minimum
denominations of $1,000 and integral multiples of $1,000 in
excess thereof. The Class FXA-1, Class FXA-2, Class FXA-3,
Class FXA-4, Class FXA-5, Class A-1, Class A-4, Class A-5,
Class A-7, Class A-8, Class A-9 and Offered Subordinate
Securities will be issued in minimum denominations of $250,000
and integral multiples of $1,000 in excess thereof. The
Residual Securities will be issued in minimum denominations of
$10 and integral multiples of $1.00 in excess thereof. The
Strip Securities will be issued in minimum initial Notional
Amounts (as defined herein) of $1.00 and integral multiples of
$1.00 in excess thereof. In addition, one Security of each
Class may be issued evidencing the sum of an authorized
denomination thereof and the remainder of the aggregate initial
Security Principal Balance of such Class.
REGISTRATION . . . . . . . . . . . . . . . . . . . Each Class of Class FXA Securities, Class A Securities, and the
Offered Subordinate Securities will be Book-Entry Securities
represented by a Security registered in the name of Cede & Co.,
as nominee of DTC. No person acquiring a beneficial interest
in a Book-Entry Security (each, a "Beneficial Owner") will be
entitled to receive a Security in certificated form, except
under the limited circumstances described herein. For each
Security held by DTC, DTC will effect payments to and transfers
of the related Book-Entry Securities among the respective
Beneficial Owners by means of its electronic record keeping
services, acting through organizations that participate in DTC.
This arrangement may result in certain delays in receipt of
payments by Beneficial Owners and may restrict a Beneficial
Owner's ability to pledge the Securities beneficially owned by
it. All references in this Prospectus Supplement to the Book-
Entry Securities reflect the rights of Beneficial Owners of
such Securities only as such rights may be exercised through
DTC and its participating organizations so long as such
Securities are held by DTC. The Principal Only, Class FXS,
Class S and Residual Securities will be offered in registered
and certificated form. See "Description of the Securities --
Book-Entry Registration" and "Description of Book-Entry
Procedures" herein and "Description of the Bonds -- Book Entry
Registration" in the Prospectus.
THE MORTGAGE POOL . . . . . . . . . . . . . . . . . Based solely upon information provided by the Loan Seller, the
Mortgage Loans will have the characteristics described herein.
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The Mortgage Pool will consist of Mortgage Loans with an
aggregate principal balance as of the Cut-off Date of
approximately $281,194,913. The Mortgage Loans are secured by
first liens on fee simple and leasehold interests in one- to
four-family residential real properties (each, a "Mortgaged
Premises") and have original terms to maturity from the due
dates of their first scheduled monthly payment of interest and
principal (each such payment, a "Monthly Payment") of not more
than 30 years. All of the Mortgage Loans have Monthly Payments
due on the first day of each month.
The Group I Mortgage Loans will consist of a pool of
approximately 982 Mortgage Loans with an aggregate principal
balance as of the Cut-off Date of approximately $149,257,138
(representing approximately 53.08% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date), with Note
Rates ranging from approximately 7.375% to 10.000% per annum.
The Group II Mortgage Loans will consist of a pool of
approximately 521 Mortgage Loans with an aggregate principal
balance as of the Cut-off Date of approximately $131,937,775
(representing approximately 46.92% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date), with Note
Rates ranging from approximately 6.750% to 9.125% per annum.
See "Description of the Mortgage Pool" herein for a further
description of certain characteristics of the Mortgage Loans.
As of the Cut-off Date, none of the Mortgage Loans were thirty
days or more delinquent in their Monthly Payments. As of the
Cut-off Date, none of the Mortgage Loans will have been thirty
days or more delinquent in their Monthly Payments more than
once during the twelve months preceding the Closing Date except
for one Mortgage Loan with a Cut-off Date balance of
$80,496.92, and no Mortgage Loan had been sixty or more days
delinquent.
THE OFFERED SECURITIES . . . . . . . . . . . . . . The Offered Securities will be issued pursuant to an Indenture
to be dated as of September 1, 1997, as supplemented by a
Series 1997-NAMC 3 Supplement dated September 30, 1997
(collectively, the "Indenture"), between the Issuer and the
Indenture Trustee. The Security Interest Rates and approximate
initial principal balances of the Securities (each, a
"Security Principal Balance") as of the Cut-off Date are set
forth on the cover page hereof.
INTEREST PAYMENTS . . . . . . . . . . . . . . . . . Interest in respect of each Class of Securities (other than the
Principal Only Securities and, through the related Accretion
Termination Date, the Companion Securities), will be paid
monthly on each Payment Date, commencing in October 1997. With
respect to each Payment Date, an amount of interest will accrue
on each Class of Securities during each Interest Accrual Period
(defined below) at a rate generally equal to 1/12th of the
applicable Security Interest Rate for such Class multiplied by
the related Security Principal Balance or Notional Amount, as
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applicable. All interest payments in respect of each Class of
Securities will generally be made only to the extent of
Available Funds for the related Mortgage Loan Group as
described herein under "Description of the Securities --
Priority of Payments."
On each Payment Date through the applicable Accretion
Termination Date (defined herein), interest accrued on the
Companion Securities will not be paid on such securities but
will instead be added to the Security Principal Balance of the
Companion Securities and will be applied to pay principal on
the Class A-7 and Class A-8 Securities to the extent described
herein under "Description of the Offered Securities -- Priority
of Payments." On each Payment Date after the applicable
Accretion Termination Date, interest will be paid on the
Companion Securities and will not be added to the Security
Principal Balance thereof.
For each Payment Date, the "Interest Accrual Period" for each
Class of Securities is the calendar month preceding such
Payment Date.
As of any Payment Date, the "Class FXS Notional Amount" will
equal the product of (x) the aggregate Scheduled Principal
Balance, as of the second preceding Due Date after giving
effect to payments scheduled to be received as of such Due
Date, whether or not received, or with respect to the initial
Payment Date, as of the Cut-off Date, of Group I Mortgage Loans
having Net Rates in excess of 7.25% per annum (the "Group
I Premium Rate Mortgage Loans") and (y) a fraction, the
numerator of which is the weighted average of the Stripped
Interest Rates (as defined herein) for the Group I Premium Rate
Mortgage Loans and the denominator of which is 7.25%. The Class
FXS Notional Amount as of the Cut-off Date will be
approximately $22,244,414. The "Stripped Interest Rate" for
each Group I Mortgage Loan is the excess of the Net Rate for
such Mortgage Loan over 7.25% per annum.
As of any Payment Date, the "Class S Notional Amount" will
equal the product of (x) the aggregate Scheduled Principal
Balance, as of the second preceding Due Date after giving
effect to payments scheduled to be received as of such Due
Date, whether or not received, or with respect to the initial
Payment Date, as of the Cut-off Date, of Group II Mortgage
Loans having Net Rates in excess of 7.25% per annum (the "Group
II Premium Rate Mortgage Loans") and (y) a fraction, the
numerator of which is the weighted average of the Stripped
Interest Rates (as defined herein) for the Group II Premium
Rate Mortgage Loans and the denominator of which is 7.25%. The
Class S Notional Amount as of the Cut-off Date will be
approximately $8,500,913. The "Stripped Interest Rate" for
each Group II Mortgage Loan is the excess of the Net Rate for
such Mortgage Loan over 7.25% per annum.
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As of any Payment Date, the "Class A-2 Notional Amount" will
equal the sum of (A) the product of (x) 8.9655172309% and (y)
the Component Principal Balance of the Class A-1 Component 1,
and (B) the product of (x) 8.9655172309% and (y) the Component
Principal Balance of the Class A-1 Component 2. The Class A-2
Notional Amount as of the Cut-off Date will be approximately
$2,063,265.
As used herein, "Notional Amount" refers to the Class FXS
Notional Amount, Class S Notional Amount and the Class A-2
Notional Amount. References herein to the Notional Amount in
respect of such Strip Securities are used solely for certain
calculations and do not represent the right of the holders of
such Strip Securities to receive payments of such amount.
See "Description of the Securities -- Interest Payments"
herein.
PRINCIPAL PAYMENTS . . . . . . . . . . . . . . . . On each Payment Date, to the extent of the Available Funds with
respect to each Mortgage Loan Group, amounts in respect of
principal will be paid to the holders of the Offered Securities
(other than the Strip Securities) as provided herein under
"Description of the Securities -- Principal Payments."
The Strip Securities are "interest only" securities and are not
entitled to principal payments.
ADVANCES . . . . . . . . . . . . . . . . . . . . . The Master Servicer is required to make advances ("Advances")
in respect of delinquent payments of principal and interest
(net of the related Servicing Fees) on the Mortgage Loans,
subject to the limitations described herein. Such Advances are
reimbursable to the Master Servicer prior to payments to the
Securityholders, as described under the heading "Description of
Securities -- Advances" herein. The Certificate Trustee will be
obligated to make any such Advance only to the limited extent
provided in the Pooling and Servicing Agreement. See
"Description of the Securities -- Advances" herein.
ALLOCATION OF LOSSES;
SUBORDINATION . . . . . . . . . . . . . . . . . None of the Offered Securities, the Certificates or the
Mortgage Loans are insured or guaranteed by any governmental
agency or instrumentality or by the Issuer, CMC, CCC, DLJMC,
the Master Servicer, the Loan Seller, the Certificate Trustee,
the Indenture Trustee, the Underwriter or any of their
respective affiliates. Subject to the limitations described
below, Realized Losses on the Mortgage Loans will be allocated,
in each case until the applicable Security Principal Balances
have been reduced to zero, first, to the Non-Offered
Subordinate Securities in reverse numerical order; second, to
the Class B-3 Securities; third, to the Class B-2 Securities;
fourth, to the Class B-1 Securities; and fifth, to the
outstanding Classes of Senior Securities in the manner
described herein; provided, however, that (i) if the loss is
recognized with respect to a Group I Discount Mortgage Loan,
the Class FXP Fraction of such loss
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will first be allocated to the Class FXP Securities and the
remainder of such loss will be allocated as described above;
(ii) if the loss is recognized with respect to a Group II
Discount Mortgage Loan, the Class P Fraction of such loss will
first be allocated to the Class P Securities and the remainder
of such loss will be allocated as described above; and (iii)
only a certain specified amount of Special Hazard Losses, Fraud
Losses and Mortgagor Bankruptcy Losses will be allocated solely
to the Subordinate Securities, following which such losses will
be allocated among all outstanding Classes of Securities on a
pro rata basis. See "Description of the Securities --
Subordination and Allocation of Losses" herein.
All of the foregoing amounts are subject to periodic reduction
as described herein. In the event that the Security Principal
Balances of the Subordinate Securities are reduced to zero, all
additional losses on the Group I Mortgage Loans and the
Group II Mortgage Loans will be allocated among the Class FX
Securities and the Class II Securities, respectively, as
described herein.
Notwithstanding that losses on the Mortgage Loans in a given
Mortgage Loan Group may only be allocated to the related Senior
Securities (except for Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses and Extraordinary
Losses), the allocation to the Subordinate Securities of losses
on the Mortgage Loans in a given Mortgage Loan Group will
increase the likelihood that losses may be allocated to the
Senior Securities relating to the other Mortgage Loan Group.
SHIFTING OF INTERESTS . . . . . . . . . . . . . . . The Senior Securities entitled to principal, other than the
Lockout Securities, will receive 100% of the principal
prepayments received in respect of the Mortgage Loans in the
related Mortgage Loan Group until at least the fifth
anniversary of the first Payment Date. During the next four
years, the Senior Securities, other than the Lockout
Securities, generally will receive a disproportionately large,
but decreasing, share of principal prepayments received in
respect of the Mortgage Loans in the related Mortgage Loan
Group. This will result in an acceleration of the amortization
of the Senior Securities, other than the Lockout Securities,
subject to the priorities described in "Description of the
Securities -- Principal Payments" herein, enhancing the
likelihood that holders of such Classes of Securities will be
paid the full amount of principal to which they are entitled.
NON-OFFERED SUBORDINATE SECURITIES . . . . . . . . The Class B-4, Class B-5 and Class B-6 Securities each have a
Security Interest Rate equal to 7.25% per annum for each
Payment Date and have an initial aggregate Security Principal
Balance of approximately $2,952,549.
OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . At its option, the Master Servicer may, upon giving written
notice to the Issuer, the Certificate Trustee and the Indenture
Trustee, repurchase from the trust established by the Pooling
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and Servicing Agreement (the "Trust") all of the remaining
Mortgage Loans, and thereby effect an early termination of the
Certificates and redemption of the Securities, on any Payment
Date when the aggregate outstanding principal balance of the
Mortgage Loans is equal to or less than 5% of the aggregate
outstanding principal balance of the Mortgage Loans as of the
Cut-off Date (any such Payment Date is referred to herein as an
"Optional Redemption Date"). If the Master Servicer does not
so elect to repurchase the Mortgage Loans on an Optional
Redemption Date, the Issuer may, at its option, upon giving
notice to the Master Servicer, the Certificate Trustee and the
Indenture Trustee, repurchase the Mortgage Loans from the Trust
and effect an early retirement of the Certificates and an early
redemption of the Securities. Upon such optional repurchase,
the Trust Estate will terminate and any remaining assets in the
Trust Estate shall be released to the repurchasing party. See
"Pooling and Servicing Agreement -- Termination" herein.
SPECIAL PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . . GENERAL: The rate of principal payments on the Offered
Securities will depend on, among other things, the rate and
timing of principal payments (including prepayments,
repurchases, defaults and liquidations) on the Mortgage Loans.
As is the case with mortgage-backed securities generally, the
Offered Securities are subject to substantial inherent cash-
flow uncertainties because the Mortgage Loans may be prepaid at
any time. Generally, when prevailing interest rates increase,
prepayment rates on mortgage loans tend to decrease in
subsequent periods, resulting in a reduced 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 in subsequent periods, resulting in an
accelerated return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
Therefore, a higher than anticipated rate of principal payments
(including principal prepayments) and liquidations in a
Mortgage Loan Group could result in a lower than expected yield
to maturity on any related Class of Securities purchased at a
premium. Conversely, a lower than anticipated rate of
principal payments (including principal prepayments) and
liquidations in a Mortgage Loan Group could result in a lower
than expected yield to maturity on any related Class of
Securities purchased at a discount. Except as described herein
under "Description of the Securities -- Principal Payments --
Cross-Collateralization," principal payments to the Class FX
Securities and Class II Securities relate to principal payments
in respect of the Group I Mortgage Loans and the Group II
Mortgage Loans, respectively, and principal payments to the
Subordinate Securities relate to principal payments in respect
of both the Group I Mortgage Loans and the Group II Mortgage
Loans.
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PRINCIPAL ONLY SECURITIES: Because the principal payable with
respect to the Class FXP Securities (which are entitled to
receive payments of principal only) is derived from Group I
Mortgage Loans with Net Rates of less than 7.25% per annum, the
yield to maturity on the Class FXP Securities will be adversely
affected by slower than expected prepayments of such Mortgage
Loans. Similarly, because the principal payable with respect
to the Class P Securities (which are entitled to receive
payments of principal only) is derived from Group II Mortgage
Loans with Net Rates less than 7.25% per annum, the yield to
maturity on the Class P Securities will be adversely affected
by slower than expected prepayments of such Mortgage Loans.
Because the interest payable on the Class FXS and Class S
Securities and the principal distributable to the Class FXP and
Class P Securities are, for the most part, derived from
different Mortgage Loans within the related Mortgage Loan
Group, it is possible that faster than expected prepayments
with respect to the Class FXS and Class S Securities may occur
at the same time as slower than expected prepayments with
respect to the Principal Only Securities. See "Risk Factors,"
"Certain Yield and Prepayment Considerations" and "Yield
Considerations with respect to the Strip Securities and
Principal Only Securities" herein.
LOCKOUT SECURITIES: The Class FXA-5 Lockout Securities and
Class A-4 Lockout Securities will not be entitled to receive
any principal prepayments in respect of the Mortgage Loans
until the Payment Date occurring in October 2002 unless the
Security Principal Balance of the Class FXA Securities (other
than the Class FXA-5 Lockout Securities) or Class A Securities
(other than the Class A-4 Lockout Securities), as appropriate,
have been reduced to zero. Therefore, the Lockout Securities
will not be entitled to receive the disproportionate allocation
of principal prepayments that the other Class FXA and Class A
Securities are entitled to receive unless the Security
Principal Balances of such other Senior Securities have been
reduced to zero.
In addition, the Class A-4 Lockout Securities will not be
entitled to receive any scheduled principal payments in respect
of the Mortgage Loans until the Payment Date occurring in
October 2002 unless the Security Principal Balance of the Class
A Securities (other than the Class A-4 Lockout Securities) has
been reduced to zero.
SEQUENTIALLY PAYING CLASSES: All Classes of Class FXA and Class
A Securities are subject to various priorities for payment of
principal, as described herein. Principal payments on the
Classes of Class FXA and Class A Securities having an earlier
priority of payment will be affected by the rates of prepayment
of the Mortgage Loans in the related Mortgage Loan Group early
in the life of the Mortgage Pool. The timing of commencement
of principal payments and the weighted average lives of the
Classes of Class FXA and Class A Securities with a later
priority of payment will be affected by
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the rates of prepayment experienced both before and after the
commencement of principal payments on such Classes.
STRIP SECURITIES: The Notional Amounts, and therefore the
amount of interest payments on the Classes of Strip Securities,
will be highly sensitive to the rate and timing of principal
payments (including prepayments, repurchases, defaults and
liquidations) in respect of the Group I or Group II Premium
Rate Mortgage Loans, with respect to the Class FXS and Class S
Securities, and of principal payments on the Class A-1
Securities, with respect to the Class A-2 Securities. See "--
Special Yield Considerations" below, "Risk Factors," "Certain
Yield and Prepayment Considerations" and "Yield Considerations
with respect to the Strip Securities and the Principal Only
Securities" herein.
TAC SECURITIES: The weighted average lives of the TAC
Securities will be more sensitive to fluctuations in the rate
of principal prepayments on the Group II Mortgage Loans than
will the weighted average lives of the PAC Securities, as
described herein. See "Risk Factors -- Prepayment and Yield
Considerations" and "Certain Yield and Prepayment
Considerations -- General -- TAC Securities" herein.
COMPANION SECURITIES: The weighted average life of the
Companion Securities will be more sensitive to fluctuations in
the rate of principal prepayments on the Group II Mortgage
Loans than will the weighted average lives of the PAC
Securities and the TAC Securities, as described herein. See
"Risk Factors -- Prepayment and Yield Considerations" and
"Certain Yield and Prepayment Considerations -- General --
Companion Securities" herein.
CLASSES WITH SUBORDINATION FEATURES: As described herein,
during certain periods all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will
be allocated among the Class FXA and Class A Securities (other
than the related Lockout Securities), and therefore, during
certain periods no principal prepayments or, relative to the
related Subordinate Percentage (as defined herein), a
disproportionately small percentage of such prepayments will be
paid to the Subordinate Securities. To the extent that no
principal prepayments or a disproportionately small percentage
of such prepayments are paid to the Subordinate Securities, the
weighted average lives of the Subordinate Securities will be
extended and, as a relative matter, the Subordination afforded
to the Senior Securities by the Subordinate Securities will be
increased (to the extent not otherwise offset by Realized
Losses).
See "Description of the Securities -- Principal Payments,"
"Certain Yield and Prepayment Considerations" and "Yield
Considerations with respect to the Strip Securities and
Principal Only Securities" herein, and see "Risk Factors --
Prepayment and Yield Considerations" in the Prospectus.
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SPECIAL YIELD
CONSIDERATIONS . . . . . . . . . . . . . . . . . GENERAL: The yield to maturity on each Class of Offered
Securities will depend on, among other things, the rate and
timing of principal payments (including prepayments,
repurchases, defaults and liquidations) in respect of the
Mortgage Loans and the allocation thereof to reduce the
Security Principal Balance (or the Notional Amount) of such
Class of Securities. The yield to maturity on each Class of
Offered Securities also will depend on other factors such as
the related Security Interest Rate and the purchase price for
such Securities. The yield to investors on any Class of
Offered Securities entitled to interest will be adversely
affected by any allocation thereto of any Prepayment Interest
Shortfalls on the Mortgage Loans to the extent not covered by
payments by the Master Servicer as described herein.
In general, if a Class of Offered Securities is purchased at a
premium and principal payments on the Mortgage Loans occur at a
rate faster than assumed at the time of purchase, the
investor's actual yield to maturity will be lower than
originally anticipated. Conversely, if a Class of Offered
Securities is purchased at a discount and principal payments on
the Mortgage Loans occur at a rate slower than assumed at the
time of purchase, the investor's actual yield to maturity will
be lower than originally anticipated.
Payments of interest on the Securities entitled to interest
payments on any Payment Date will include interest accrued
thereon through the last day of the month preceding the month
in which such Payment Date occurs. The effective yield to the
holders of such Securities will be lower than the yield
otherwise produced by the applicable Security Interest Rates
and purchase prices because (i) interest will not be paid on
such Securities until the 25th day (or, if such day is not a
business day, then on the next succeeding business day) of the
month following the month in which such interest accrues on the
Securities, and (ii) during the first twenty-four calendar days
of each calendar month after the Closing Date, interest accrues
on a principal amount (or notional amount, as applicable) that
is less than the principal amount (or notional amount, as
applicable) of such Class of Securities actually outstanding
because the principal payment, or allocation of losses, made
(or the reduction in the respective notional amount) on the
Payment Date occuring during each such calendar month is
assumed to have been made (or reduced), for interest accrual
purposes only, at the end of the preceding calendar month.
STRIP SECURITIES: The yield to investors on the Class FXS and
Class S Securities will be extremely sensitive to the rate and
timing of principal payments on the Group I or Group II Premium
Rate Mortgage Loans (including prepayments, repurchases,
defaults and liquidations), as applicable, which may fluctuate
significantly over time. A rapid rate of principal payments on
the Mortgage Loans in the related Mortgage Loan Group could
result in the failure of investors in the Class FXS
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and Class S Strip Securities to fully recoup their initial
investment. The yield on the Class FXS and Class S Securities
will also be materially and adversely affected if the Group I
or Group II Premium Rate Mortgage Loans, as applicable,
experience a high rate of defaults and liquidations. In
addition to the foregoing, the yield on the Class FXS and Class
S Securities will be materially and adversely affected to a
greater extent than the yields on the other Classes of Offered
Securities if the Group I or Group II Premium Rate Mortgage
Loans, as applicable, with higher Net Rates prepay faster than
such Mortgage Loans with lower Net Rates, because holders of
the Class FXS and Class S Securities generally will have rights
to relatively larger portions of interest payments on the Group
I or Group II Premium Rate Mortgage Loans, as applicable, with
higher Net Rates than on the Mortgage Loans in the related
Mortgage Loan Groups with lower Net Rates. The yield to
investors on the Class A-2 Securities will be extremely
sensitive to the rate and timing of principal payments on the
Class A-1 Components. A rapid rate of principal payments on
the Class A-1 Components could result in the failure of
investors in the Class A-2 Securities to fully recoup their
initial investment.
TAC SECURITIES. The weighted average lives of the TAC
Securities will be more sensitive to fluctuations in the rate
of principal prepayments on the Group II Mortgage Loans than
will the weighted average lives of the PAC Securities, as
described herein. See "Risk Factors -- Prepayment and Yield
Considerations" and "Certain Yield and Prepayment
Considerations -- General -- TAC Securities" herein.
COMPANION SECURITIES: The weighted average life of the
Companion Securities will be more sensitive to fluctuations in
the rate of principal prepayments on the Group II Mortgage
Loans than will the weighted average lives of the PAC
Securities and the TAC Securities, as described herein. See
"Risk Factors -- Prepayment and Yield Considerations" and
"Certain Yield and Prepayment Considerations -- General --
Companion Securities" herein.
CLASSES WITH SUBORDINATION FEATURES: The yield to maturity on
the Subordinate Securities will be extremely sensitive to
certain losses on the Mortgage Loans (and the timing thereof)
to the extent such losses are not covered by the Subordinate
Securities that are subordinate thereto. See "Certain Yield
and Prepayment Considerations" herein and "Risk Factors --
Prepayment and Yield Considerations" in the Prospectus.
RESIDUAL SECURITIES: The Class R and Class RP Securities, which
represent the residual interests in the Upper REMIC and the
Lower REMIC, respectively, may experience a highly negative
after tax return. See "Special Tax Considerations" herein.
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CERTAIN FEDERAL INCOME
TAX CONSEQUENCES . . . . . . . . . . . . . . . . For federal income tax purposes, elections will be made to
treat the segregated pool of assets comprising the Trust as two
separate real estate mortgage investment conduits (each a
"REMIC," and respectively, the "Upper REMIC" and "Lower
REMIC"). Upon the issuance of the Offered Securities, Andrews
& Kurth L.L.P., counsel to the Issuer, will deliver its opinion
generally to the effect that, assuming compliance with all
provisions of the Indenture and the Pooling and Servicing
Agreement, for federal income tax purposes, each of the REMICs
will qualify as a REMIC within the meaning of Sections 860A
through 860G of the Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Senior Securities (other
than the Residual Securities) and the Subordinate Securities
will be designated as the "regular interests" in the Upper
REMIC, and the Class R and Class RP Securities will be
designated as the "residual interests" in the Upper REMIC and
the Lower REMIC, respectively.
Because the Senior Securities (other than the Residual
Securities) and the Subordinate Securities will be considered
REMIC regular interests, they will be taxable debt obligations
under the Code, and interest paid or accrued on such
Securities, including any original issue discount, will be
taxable to the holders of such Securities in accordance with
the accrual method of accounting, regardless of such
Securityholder's usual method of accounting. It is expected
that the Class FXP, Class FXS, Class P, Class S and Class A-2
Securities will be treated as having been issued with original
issue discount for federal income tax purposes. Each of the
other Classes of Offered Securities bears interest at a
qualified stated rate and, therefore, will be issued with
original issue discount only if its stated principal amount
exceeds its issue price by more than a de minimis amount. See
"Certain Federal Income Tax Consequences -- REMIC Bonds --
Taxation of Regular Bonds -- Original Issue Discount" in the
Prospectus. The prepayment assumption that should be used in
determining the rate of accrual of original issue discount, if
any, with respect to the Offered Securities is 250% of the
Basic Prepayment Assumption, as defined herein. However, no
representation is made herein as to the rate at which
prepayments actually will occur. See "Certain Yield and
Prepayment Considerations" herein.
For federal income tax purposes, the Offered Securities
generally will be treated as "regular or residual interests in
a REMIC" for domestic building and loan associations and as
"real estate assets" for real estate investment trusts
("REITs"), subject to the limitations described in "Certain
Federal Income Tax Consequences" in the Prospectus. Similarly,
interest on the Offered Securities will be considered "interest
on obligations secured by mortgages on real property" for
REITs, subject to the limitations described in "Certain
Federal Income Tax Consequences" in the Prospectus.
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For further information regarding the federal income tax
consequences of investing in the Offered Securities see
"Certain Federal Income Tax Consequences" in the Prospectus.
FEDERAL INCOME TAX ASPECTS
OF RESIDUAL SECURITIES . . . . . . . . . . . . . The Residual Securities generally will be treated in the same
manner as the other Offered Securities for the various
qualification purposes referred to above, but generally will
not be treated as evidences of indebtedness for federal income
tax purposes. Instead, the Class R and Class RP Securities
will be considered as representing the right to the net income
or loss of the Upper REMIC and the Lower REMIC, respectively.
Holders of the Residual Securities will be required to report,
and will be taxed on, their pro rata shares of such income or
loss, and such requirements will continue until there are no
Securities of any Class outstanding, even though such
Securityholders previously may have received full payment of
their stated interest and principal. Furthermore, the taxable
income of Residual Securityholders attributable to the Residual
Securities may exceed the principal and interest payments
received by such Securityholders with respect to such
Securities during the corresponding period, which could result
in a highly negative after-tax return for such Securityholders.
See "Special Tax Considerations" herein.
The Upper REMIC and the Lower REMIC may generate income, a
portion of which will be treated as "excess inclusion" income.
Such excess inclusion income (a) is taxable to a tax- exempt
Class R and Class RP Securityholder, as applicable, as
unrelated business taxable income ("UBTI"), (b) in the case of
foreign holders, is subject to withholding tax at a rate of 30%
(regardless of any statutory or treaty exemptions or rate
reduction that otherwise would apply), and (c) generally cannot
be offset by any net operating losses or current deductions of
Residual Securityholders. Consequently, Residual
Securityholders may experience an after-tax return that is
highly negative. Furthermore, Residual Securityholders who are
individuals, estates or trusts may be subject to limitations on
the deductibility of administrative expenses of the Upper REMIC
or Lower REMIC, as applicable, for purposes of determining
their taxable income and alternative minimum taxable income.
Furthermore, the Treasury regulations relating to REMICs (the
"REMIC Regulations") provide that certain transfers of
noneconomic residual interests ("NERDs") and residual interests
that have tax avoidance potential ("TAPRIs") will be
disregarded for federal income tax purposes. It is expected
that the Class R Securities will constitute NERDs and TAPRIs
for purposes of the REMIC Regulations on the Closing Date. A
transferor of a Residual Security should consult with its tax
advisor to determine whether the Residual Securities would be
considered a NERD or a TAPRI at the time of the transfer
thereof for purposes of the REMIC Regulations. See "Special
Tax Considerations" herein.
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THE CLASS R AND CLASS RP SECURITIES REPRESENT THE RESIDUAL
INTEREST IN THE UPPER REMIC AND LOWER REMIC, RESPECTIVELY, AND
MAY EXPERIENCE A HIGHLY NEGATIVE AFTER-TAX RETURN.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AND CONSIDER THE AFTER-TAX EFFECT OF OWNERSHIP
OF A RESIDUAL SECURITY AND THE SUITABILITY OF THE RESIDUAL
SECURITIES TO THEIR INVESTMENT OBJECTIVES.
RESTRICTIONS ON PURCHASE
AND TRANSFER OF RESIDUAL
SECURITIES . . . . . . . . . . . . . . . . . . . The Residual Securities are not offered for sale to tax-exempt
organizations that are "disqualified organizations" as defined
in "Certain Federal Income Tax Consequences -- Special Tax
Considerations Applicable to Residual Bonds -- Restrictions on
Transfer of a Residual Bond" in the Prospectus. In addition,
there are limitations on transfers to a Plan or Plan Investor
(each as defined herein). Finally, none of the Residual
Securities nor any beneficial interest therein may be sold or
otherwise transferred except upon delivery to the Indenture
Trustee of the certificates, affidavits and other agreements
described herein. See "Certain Federal Income Tax Consequences
-- REMIC Bonds -- Special Tax Considerations Applicable to
Residual Bonds -- Restrictions on Transfer of a Residual Bond"
in the Prospectus and "Restrictions on Purchase and Transfer of
the Residual Securities" herein.
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . Fiduciaries of employee benefit plans and certain other
retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans, and collective
investment funds in which such plans, accounts, annuities or
arrangements are invested, that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
or corresponding provisions of the Code (each of the foregoing,
a "Plan") should review carefully with their legal advisors
whether the purchase or holding of the Offered Securities will
result in unfavorable consequences for the Plan or its
fiduciaries under the Regulations (as defined in the
Prospectus) or the prohibited transaction provisions of ERISA
or the Code (the "Prohibited Transaction Provisions"). Such
consequences could result unless one of the exceptions in, or
exemptions from, the Plan Asset Regulations and Prohibited
Transaction Provisions is applicable. See "ERISA
Considerations" herein and "ERISA Matters" in the Prospectus.
Subject to the considerations set forth herein in "ERISA
Considerations," the Class B-1 Securities, Class B-2 Securities
and the Senior Securities, other than the Strip Securities, may
be purchased by a Plan, a person acting on behalf of a Plan, or
any person using the assets of a Plan (each, a "Plan
Investor"). The purchase or holding of any of the Strip
Securities and the Class B-3 Securities by a Plan Investor may
constitute a non-exempt prohibited transaction or result in the
imposition of excise taxes or penalties. Accordingly, the
Strip Securities and
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the Class B-3 Securities may not be transferred to a Plan
Investor unless the Plan Investor provides the Master Servicer
and the Indenture Trustee with a Benefit Plan Opinion (as
defined herein) or subject to certain conditions described
herein, a representation letter stating that the source of
funds used to purchase any Strip Securities or Class B-3
Securities is an "insurance company general account." Each
purchaser of a Strip Security or a Class B-3 Security, by
virtue of such purchaser's receipt of such Security, will be
deemed to have represented that it is not a Plan Investor,
unless such purchaser provides a Benefit Plan Opinion or
representation letter. See "ERISA Considerations" herein and
"ERISA Matters" in the Prospectus.
The foregoing limitations, as well as other limitations, apply
to transfers of the Residual Securities to Plan Investors. See
"Restrictions on Purchase and Transfer of the Residual
Securities" herein.
STATED MATURITY OF THE SECURITIES . . . . . . . . . The "Stated Maturity" of each Class of Securities will be the
Payment Date occurring in October 2027. The Stated Maturity
has been determined by adding one month to the maturity date of
the Mortgage Loan with the latest stated maturity date.
Because the rate of payments on the Class FX and Class II
Securities will depend on the rate of payment of principal
(including prepayments) on the Mortgage Loans in the related
Mortgage Loan Group, and the rate of payments on the
Subordinate Securities will depend on the rate of principal
payments and prepayments on the Mortgage Pool, the actual final
payment on any Class of Offered Securities could occur
significantly earlier than its Stated Maturity. The rate of
payments on the Mortgage Loans will depend on their particular
characteristics, as well as on the interest rates prevailing
from time to time and other economic factors, and no assurance
can be given as to the actual payment experience of the
Mortgage Loans.
RATINGS . . . . . . . . . . . . . . . . . . . . . . It is a condition to the issuance of the Offered Securities
that each Class of Class FXA Securities, Residual Securities
and Class A Securities (other than the Class A-2 Securities) be
rated "AAA" by the Rating Agencies, that the Strip Securities
and Principal Only Securities be rated "AAA" by DCR and "AAAr"
by S&P, that the Class B-1 Securities be rated not lower than
"AA" by DCR, that the Class B-2 Securities be rated not lower
than "A" by DCR and that the Class B-3 Securities be rated not
lower than "BBB" by DCR. 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. A security rating does not address the
frequency of principal prepayments or the corresponding effect
on yield to investors. The ratings of the Strip Securities do
not address the possibility that the holders of such Securities
may fail to fully recover their initial investment. The
ratings of the Residual Securities do not assess the likelihood
of return to investors in the Residual
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Securities, except to the extent of the initial principal
amount of such Class and interest thereon at the applicable
Security Interest Rate. See "Certain Yield and Prepayment
Considerations" and "Ratings" herein and "Risk Factors --
Prepayment and Yield Considerations" in the Prospectus.
In addition, S&P assigns the additional rating of "r" to
highlight classes of securities that it believes may experience
high volatility or a variability in expected returns due to
non-credit risks; however, the absence of an "r" symbol should
not be taken as an indication that a class will exhibit no
volatility or variability in total return. See "Certain Yield
and Prepayment Considerations" and "Ratings" herein.
The Issuer has not requested a rating of the Offered Securities
from any rating agency other than DCR and S&P. However, there
can be no assurance as to whether any other rating agency will
rate the Offered Securities, or if one does, what rating would
be assigned by such rating agency.
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . The Senior Securities and the Class B-1 Securities will
constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") for so long as they are rated in one of the two
highest rating categories by any nationally recognized
statistical ratings organization. The Class B-2 and Class B-3
Securities will not constitute "mortgage related securities"
for purposes of SMMEA.
Except as set forth above, no representations are made as to
the proper characterization of any Class of Offered Securities
for legal investment, financial institution regulatory or other
purposes, or as to the ability of particular investors to
purchase any Class of Offered Securities under applicable legal
investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Securities. Accordingly,
all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult
with their own legal advisors in determining whether and to
what extent any Class of Offered Securities, and, in
particular, the Offered Subordinate Securities, constitute a
legal investment or are subject to investment, capital or other
restrictions. See "Legal Investment" and "ERISA
Considerations" herein and "Legal Investment" and "ERISA
Matters" in the Prospectus.
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RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following factors (as well as the factors set forth under "Risk Factors" in
the Prospectus) before deciding to invest in the Offered Securities.
LIMITED OBLIGATIONS
The Offered Securities will be nonrecourse obligations solely of the
Issuer and will not represent an obligation of or interest in CMC, CCC, DLJMC,
the Loan Seller, the Master Servicer, the Certificate Trustee, the Indenture
Trustee or any of their respective affiliates. None of the Offered Securities,
the Certificates, or the Mortgage Loans are or will be guaranteed or insured by
any governmental agency or instrumentality, or by the CMC, CCC, DLJMC, the Loan
Seller, the Master Servicer, the Certificate Trustee, the Indenture Trustee or
any of their respective affiliates. The assets included in the Trust Estate
will be the sole source of payments on the Offered Securities, and there will
be no recourse to the Issuer, CMC, CCC, DLJMC, the Loan Seller, the Master
Servicer, the Certificate Trustee, the Indenture Trustee or any of their
respective affiliates, or any other entity, in the event that such assets are
insufficient or otherwise unavailable to make all payments provided for under
the Offered Securities.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of payments in reduction of the Scheduled Principal Balance
of any Class of Offered Securities, the aggregate amount of payments of
principal and interest on any Class of Offered Securities and the yield
maturity of any Class of Offered Securities will be directly related to the
rate of payments of principal on the Mortgage Loans in the related Mortgage
Loan Group (and in the case of the Strip Securities, particularly on those
related Mortgage Loans with higher rates of interest or on the Class A-1
Securities, as applicable), and to the amount and timing of mortgagor defaults
resulting in Realized Losses. The rate of principal payments on the Mortgage
Loans will in turn be affected by, among other things, the amortization
schedules of the Mortgage Loans, the rate of principal prepayments (including
partial prepayments and those resulting from refinancing) thereon by
mortgagors, liquidations of defaulted Mortgage Loans, repurchases of Mortgage
Loans as a result of defective documentation or breaches of representations and
warranties, optional purchase by the Master Servicer of defaulted Mortgage
Loans and optional purchase by the Master Servicer or the Issuer of all of the
Mortgage Loans in connection with the optional redemption of the Securities.
See "Certain Yield and Prepayment Considerations," "Yield Considerations with
respect to the Strip Securities and Principal Only Securities", "Description of
the Securities -- Optional Redemption of the Securities" and "Pooling and
Servicing Agreement -- Termination" herein and "Description of the Bonds --
Optional Redemption" in the Prospectus. Borrowers are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage
loans is influenced by a variety of economic, geographic, social and other
factors. If prevailing rates for similar mortgage loans fall below the Note
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to increase. Conversely, if interest rates on similar mortgage loans rise
above the Note Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease.
An investor that purchases any Offered Securities at a discount should
consider the risk that a slower than anticipated rate of principal payments
(including prepayments) on the related Mortgage Loans will result in an actual
yield that is lower than such investor's expected yield. An investor that
purchases any Offered Securities at a premium or that purchases any Class of
Strip Securities should consider the risk that a faster than anticipated rate
of principal payments (including prepayments) on the Mortgage Loans in the
related Mortgage Loan Group (particularly, with respect to the Strip
Securities, the Group I or Group II Premium Rate Mortgage Loans with higher Net
Rates of interest) will result in an actual yield that is lower than such
investor's expected yield. See "Certain Yield and Prepayment Considerations"
herein.
The yield to maturity on the Class FXS Securities and Class S
Securities will be extremely sensitive to the rate and timing of principal
payments (including prepayments) on the Group I Premium Rate Mortgage Loans an
Group II Premium Rate Mortgage Loans, respectively, which, in either case, may
fluctuate significantly from time to time, and by other factors set forth
herein. Investors in the Class FXS Securities and the Class S Securities
should consider the risk that a rapid rate of principal payments on the Group I
Premium Rate Mortgage Loans and Group II Premium Rate Mortgage Loans,
respectively, particularly such Mortgage Loans having higher Net Rates of
interest, could result in the failure of such investors to fully recoup their
initial investments.
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The particular sensitivity of each Class of Strip Securities is
separately displayed in a table appearing under the heading "Yield
Considerations with respect to the Strip Securities and Principal Only
Securities" herein. The yield to investors on the Class A-2 Securities will be
extremely sensitive to the rate and timing of principal payments on the Class
A-1 Securities. A rapid rate of principal payments on the related Class A-1
Components could result in the failure of investors in the Class A-2 Securities
to fully recoup their initial investment.
The yields to maturity on the Principal Only Securities will be
extremely sensitive to the level of principal prepayments on certain of the
Mortgage Loans in the related Mortgage Loan Group. Because the principal
payable with respect to the Class FXP Securities (which are entitled to receive
payments of principal only) is from Group I Loans with Net Rates less than
7.25% per annum, the yield to maturity on the Class FXP Securities will be
adversely affected by slower than expected prepayments of such Mortgage Loans.
Similarly, because principal payable with respect to the Class P Securities
(which are entitled to receive payments of principal only) is derived from
Group II Loans with Net Rates less than 7.25% per annum, the yield to maturity
on the Class P Securities will be adversely affected by slower than expected
prepayments of such Mortgage Loans. Because interest payable on the Class FXS
and Class S Securities and the principal distributable to the Class FXP and P
Securities are for the most part derived from different groups of Mortgage
Loans within the related Mortgage Loan Group, it is possible that faster than
expected principal prepayments with respect to the Strip Securities may occur
at the same time as slower than expected principal prepayments with respect to
the Principal Only Securities. See "Certain Yield and Prepayment
Considerations" and "Yield Considerations with respect to the Strip Securities
and Principal Only Securities" herein.
The Class FXA-5 Lockout Securities will not be entitled to receive any
principal prepayments until the Payment Date occurring in October 2002, unless
the Security Principal Balances of the Class FXA Securities (other than the
Class FXA-5 Lockout Securities) have been reduced to zero. The Class A-4
Lockout Securities will not be entitled to receive any scheduled principal
payments or principal prepayments until the Payment Date occurring in October
2002, unless the Security Principal Balances of the Class A Securities (other
than the Class A-4 Lockout Securities) have been reduced to zero. Therefore,
the Lockout Securities will not be entitled to receive the disproportionate
allocation of principal prepayments that the other Senior Securities are
entitled to receive until the Security Principal Balances of such other Senior
Securities have been reduced to zero. See "Description Securities -- Principal
Payments" and "Certain Yield and Prepayment Considerations" herein.
If the Mortgage Loans prepay at rates that are generally below the
Targeted Range (defined herein) for the PAC Securities, the amount available
for principal payments thereon on any Payment Date may be insufficient to
reduce the Component Principal Balances thereof to their PAC Principal Balances
for such Payment Date as indicated on the applicable PAC Principal Balances
schedules, and the weighted average life of the PAC Securities may be extended,
perhaps significantly. Conversely, if the Mortgage Loans prepay at rates that
are generally above the Targeted Range of the PAC Securities, the weighted
average life thereof may be shortened, perhaps significantly. See "Certain
Yield and Prepayment Considerations -- General -- PAC Securities" herein.
If the Mortgage Loans prepay at rates that are generally below 250% of
the Basic Prepayment Assumption, the TAC Securities will not be reduced to
their TAC Principal Balances schedules and the weighted average lives of the
TAC Securities may be extended, perhaps significantly. If the Mortgage Loans
prepay at rates that are generally above 250% of the Prepayment Assumption, the
weighted average lives of the TAC Securities may be shortened, perhaps
significantly. See "Certain Yield and Prepayment Considerations -- General --
TAC Securities" herein.
A rapid rate of prepayments in respect of the Mortgage Loans may
significantly shorten the weighted average lives of the Companion Securities,
and a relatively slow rate of prepayments on such Mortgage Loans may
significantly extend the weighted average lives of the Companion Securities.
See "Certain Yield and Prepayment Considerations -- General -- Companion
Securities" herein.
Investors in the Senior Securities should be aware that the applicable
coverages for Special Hazard Losses, Fraud Losses and Mortgagor Bankruptcy
Losses cover Mortgage Loans in both Mortgage Loan Groups as long as any
Subordinate Securities are outstanding. Therefore, in the event Mortgage Loans
in a Mortgage Loan Group suffer a high level of such losses, it will reduce the
available coverage for the Senior Securities in both Mortgage Loan Groups and
therefore may cause Senior Securities relating to the other Mortgage Loan Group
to suffer losses in the event any Mortgage Loan suffers such a loss after the
available coverage has been exhausted.
S-26
<PAGE> 27
The Class R and Class RP Securities, which represent the residual
interest in the Upper REMIC and the Lower REMIC, respectively, may experience a
highly negative after tax return. See "Special Tax Consideration" herein.
SUBORDINATION
The rights of the holders of the Subordinate Securities to receive
payments in respect of the Mortgage Loans will be subordinated to such rights
of the holders of the Senior Securities and the Subordinate Securities senior
thereto, all to the extent described herein under "Description of the
Securities." Realized Losses on Mortgage Loans will be allocated first to the
Non-Offered Subordinate Securities in reverse numerical order, second to the
Offered Subordinate Securities in reverse numerical order, and then to the
Senior Securities, in each case, described herein. See "Description of the
Securities -- Subordination and Allocation of Losses" herein.
GEOGRAPHIC CONCENTRATION OF THE MORTGAGED PREMISES
Approximately 37.87% of the Group I Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) and approximately 47.75% of the Group
II Mortgage Loans (by aggregate principal balance as of the Cut-off Date) are
expected to be secured by Mortgaged Premises located in the state of
California, including approximately 14.52% and 13.08% of the Group I Mortgage
Loans located in the Los Angeles and San Francisco metropolitan areas,
respectively, and approximately 21.48% and 15.77% of the Group II Mortgage
Loans located in the Los Angeles and San Francisco metropolitan areas,
respectively. Approximately 17.79% of all Mortgage Loans located in the Los
Angeles metropolitan area and approximately 14.34% of all Mortgage Loans are
located in San Francisco metropolitan area. Approximately 9.01% of the Group I
Mortgage Loans (by aggregate principal balance as of the Cut-Off Date) and
approximately 11.27% of the Group II Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) are expected to be secured by Mortgaged
Premises located in the state of Texas. Consequently, losses and prepayments
on the Mortgage Loans and resultant payments on the Offered Securities may both
generally and particularly, be affected significantly by changes in the housing
markets and regional economies of, and the occurrence of natural disasters
(such as earthquakes, fires, floods, and hurricanes) in, the states California
and Texas in general, and the metropolitan areas of Los Angeles and San
Francisco, in particular. As used herein, "Los Angeles metropolitan area"
means all or portions of the California counties of Kern, Los Angeles, Orange,
Riverside, San Bernandino and Ventura, and "San Francisco metropolitan area"
means all or portions the California counties of Alameda, Contra Costa, Marin,
Napa, San Francisco, San Mateo, Santa Clara, Santa Cruz, Solano and Sonoma. No
assurance can be given, however, that such definitions are comprehensive and
that additional counties or portions thereof would not result in a more
appropriate representation of such metropolitan area. Thus, losses and
prepayments may be higher or significantly higher to the extent that more
counties or portions thereof are included in such metropolitan areas or if
changes in housing markets or regional economies or natural disasters affect a
wider area of counties. A listing of the breakdown of the Mortgage Loans by
United States postal zip codes will be included as part of the Form 8-K filed
by the Issuer after the Closing Date.
THE STATUS OF THE MORTGAGE LOANS IN THE EVENT OF INSOLVENCY
The Issuer believes that the transfer of the Mortgage Loans (i) by the
Loan Seller to DLJMC, (ii) by DLJMC to CCC, and (iii) by CCC to the Issuer
constitutes an absolute and unconditional sale. However, in the event of the
bankruptcy of the Loan Seller, DLJMC or CCC, a trustee in bankruptcy could
attempt to recharacterize the sale of the Mortgage Loans as a borrowing secured
by a pledge of the Mortgage Loans. Such an attempt, even if unsuccessful,
could result in delays in payments on the Offered Securities. If such an
attempt were successful, the trustee in bankruptcy could elect to accelerate
payment of the Offered Securities and liquidate the Mortgage Loans, with the
holder of the Offered Securities entitled to no more than the then outstanding
aggregate Security Principal Balances, if any, of such Offered Securities
together with interest at the applicable rate to the date of payment. In the
event of an acceleration of the Offered Securities, the holders of the Offered
Securities would lose the right to future payments of interest and might suffer
reinvestment losses in a lower interest rate environment, and may fail to fully
recoup their initial investments.
DESCRIPTION OF THE CERTIFICATES
Each Certificate securing the Securities will be issued pursuant to
the Pooling and Servicing Agreement. The Mortgage Loans will have been
initially acquired by DLJMC from the Loan Seller pursuant to the terms of a
loan sale agreement between the Loan Seller and DLJMC (the "Loan Sale
Agreement"). On the Closing Date, DLJMC will assign and convey the Mortgage
S-27
<PAGE> 28
Loans to CCC and CCC will, in turn, assign and convey the Mortgage Loans to the
Issuer. The Loan Seller will make certain representations and warranties
regarding the Mortgage Loans on and as of the Closing Date in the Pooling and
Servicing Agreement. The Loan Sale Agreement will not be assigned to the
Indenture Trustee and the only recourse the Indenture Trustee, on behalf of the
Securityholders, will have with respect to the Mortgage Loans will be against
the Loan Seller for any breaches of the representations and warranties
regarding the Mortgage Loans made by the Loan Seller under the Pooling and
Servicing Agreement. See "Pooling and Servicing Agreement -- Assignment of the
Mortgage Loans" herein. The Mortgage Loans will be serviced by the Master
Servicer pursuant to the Pooling and Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will remit to the Certificate Trustee payments (including prepayments) of
principal received on each Mortgage Loan, together with interest thereon at a
rate (the "Net Mortgage Rate") equal to the mortgage rate borne by such
Mortgage Loan, less the Servicing Fee. Such remittances will be deposited into
a trust account (the "Custodial Account") established by and maintained with
the Certificate Trustee. Funds in the Custodial Account will be invested from
time to time in permitted instruments maturing on or before the next Payment
Date. Funds or permitted instruments in the Custodial Account will be
transferred to the Certificate Account (as defined in the Pooling and Servicing
Agreement) and applied on the second business day prior to each Payment Date to
distribute principal and interest (at the applicable Pass-Through Rate) on the
Certificates to the Indenture Trustee and to provide for payment of fees of,
and reimbursements to, the Certificate Trustee, the Indenture Trustee and the
Master Servicer. The "Pass-Through Rate" with respect to each Certificate will
be a rate equal to the weighted average of the Net Mortgage Rates of the
Mortgage Loans in the related mortgage pool.
Each Certificate will evidence the entire interest in a pool of
Mortgage Loans (a "mortgage pool"). The Mortgage Loans constituting each
mortgage pool will be assigned to the Certificate Trustee for the benefit of
the holder of the Certificates. The Certificates will be created by the Issuer
and pledged to the Indenture Trustee as collateral for the Securities.
Thereafter, the Certificates will at all times be registered in the name of the
Indenture Trustee and held as security for the benefit of the Securityholders.
The assignment of the Mortgage Loans to the Certificate Trustee will
be without recourse. Pursuant to the Pooling and Servicing Agreement, the Loan
Seller will be obligated to repurchase Mortgage Loans as to which there has
been a breach of certain representations and warranties that materially and
adversely affects the interests of the Certificateholders or as to which the
related documentation is found to contain a material defect. The Master
Servicer's obligations with respect to the Mortgage Loans will consist of (i)
the obligation to notify the Certificate Trustee if the documentation for any
Mortgage Loan is found to be defective, (ii) its monitoring and supervisory
obligations under the Pooling and Servicing Agreement and (iii) its obligation
to make certain cash advances in the event of delinquencies in payments on or
with respect to the Mortgage Loans. See "Pooling and Servicing Agreement"
herein.
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has been
provided by the Loan Seller. None of the Issuer, DLJMC, the Underwriter, the
Certificate Trustee, the Indenture Trustee or any of their respective
affiliates have made or will make any representation as to the accuracy or
completeness of such information.
GENERAL
The Trust will consist primarily of a Mortgage Pool with an aggregate
principal balance as of the Cut-off Date of approximately $281,194,913. The
Mortgage Loans will be conventional, fixed-rate, fully-amortizing mortgage
loans secured by first liens on fee simple and leasehold interests in one-to
four-family residential properties (each, a "Mortgaged Premises"). The
Mortgage Loans will have original terms to maturity from the due dates of their
first Monthly Payment of not more than 30 years and will have Monthly Payments
due on the first day of each month. The Mortgage Pool consists of two Mortgage
Loan Groups: "Group I" or the "Group I Mortgage Loans" which generally consist
of Mortgage Loans underwritten pursuant to the Loan Seller's "Flex Extra
Program," with an aggregate principal balance as of the Cut-off Date of
approximately $149,257,138, and "Group II" or the "Group II Mortgage Loans"
which generally consist of Mortgage Loans underwritten pursuant to the Loan
Seller's "Gold Flex Program," with an aggregate principal balance as of the
Cut-off Date of approximately $131,937,775. All of the Mortgage Loans were
originated by the Loan Seller in accordance with the underwriting criteria
under its Flex Series Program, as described herein under "-- Underwriting
Standards."
S-28
<PAGE> 29
None of the Mortgage Loans were thirty days or more delinquent in
their Monthly Payments as of the Cut-off Date. Prospective investors in the
Offered Securities should be aware, however, that approximately 30.01% of the
Mortgage Loans (by aggregate principal balance as of the Cut-off Date) have
their first Monthly Payment due in October 1997 and approximately 3.97% of the
Mortgage Loans had a first Monthly Payment due on or before July 1, 1997. All
of the Mortgage Loans had their first Monthly Payments due on or after August
1, 1996. In addition to the foregoing, none of the Mortgage Loans will have
been thirty days or more delinquent in its Monthly Payments more than once
during the twelve months preceding the Closing Date except for one Mortgage
Loan with a Cut-off Date balance of $80,496.92. As of the Cut-off Date, none
of the Mortgage Loans will have been sixty days or more delinquent in its
Monthly Payments. Each Mortgage Loan will contain a customary "due-on-sale"
clause. Pursuant to the Pooling and Servicing Agreement, each Mortgage Loan is
required to be covered by a standard hazard insurance policy providing coverage
with respect to certain hazards as described hereunder "Description of
Insurance". In addition, 18.84% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) will be covered by a PMI Policy (as defined
herein). See "Description of Insurance" herein.
The Mortgage Loans will have the following approximate characteristics
as of the Cut-off Date:
<TABLE>
<CAPTION>
GROUP I GROUP II ALL
MORTGAGE LOANS MORTGAGE LOANS MORTGAGE LOANS
<S> <C> <C> <C>
Number of Mortgage Loans 982 521 1,503
Aggregate Principal Balance $149,257,138 $131,937,775 $281,194,913
Note Rates:
Weighted Average 8.590% 7.969% 8.299%
Range 7.375% - 10.000% 6.750% - 9.l25% 6.750% - 10.000%
Weighted Average Remaining
Term to Maturity (in Months) 358.27 358.64 358.44
</TABLE>
The Mortgage Loans will have the following approximate characteristics
as of the Cut-off Date (expressed as a percentage of the aggregate principal
balance of the Mortgage Loans having such characteristics relative to the
aggregate principal balance of all of the Mortgage Loans, or all of the
Mortgage Loans in the related Mortgage Loan Group, as applicable, provided,
that the sum of the percentages in certain of the following paragraphs may not
equal 100% due to rounding).
Each Mortgage Loan will have been originated by the Loan Seller on or
after June 18, 1996. None of the Mortgage Loans had a first Monthly Payment
due prior to August 1, 1996, and the latest maturity date of any of the
Mortgage Loans is September 1, 2027. The latest maturity date of any of the
Group I Mortgage Loans is September 1, 2027 and the latest maturity date of any
of the Group II Mortgage Loans is September 1, 2027.
The Mortgage Loans will each have a principal balance of not less than
$30,707 or more than $1,498,268, and the Mortgage Loans will have an average
principal balance of approximately $187,089. The Group I Mortgage Loans will
each have a principal balance of not less than $30,707 or more than $1,498,268
and the Group I Mortgage Loans will have an average principal balance of
approximately $151,993. The Group II Mortgage Loans will each have a principal
balance of not less than $75,000 or more than $586,668, and the Group II
Mortgage Loans will have an average principal balance of approximately
$253,239.
The weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans will be approximately 77.48%, no Mortgage Loan will have a
Loan-to-Value Ratio at origination exceeding 95.00% and no Mortgage Loan will
have a combined Loan-to-Value Ratio (a "CLTV") at origination, including any
then-existing second mortgage subordinate to the lien of the Mortgage, in
excess of 95.00%. The weighted average Loan-to-Value Ratio at origination of
the Group I Mortgage Loans will be approximately 76.73%, no Group I Mortgage
Loan will have a Loan-to-Value Ratio at origination exceeding 95.00% and no
Group I Mortgage Loan will have a combined Loan-to-Value Ratio (a "CLTV") at
origination, including any then-existing second
S-29
<PAGE> 30
mortgage subordinate to the lien of the Mortgage, in excess of 95.00%. The
weighted average Loan-to-Value Ratio at origination of the Group II Mortgage
Loans will be approximately 78.34%, no Group II Mortgage Loan will have a
Loan-to-Value Ratio at origination exceeding 95.00% and no Group II Mortgage
Loan will have a CLTV at origination, including any then-existing second
mortgage subordinate to the lien of the Mortgage, in excess of 95.00%. The
"Loan-to-Value Ratio at origination" of any Mortgage Loan represents the ratio
of the principal amount of the Mortgage Loan outstanding at origination of such
Mortgage Loan divided by (a) in the case of a purchase, the lesser of the
original selling price of the related Mortgaged Premises and its appraised
value at the time of such purchase or (b) in the case of a refinance, the
appraised value of the related Mortgaged Premises at the time of such
refinance. All of the Mortgage Loans with Loan-to-Value Ratios greater than
80% at the time of origination will be covered by a PMI Policy. The CLTV of
any Mortgage Loan represents the ratio of (A) the sum of (i) the principal
amount of the Mortgage Loan outstanding at origination of such Mortgage Loan
plus (ii) the principal amount of the second lien financing of the related
Mortgaged Premises outstanding at the origination of such Mortgage Loan divided
by (B) (i) in the case of a purchase, the lesser of the original selling price
of the related Mortgage Premises and its appraised value at the time of such
purchase or (ii) in the case of a refinance, the appraised value of the related
Mortgaged Premises at the time of such refinance.
At origination, approximately 201 Mortgage Loans (representing
approximately 17.43% of the aggregate principal balance of the Mortgage Loans)
were secured by a Mortgaged Premises that was subject to a then-existing lien
subordinate to that of the related Mortgage, approximately 60 Group I Mortgage
Loans (representing approximately 10.51% of the aggregate principal balance of
the Group I Mortgage Loans) were secured by a Mortgaged Premises that was
subject to a then-existing lien subordinate to that of the related Mortgage,
approximately 141 Group II Mortgage Loans (representing approximately 25.25% of
the aggregate principal balance of the Group II Mortgage Loans) were secured by
a Mortgaged Premises that was subject to a then-existing subordinate to that of
the related Mortgage.
With respect to approximately 975 Mortgage Loans (representing
approximately 64.31% of the aggregate principal balance of the Mortgage Loans),
the proceeds were used to purchase the related Mortgaged Premises.
Approximately 275 of the Mortgage Loans (representing approximately 22.63% of
the aggregate principal balance of the Mortgage Loans) were rate and term
refinancings and approximately 253 of the Mortgage Loans (representing
approximately 13.06% of the aggregate principal balance of the Mortgage Loans)
were equity take-out refinancings. With respect to approximately 595 Group I
Mortgage Loans (representing approximately 57.57% of the aggregate principal
balance of the Group I Mortgage Loans), the proceeds were used to purchase the
related Mortgaged Premises. Approximately 156 of the Group I Mortgage Loans
(representing approximately 21.79% of the aggregate principal balance of the
Group I Mortgage Loans) were rate and term refinancings and approximately 231
of the Group I Mortgage Loans (representing approximately 20.65% of the
aggregate principal balance of the Group Mortgage Loans) were equity take-out
refinancings. With respect to approximately 380 Group II Mortgage Loan
(representing approximately 71.93% of the aggregate principal balance of the
Group II Mortgage Loans), the proceeds were used to purchase the related
Mortgaged Premises. Approximately 119 of the Group II Mortgage Loans
(representing approximately 23.59% of the aggregate principal balance of the
Group II Mortgage Loans) we rate and term refinancings and approximately 22 of
the Group II Mortgage Loans (representing approximately 4.48% of the aggregate
principal balance of the Group II Mortgage Loans) were equity take-out
refinancings.
The tables below set forth certain characteristics of the Mortgage
Pool and the Mortgage Loan Groups as of the Cut-off Date, including the number,
aggregate principal balance and percentage of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date of such Mortgage Loans relative to the
aggregate principal balance of all of the Mortgage Loans or of all Mortgage
Loans in the related Mortgage Loan Group, as applicable) As used herein,
"principal balance" with respect to the Mortgage Loans refers to the "Scheduled
Principal Balance" of the referenced Mortgage Loans. The "Scheduled Principal
Balance" of a Mortgage Loan as of any date of determination is an amount equal
to the outstanding principal balance thereof as of the Cut-off Date, reduced by
the principal portion of all Monthly Payments due on or before such
determination date, whether or not received, and by all amounts allocable to
unscheduled principal payments received on or before such determination date
and as further reduced to the extent that any Realized Loss has occurred with
respect to such Mortgage Loan on or prior to such determination date. The sum
of the amounts and the percentages in the table below may not equal the totals
due to rounding.
S-30
<PAGE> 31
LOAN-TO-VALUE RATIOS AT ORIGINATION
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
LOAN-TO-VALUE RATIOS AS OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
ORIGINATION (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 102 $ 18,481,773.81 6.57%
60.0+ to 65.0 . . . . . . . . 54 9,858,272.70 3.51
65.0+ to 70.0 . . . . . . . . 92 19,955,494.03 7.10
70.0+ to 75.0 . . . . . . . . 246 48,331,380.56 17.19
75.0+ to 80.0 . . . . . . . . 708 131,594,825.51 46.80
80.0+ to 85.0 . . . . . . . . 19 4,521,502.56 1.60
85.0+ to 90.0 . . . . . . . . 204 31,139,340.39 11.07
90.0+ to 95.0 . . . . . . . . 78 17,312,323.92 6.16
----- --------------- ------
TOTALS: . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
(1) As of the Cut-Off Date, the weighted average Loan-to-Value-Ratio at
origination of all Mortgage Loans is expected to be approximately
77.48%.
NOTE RATES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
NOTE RATES (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
6.500+ to 6.750 . . . . . . 1 $ 250,000.00 0.09%
7.000+ to 7.250 . . . . . . 6 1,464,900.00 0.52
7.250+ to 7.500 . . . . . . 61 15,855,489.47 5.64
7.500+ to 7.750 . . . . . . 141 35,863,290.27 12.75
7.750+ to 8.000 . . . . . . 223 55,326,497.73 19.68
8.000+ to 8.250 . . . . . . 199 45,020,776.28 16.01
8.250+ to 8.500 . . . . . . 243 42,745,427.84 15.20
8.500+ to 8.750 . . . . . . 188 30,307,268.66 10.78
8.750+ to 9.000 . . . . . . 231 32,158,793.81 11.44
9.000+ to 9.250 . . . . . . 119 12,805,054.83 4.55
9.250+ to 9.500 . . . . . . 67 7,077,407.84 2.52
9.500+ to 9.750 . . . . . . 20 2,002,059.11 0.71
9.750+ to 10.000 . . . . . . 4 317,947.64 0.11
----- --------------- ------
TOTALS: . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
(1) As of the Cut-off Date, the weighted average Note Rate of all the
Mortgage Loans is expected to be approximately 8.299% per annum.
S-31
<PAGE> 32
GEOGRAPHIC DISTRIBUTION
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
LOCATION LOANS BALANCE BALANCE
<S> <C> <C> <C>
Arkansas . . . . . . . . . . . . . 1 $ 249,288.62 0.09%
Arizona . . . . . . . . . . . . . . 60 8,230,413.36 2.93
California . . . . . . . . . . . . 502 119,504,267.32 42.53
Colorado . . . . . . . . . . . . . 47 7,906,966.92 2.81
Connecticut . . . . . . . . . . . . 4 741,300.95 0.26
Washington, D.C. . . . . . . . . . 1 182,700.00 0.06
Delaware . . . . . . . . . . . . . 5 518,022.24 0.18
Florida . . . . . . . . . . . . . . 75 10,933,409.06 3.89
Georgia . . . . . . . . . . . . . . 20 2,635,819.96 0.94
Hawaii . . . . . . . . . . . . . . 33 9,408,891.20 3.35
Idaho . . . . . . . . . . . . . . . 39 5,121,251.63 1.82
Illinois . . . . . . . . . . . . . 23 3,881,294.95 1.38
Indiana . . . . . . . . . . . . . . 12 1,612,291.31 0.57
Kansas . . . . . . . . . . . . . . 7 771,609.52 0.27
Kentucky . . . . . . . . . . . . . 4 313,700.77 0.11
Louisiana . . . . . . . . . . . . . 12 1,117,106.45 0.40
Massachusetts . . . . . . . . . . . 70 14,291,346.64 5.08
Maryland . . . . . . . . . . . . . 21 4,350,458.02 1.55
Michigan . . . . . . . . . . . . . 43 4,495,153.27 1.60
Minnesota . . . . . . . . . . . . . 32 4,820,093.65 1.71
Missouri . . . . . . . . . . . . . 8 1,399,636.07 0.50
Mississippi . . . . . . . . . . . . 4 295,003.98 0.10
North Carolina . . . . . . . . . . 8 677,904.18 0.24
North Dakota . . . . . . . . . . . 4 887,463.53 0.32
New Hampshire . . . . . . . . . . . 4 508,190.48 0.18
New Jersey . . . . . . . . . . . . 12 2,584,959.79 0.92
New Mexico . . . . . . . . . . . . 24 3,611,598.41 1.28
Nevada . . . . . . . . . . . . . . 45 7,483,923.83 2.66
New York . . . . . . . . . . . . . 2 515,996.93 0.18
Ohio . . . . . . . . . . . . . . . 20 2,689,222.29 0.96
Oklahoma . . . . . . . . . . . . . 4 560,237.97 0.20
Oregon . . . . . . . . . . . . . . 40 6,354,650.77 2.26
Pennsylvania . . . . . . . . . . . 29 3,889,238.23 1.38
Rhode Island . . . . . . . . . . . 5 526,159.10 0.19
Tennessee . . . . . . . . . . . . . 5 956,760.25 0.34
Texas . . . . . . . . . . . . . . . 185 28,323,382.56 10.07
Utah . . . . . . . . . . . . . . . 22 4,755,598.69 1.69
Virginia . . . . . . . . . . . . . 41 9,011,581.76 3.20
Vermont . . . . . . . . . . . . . . 2 316,809.09 0.11
Washington . . . . . . . . . . . . 23 4,410,406.63 1.57
Wisconsin . . . . . . . . . . . . . 4 284,847.39 0.10
West Virginia . . . . . . . . . . . 1 65,955.71 0.02
----- --------------- ------
TOTALS: . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
S-32
<PAGE> 33
(1) No more than .70% of' the Mortgage Loans will be secured by Mortgaged
Premises located in any one zip code area in California and no more
than 1.05% of the Mortgage Loans will be secured by Mortgaged Premises
located in any one zip code area outside of California.
(2) Approximately 17.79% and 14.34%, respectively, of the Mortgage Loans
will be secured by Mortgaged Premises located in the Los Angeles and
San Francisco metropolitan areas. See "Risk Factors -- Geographic
Concentration of the Mortgaged Premises" herein for a description of
the areas comprising the Los Angeles and San Francisco metropolitan
areas.
OCCUPANCY TYPES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
OCCUPANCY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Owner Occupied . . . . . . . . . . . . . . . 1,013 $231,414,260.47 82.30%
Second Home . . . . . . . . . . . . . . . . . 54 8,587,255.22 3.05
Investor . . . . . . . . . . . . . . . . . . 436 41,193,397.79 14.65
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
- --------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TYPE OF PROGRAM LOANS BALANCE BALANCE
<S> <C> <C> <C>
Alternate . . . . . . . . . . . . . . . . . . 433 $ 89,513,406.02 31.83%
Full . . . . . . . . . . . . . . . . . . . . 593 118,651,434.34 42.20
Limited . . . . . . . . . . . . . . . . . . . 295 48,388,812.95 17.21
No Ratio . . . . . . . . . . . . . . . . . . 182 24,641,260.17 8.76
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
- --------------------
(1) For information relating to the Loan Seller's underwriting programs
see "-- Underwriting Standards" herein.
S-33
<PAGE> 34
TYPE OF MORTGAGED PREMISES
OF ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Two-family . . . . . . . . . . . . . . . . . 86 $ 10,672,313.82 3.80%
Three-family . . . . . . . . . . . . . . . . 41 5,518,253.54 1.96
Four-family . . . . . . . . . . . . . . . . . 53 6,572,503.46 2.34
Condominium . . . . . . . . . . . . . . . . . 84 12,863,278.36 4.57
Deminimus PUD . . . . . . . . . . . . . . . . 278 60,541,696.61 21.53
Planned Unit Development (PUD) . . . . . . . 17 2,524,421.46 0.90
Single Family . . . . . . . . . . . . . . . . 944 182,502,446.23 64.90
------ ---------------- -------
TOTALS: . . . . . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== =======
</TABLE>
CURRENT PRINCIPAL BALANCES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
RANGE OF CURRENT OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PRINCIPAL BALANCES ($) LOANS BALANCE BALANCE
<S> <C> <C> <C>
0.01 - 100,000 . . . . . . . . 457 $ 31,478,909.48 11.19%
100,000.01 - 150,000 . . . . . . . . 253 31,308,304.66 11.13
150,000.01 - 200,000 . . . . . . . . 170 29,890,641.40 10.63
200,000.01 - 250,000 . . . . . . . . 212 48,903,765.37 17.39
250,000.01 - 300,000 . . . . . . . . 194 53,172,358.38 18.92
300,000.01 - 350,000 . . . . . . . . 94 30,619,429.03 10.89
350,000.01 - 400,000 . . . . . . . . 61 22,917,118.42 8.15
400,000.01 - 450,000 . . . . . . . . 16 6,846,825.10 2.43
450,000.01 - 500,000 . . . . . . . . 18 8,567,747.50 3.05
500,000.01 - 550,000 . . . . . . . . 11 5,803,269.19 2.06
550,000.01 - 600,000 . . . . . . . . 9 5,200,263.56 1.85
600,000.01 - 650,000 . . . . . . . . 6 3,831,658.00 1.36
Over 1,000,000.00 . . . . . . . . 2 2,654,623.39 0.95
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the average current aggregate principal
balance is expected to be approximate $187,089.
S-34
<PAGE> 35
REMAINING TERM TO STATED MATURITY
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
REMAINING STATED OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
179 . . . . . . . . . . . . . . . . . . . . . 4 $ 255,323.44 0.09%
239 . . . . . . . . . . . . . . . . . . . . . 2 358,683.98 0.13
240 . . . . . . . . . . . . . . . . . . . . . 1 300,000.00 0.11
346 . . . . . . . . . . . . . . . . . . . . . 1 256,824.67 0.09
354 . . . . . . . . . . . . . . . . . . . . . 1 139,482.03 0.05
355 . . . . . . . . . . . . . . . . . . . . . 8 843,571.42 0.30
356 . . . . . . . . . . . . . . . . . . . . . 4 719,868.45 0.26
357 . . . . . . . . . . . . . . . . . . . . . 51 9,204,760.93 3.27
358 . . . . . . . . . . . . . . . . . . . . . 459 87,955,148.37 31.28
359 . . . . . . . . . . . . . . . . . . . . . 533 97,070,819.87 34.52
360 . . . . . . . . . . . . . . . . . . . . . 439 84,090,430.32 29.90
----- --------------- ------
TOTALS: . . . . . . . . . . . . . 1,503 $281,194,913.48 100.00%
===== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average remaining term to
maturity of all Mortgage Loans is expected to be approximately 358
months.
S-35
<PAGE> 36
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
LOAN-TO-VALUE RATIOS AS OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
ORIGINATION (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 63 $ 8,400,717.48 5.63%
60.0+ to 65.0 . . . . . . . . 42 6,567,411.33 4.40
65.0+ to 70.0 . . . . . . . . 66 12,880,425.88 8.63
70.0+ to 75.0 . . . . . . . . 200 34,215,159.68 22.92
75.0+ to 80.0 . . . . . . . . 428 62,956,572.51 42.18
80.0+ to 85.0 . . . . . . . . 9 1,951,532.84 1.31
85.0+ to 90.0 . . . . . . . . 154 17,737,259.33 11.88
90.0+ to 95.0 . . . . . . . . 20 4,548,059.45 3.05
--- --------------- ------
TOTALS: . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group I Mortgage Loans is expected to be 76.73%.
NOTE RATES OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
NOTE RATES (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
7.250+ to 7.500 . . . . . . 7 $ 1,525,057.43 1.02%
7.500+ to 7.750 . . . . . . 26 5,672,784.85 3.80
7.750+ to 8.000 . . . . . . 75 17,339,115.25 11.62
8.000+ to 8.250 . . . . . . 101 21,052,464.28 14.10
8.250+ to 8.500 . . . . . . 171 25,739,166.98 17.24
8.500+ to 8.750 . . . . . . 165 24,727,217.67 16.57
8.750+ to 9.000 . . . . . . 228 31,243,434.88 20.94
9.000+ to 9.250 . . . . . . 118 12,560,482.57 8.42
9.250+ to 9.500 . . . . . . 67 7,077,407.84 4.74
9.500+ to 9.750 . . . . . . 20 2,002,059.11 1.34
9.750+ to 10.000 . . . . . . 4 317,947.64 0.21
--- --------------- ------
TOTALS: . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average Note Rate of the Group I
Mortgage Loans is approximately 8.590% per annum.
S-36
<PAGE> 37
GEOGRAPHIC DISTRIBUTION OF
THE GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
LOCATION LOANS BALANCE BALANCE
<S> <C> <C> <C>
Arizona . . . . . . . . . . . . . . 44 $ 4,548,339.45 3.05%
California . . . . . . . . . . . . 262 56,513,034.75 37.87
Colorado . . . . . . . . . . . . . 35 4,616,789.52 3.09
Connecticut . . . . . . . . . . . . 3 286,630.27 0.19
Washington, D.C. . . . . . . . . . 1 182,700.00 0.12
Delaware . . . . . . . . . . . . . 5 518,022.24 0.35
Florida . . . . . . . . . . . . . . 50 4,637,679.41 3.11
Georgia . . . . . . . . . . . . . . 15 1,365,632.94 0.91
Hawaii . . . . . . . . . . . . . . 29 8,105,285.92 5.43
Idaho . . . . . . . . . . . . . . . 36 4,481,142.49 3.00
Illinois . . . . . . . . . . . . . 21 3,377,192.89 2.26
Indiana . . . . . . . . . . . . . . 9 871,347.77 0.58
Kansas . . . . . . . . . . . . . . 7 771,609.52 0.52
Kentucky . . . . . . . . . . . . . 4 313,700.77 0.21
Louisiana . . . . . . . . . . . . . 10 840,112.54 0.56
Massachusetts . . . . . . . . . . . 39 5,578,698.66 3.74
Maryland . . . . . . . . . . . . . 10 1,479,299.09 0.99
Michigan . . . . . . . . . . . . . 42 4,241,462.12 2.84
Minnesota . . . . . . . . . . . . . 30 4,258,936.38 2.85
Missouri . . . . . . . . . . . . . 4 276,424.91 0.19
Mississippi . . . . . . . . . . . . 4 295,003.98 0.20
North Carolina . . . . . . . . . . 8 677,904.18 0.45
North Dakota . . . . . . . . . . . 1 72,826.07 0.05
New Hampshire . . . . . . . . . . . 4 508,190.48 0.34
New Jersey . . . . . . . . . . . . 6 951,458.73 0.64
New Mexico . . . . . . . . . . . . 17 1,899,032.46 1.27
Nevada . . . . . . . . . . . . . . 41 6,485,310.26 4.35
Ohio . . . . . . . . . . . . . . . 15 1,469,507.76 0.98
Oklahoma . . . . . . . . . . . . . 3 282,429.29 0.19
Oregon . . . . . . . . . . . . . . 29 3,862,220.85 2.59
Pennsylvania . . . . . . . . . . . 25 2,619,872.67 1.76
Rhode Island . . . . . . . . . . . 4 293,984.58 0.20
Tennessee . . . . . . . . . . . . . 2 244,459.71 0.16
Texas . . . . . . . . . . . . . . . 113 13,450,738.57 9.01
Utah . . . . . . . . . . . . . . . 13 2,326,001.51 1.56
Virginia . . . . . . . . . . . . . 17 3,189,948.42 2.14
Vermont . . . . . . . . . . . . . . 2 316,809.09 0.21
Washington . . . . . . . . . . . . 17 2,696,595.15 1.81
Wisconsin . . . . . . . . . . . . . 4 284,847.39 0.19
West Virginia . . . . . . . . . . . 1 65,955.71 0.04
--- --------------- ------
TOTALS: . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) No more than 1.08% of the Group I Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area in California and
no more than 1.49% of the Group I Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area outside of
California.
S-37
<PAGE> 38
(2) Approximately 14.52% and 13.08%, respectively, of the Group I Mortgage
Loans will be secured by Mortgaged Premises located in the Los Angeles
and San Francisco metropolitan areas. See "Risk Factors -- Geographic
Concentration of the Mortgaged Premises" herein for a description of
the areas comprising the Los Angeles and San Francisco metropolitan
areas.
OCCUPANCY TYPES
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
OCCUPANCY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Owner Occupied . . . . . . . . . . . . . . . 505 $101,855,359.25 68.24%
Second Home . . . . . . . . . . . . . . . . . 48 7,183,005.10 4.81
Investor . . . . . . . . . . . . . . . . . . 429 40,218,774.15 26.95
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TYPE OF PROGRAM LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
Alternate . . . . . . . . . . . . . . . . . . 189 $ 26,252,964.18 17.59%
Full . . . . . . . . . . . . . . . . . . . . 339 55,010,104.26 36.85
Limited . . . . . . . . . . . . . . . . . . . 272 43,352,809.89 29.05
No Ratio . . . . . . . . . . . . . . . . . . 182 24,641,260.17 16.51
--- --------------- ------
TOTALS: . . . . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) For information relating to the Loan Seller's underwriting programs
see "-- Underwriting Standards" herein.
S-38
<PAGE> 39
TYPE OF MORTGAGED PREMISES
FOR GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Two-family . . . . . . . . . . . . . . . . . 79 $ 9,059,800.98 6.07%
Three-family . . . . . . . . . . . . . . . . 39 5,173,590.49 3.47
Four-family . . . . . . . . . . . . . . . . . 53 6,572,503.46 4.40
Condominium . . . . . . . . . . . . . . . . . 56 6,240,974.91 4.18
Deminimus PUD . . . . . . . . . . . . . . . . 128 22,210,189.35 14.88
Planned Unit Development (PUD) . . . . . . . 12 1,477,428.79 0.99
Single Family . . . . . . . . . . . . . . . . 615 98,522,650.52 66.01
--- --------------- ------
TOTALS: . . . . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
CURRENT PRINCIPAL BALANCES
FOR GROUP I MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
RANGE OF CURRENT OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PRINCIPAL BALANCES ($) LOANS BALANCE BALANCE
<S> <C> <C> <C>
0.01 - 100,000 . . . . . . . . 441 $ 30,047,880.33 20.12%
100,000.01 - 150,000 . . . . . . . . 206 25,413,134.08 17.03
150,000.01 - 200,000 . . . . . . . . 111 19,429,398.10 13.02
200,000.01 - 250,000 . . . . . . . . 62 13,980,275.51 9.37
250,000.01 - 300,000 . . . . . . . . 59 16,296,625.33 10.92
300,000.01 - 350,000 . . . . . . . . 37 12,038,522.77 8.07
350,000.01 - 400,000 . . . . . . . . 28 10,612,163.71 7.11
400,000.01 - 450,000 . . . . . . . . 9 3,861,841.95 2.59
450,000.01 - 500,000 . . . . . . . . 6 2,828,356.74 1.89
500,000.01 - 550,000 . . . . . . . . 8 4,212,612.53 2.82
550,000.01 - 600,000 . . . . . . . . 7 4,050,046.06 2.71
600,000.01 - 650,000 . . . . . . . . 6 3,831,658.00 2.57
Over 1,000,000.00 . . . . . . . . 2 2,654,623.39 1.78
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the average current aggregate principal
balance of the Group I Mortgage Loam is expected to be approximately
$151,993.
S-39
<PAGE> 40
REMAINING TERM TO STATED MATURITY
FOR GROUP I MORTGAGE LOANS(I)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
REMAINING STATED OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
179 . . . . . . . . . . . . . . . . . . . . . 4 $ 255,323.44 0.17%
239 . . . . . . . . . . . . . . . . . . . . . 2 358,683.98 0.24
346 . . . . . . . . . . . . . . . . . . . . . 1 256,824.67 0.17
354 . . . . . . . . . . . . . . . . . . . . . 1 139,482.03 0.09
355 . . . . . . . . . . . . . . . . . . . . . 8 843,571.42 0.57
356 . . . . . . . . . . . . . . . . . . . . . 3 475,296.19 0.32
357 . . . . . . . . . . . . . . . . . . . . . 31 4,189,490.37 2.81
358 . . . . . . . . . . . . . . . . . . . . . 295 46,385,332.40 31.08
359 . . . . . . . . . . . . . . . . . . . . . 355 52,834,973.68 35.40
360 . . . . . . . . . . . . . . . . . . . . . 282 43,518,160.32 29.16
--- --------------- ------
TOTALS: . . . . . . . . . . . . . 982 $149,257,138.50 100.00%
=== =============== ======
</TABLE>
__________
(1) As of the Cut-off Date, the weighted average remaining term to
maturity of the Group I Mortgage Loans is expected to be
approximately 358 months.
S-40
<PAGE> 41
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
LOAN-TO-VALUE RATIOS AS OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
ORIGINATION (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 39 $ 10,081,056.33 7.64%
60.0+ to 65.0 . . . . . . . . 12 3,290,861.37 2.49
65.0+ to 70.0 . . . . . . . . 26 7,075,068.15 5.36
70.0+ to 75.0 . . . . . . . . 46 14,116,220.88 10.70
75.0+ to 80.0 . . . . . . . . 280 68,638,253.00 52.03
80.0+ to 85.0 . . . . . . . . 10 2,569,969.72 1.95
85.0+ to 90.0 . . . . . . . . 50 13,402,081.06 10.16
90.0+ to 95.0 . . . . . . . . 58 12,764,264.47 9.67
--- --------------- ------
TOTALS: . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average Loan-to-Value Ratio at
origination of the Group II Mortgage Loans is expected to be 78.34%.
S-41
<PAGE> 42
NOTE RATES OF
THE GROUP II MORTGAGE LOANS (1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
NOTE RATES (%) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
6.500+ to 6.750 . . . . . . 1 $ 250,000.00 0.19%
7.000+ to 7.250 . . . . . . 6 1,464,900.00 1.11
7.250+ to 7.500 . . . . . . 54 14,330,432.04 10.86
7.500+ to 7.750 . . . . . . 115 30,190,505.42 22.88
7.750+ to 8.000 . . . . . . 148 37,987,382.48 28.79
8.000+ to 8.250 . . . . . . 98 23,968,312.00 18.17
8.250+ to 8.500 . . . . . . 72 17,006,260.86 12.89
8.500+ to 8.750 . . . . . . 23 5,580,050.99 4.23
8.750+ to 9.000 . . . . . . 3 915,358.93 0.69
9.000+ to 9.250 . . . . . . 1 244,572.26 0.19
--- --------------- ------
TOTALS: . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-Off Date, the weighted average Note Rate of the Group
II Mortgage Loans is expected to be 7.969% per annum.
S-42
<PAGE> 43
GEOGRAPHIC DISTRIBUTION OF
THE GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
LOCATION LOANS BALANCE BALANCE
<S> <C> <C> <C>
Arkansas . . . . . . . . . . . . . 1 $ 249,288.62 0.19%
Arizona . . . . . . . . . . . . . . 16 3,682,073.91 2.79
California . . . . . . . . . . . . 240 62,991,232.57 47.75
Colorado . . . . . . . . . . . . . 12 3,290,177.40 2.49
Connecticut . . . . . . . . . . . . 1 454,670.68 0.34
Florida . . . . . . . . . . . . . . 25 6,295,729.65 4.77
Georgia . . . . . . . . . . . . . . 5 1,270,187.02 0.96
Hawaii . . . . . . . . . . . . . . 4 1,303,605.28 0.99
Idaho . . . . . . . . . . . . . . . 3 640,109.14 0.49
Illinois . . . . . . . . . . . . . 2 504,102.06 0.38
Indiana . . . . . . . . . . . . . . 3 740,943.54 0.56
Louisiana . . . . . . . . . . . . . 2 276,993.91 0.21
Massachusetts . . . . . . . . . . . 31 8,712,647.98 6.60
Maryland . . . . . . . . . . . . . 11 2,871,158.93 2.18
Michigan . . . . . . . . . . . . . 1 253,691.15 0.19
Minnesota . . . . . . . . . . . . . 2 561,157.27 0.43
Missouri . . . . . . . . . . . . . 4 1,123,211.16 0.85
North Dakota . . . . . . . . . . . 3 814,637.46 0.62
New Jersey . . . . . . . . . . . . 6 1,633,501.06 1.24
New Mexico . . . . . . . . . . . . 7 1,712,565.95 1.30
Nevada . . . . . . . . . . . . . . 4 998,613.57 0.76
New York . . . . . . . . . . . . . 2 515,996.93 0.39
Ohio . . . . . . . . . . . . . . . 5 1,219,714.53 0.92
Oklahoma . . . . . . . . . . . . . 1 277,808.68 0.21
Oregon . . . . . . . . . . . . . . 11 2,492,429.92 1.89
Pennsylvania . . . . . . . . . . . 4 1,269,365.56 0.96
Rhode Island . . . . . . . . . . . 1 232,174.52 0.18
Tennessee . . . . . . . . . . . . . 3 712,300.54 0.54
Texas . . . . . . . . . . . . . . . 72 14,872,643.99 11.27
Utah . . . . . . . . . . . . . . . 9 2,429,597.18 1.84
Virginia . . . . . . . . . . . . . 24 5,821,633.34 4.41
Washington . . . . . . . . . . . . 6 1,713,811.48 1.30
--- --------------- ------
TOTALS: . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) No more than .96% of the Group II Mortgage Loans will be secured by
Mortgaged Premises located it any one zip code area in California and
no more than 1.59% of the Group II Mortgage Loans will be secured by
Mortgaged Premises located in any one zip code area outside of
California.
(2) Approximately 21.48% and 15.77%, respectively, of the Group II
Mortgage Loans will be secured by Mortgaged Premises located in the
Los Angeles and San Francisco metropolitan areas. See "Risk Factors
-- Geographic Concentration of the Mortgaged Premises" herein for a
description of the areas comprising the Los Angeles and San Francisco
metropolitan areas.
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<PAGE> 44
OCCUPANCY TYPES
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
OCCUPANCY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Owner Occupied . . . . . . . . . . . . . . . 508 $129,558,901.22 98.20%
Second Home . . . . . . . . . . . . . . . . . 6 1,404,250.12 1.06
Investor . . . . . . . . . . . . . . . . . . 7 974,623.64 0.74
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION FOR MORTGAGE LOANS
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TYPE OF PROGRAM LOANS BALANCE BALANCE
<S> <C> <C> <C>
Alternate . . . . . . . . . . . . . . . . . . 244 $ 63,260,441.84 47.95%
Full . . . . . . . . . . . . . . . . . . . . 254 63,641,330.08 48.23
Limited . . . . . . . . . . . . . . . . . . . 23 5,036,003.06 3.82
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) For information relating to the Loan Seller's underwriting programs see
" -- Underwriting Standards" herein.
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<PAGE> 45
TYPE OF MORTGAGED PREMISES
FOR GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
<S> <C> <C> <C>
Two-family . . . . . . . . . . . . . . . . . 7 $ 1,612,512.84 1.22%
Three-family . . . . . . . . . . . . . . . . 2 344,663.05 0.26
Condominium . . . . . . . . . . . . . . . . . 28 6,622,303.45 5.02
Deminimus PUD . . . . . . . . . . . . . . . . 150 38,331,507.26 29.05
Planned Unit Development (PUD) . . . . . . . 5 1,046,992.67 0.79
Single Family . . . . . . . . . . . . . . . . 329 83,979,795.71 63.66
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
CURRENT PRINCIPAL BALANCES
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
RANGE OF CURRENT OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
PRINCIPAL BALANCES ($) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
0.01 - 100,000 . . . . . . . . 16 $ 1,431,029.15 1.08%
100,000.01 - 150,000 . . . . . . . . 47 5,895,170.58 4.47
150,000.01 - 200,000 . . . . . . . . 59 10,461,243.30 7.93
200,000.01 - 250,000 . . . . . . . . 150 34,923,489.86 26.47
250,000.01 - 300,000 . . . . . . . . 135 36,875,733.05 27.95
300,000.01 - 350,000 . . . . . . . . 57 18,580,906.26 14.08
350,000.01 - 400,000 . . . . . . . . 33 12,304,954.71 9.33
400,000.01 - 450,000 . . . . . . . . 7 2,984,983.15 2.26
450,000.01 - 500,000 . . . . . . . . 12 5,739,390.76 4.35
500,000.01 - 550,000 . . . . . . . . 3 1,590,656.66 1.21
550,000.01 - 600,000 . . . . . . . . 2 1,150,217.50 0.87
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off Date, the average current aggregate principal balance
of the Group II Mortgage Loan is expected to be approximately $253,239.
S-45
<PAGE> 46
REMAINING TERM TO STATED MATURITY
FOR GROUP II MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
NUMBER AGGREGATE MORTGAGE LOANS BY
REMAINING STATED OF MORTGAGE PRINCIPAL AGGREGATE PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
240 . . . . . . . . . . . . . . . . . . . . . 1 $ 300,000.00 0.23%
356 . . . . . . . . . . . . . . . . . . . . . 1 244,572.26 0.19
357 . . . . . . . . . . . . . . . . . . . . . 20 5,015,270.56 3.80
358 . . . . . . . . . . . . . . . . . . . . . 164 41,569,815.97 31.51
359 . . . . . . . . . . . . . . . . . . . . . 178 44,235,846.19 33.53
360 . . . . . . . . . . . . . . . . . . . . . 157 40,572,270.00 30.75
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 521 $131,937,774.98 100.00%
=== =============== ======
</TABLE>
- --------------------
(1) As of the Cut-off' Date, the weighted average remaining term to
maturity of the Group II Mortgage Loans is expected to be approximately
359 months.
UNDERWRITING STANDARDS
General. The underwriting guidelines utilized in the "Flex Series
Program," as developed by the Loan Seller, 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 underwriting guidelines utilized in the Flex Series Program are
generally less restrictive than the standards set forth by FHLMC and FNMA,
particularly with respect to loan-to-value ratios, borrower income, required
documentation, borrower occupancy of the mortgaged property and/or property
types. The Flex Series Program is designed to meet the needs of borrowers with
good credit. The Flex Series Program consists of two mortgage loan programs.
Each program has different loan amounts, reserve requirements, debt
service-to-income ratios and Loan-to-Value Ratio restrictions. The "Gold Flex
Program" is more restrictive with less credit risk than the "Flex Extra
Program." The Flex Extra Program offers higher loan amounts, investor
properties to 90% Loan-to-Value Ratios and expanded underwriting guidelines.
The Flex Extra Program allows for less restrictive standards with certain
compensating or offsetting factors such as a lower Loan-to-Value Ratio, greater
liquid assets, job stability and, in the case of refinance mortgage loans,
length of time owning the mortgaged property. The philosophy of the Flex
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.
Under the Flex Series Program, the Loan Seller underwrites one- to
four-family mortgage loans with Loan to-Value Ratios at origination of up to
95%. The Loan Seller's Gold Flex Program underwriting guidelines for purchase
money or rate/term refinance loans secured by primary residences generally
allow Loan-to-Value Ratios at origination of up to 95% for mortgage loans with
original principal balances of up to $300,000, up to 90% for mortgage loans
with original principal balances of up to $400,000, up to 75% for mortgage
loans with original principal balances of up to $650,000 and up to 60% for
mortgage loans with original principal balances of up to $1,000,000, depending
on, among other things, a borrower's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
The Loan Seller's Flex Extra Program underwriting guidelines for purchase money
or rate/term refinance loans secured by primary residences generally allow
Loan-to-Value Ratios at origination of up to 95% for mortgage loans with
original principal balances of up to $400,000, up to 90% for mortgage loans
with original principal balances of up to $500,000, up to 80% for mortgage
loans with original principal balances of up to $650,000 and up to 70% for
mortgage loans with original principal balances of up to $1,500,000, depending
on, among other things, a borrower's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
Under the Gold Flex Program and the Flex Extra Program, for cash-out refinance
loans, the maximum Loan-to-Value Ratio generally is 75% and 80%, respectively,
and the maximum "cash out" amount permitted is based in part on the
Loan-to-Value Ratio of the related mortgage loan. The Loan Seller generally
does not provide cash-out refinance mortgage loans with original principal
balances in excess of $650,000 with a maximum Loan-to-Value Ratio of 50% and
$1,500,000 with a
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<PAGE> 47
maximum Loan-to-Value Ratio of 65% with respect to the Gold Flex Program and
Flex Extra Program, respectively. Second lien financing of the mortgaged
properties may be provided by the Loan Seller or other lenders at origination;
however, the CLTV generally may not exceed 95% for mortgage loan amounts up to
$500,000 in the Flex Extra Program and 95% for mortgage loan amounts above
$500,000 in the Gold Flex Program. The mortgage loans in the Flex Series
Program generally bear rates of interest that are greater than those which are
originated in accordance with FHLMC and FNMA standards. In general, the
maximum amount for mortgage loans originated under the Gold Flex Program is
$1,000,000 and under the Flex Extra Program is $1,500,000; however, the Loan
Seller may approve mortgage loans with strong compensating factors in excess of
such amount on a case-by-case basis. All of the mortgage loans originated
under the Flex Series Program are underwritten by employees of or independent
contractors for the Loan Seller.
Debt Service-to-Income Ratios. The debt service-to-income ratios
utilized in the Flex Series Program generally exceed those of FNMA or FHLMC.
In determining whether a prospective borrower has sufficient monthly income
available (i) to meet the borrower's monthly obligation on the proposed
mortgage loan and (ii) meet monthly housing expenses and other financial
obligations including the borrower's monthly obligations on the proposed
mortgage loan, the Loan Seller generally considers the ratio of such amounts to
the proposed borrower's acceptable stable monthly gross income. Such ratios
vary depending on a number of underwriting criteria, including Loan-to-Value
Ratios, and are determined on a loan-by-loan basis, but generally range between
38%-40% and may be higher due to certain compensating factors.
Full/Alternative Documentation, Limited Documentation and "No Ratio"
Flex 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. The Loan Sell 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 an any record of defaults, bankruptcies, repossessions or
judgments.
The Flex Series Program allows for approval of an application pursuant
to the (a) Full/Alternative Documentation Program, (b) the Limited
Documentation Program, or (c) the "No Ratio" Program. The Full/Alternative
Documentation Program requires the following documents: (i) Uniform Residential
Loan Application (FNMA Form 1003 or FHLMC Form 65), (ii) Statement of Assets
and Liabilities (FNMA Form 1003A or FHLMC 65A), (iii) A tri-merged credit
report (generally from three separate repositories) and/or a standard factual
data credit report, (iv) Verification of Employment Form (or federal tax
returns for self-employed borrowers) providing a complete two year employment
history, (v) verification of Deposit Form for all liquid assets, verifying
minimum cash reserves based upon the Loan-to-Value Ratio and borrower's income,
and (vi) a Uniform Residential Appraisal Report (FNMA Form 1004 or FHLMC 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 three months personal bank statements for verification of
liquid assets. In addition, self-employed borrowers must provide federal tax
returns for the previous two to three years, including K-l's, federal business
tax returns for two years, year-to-date financial statements, a business credit
report and a signed IRS Form 4506 (Request for Copy of Tax Returns).
Under the Limited Documentation Program, which is available to
borrowers in every Flex Series Program, the Loan Seller obtains from
prospective borrowers either a verification of deposit or bank statements for
the most recent two- month period preceding the mortgage loan application.
Under these programs the borrower provides income information on the mortgage
loan application, and the debt service-to-income ratio is calculated. However,
income is not verified. Mortgage loans underwritten under the Limited
Documentation Program are limited to borrowers with credit histories that
demonstrate an established ability to repay indebtedness in a timely fashion.
Permitted maximum Loan-to-Value Ratios (including secondary financing) under
the Limited Documentation generally is limited.
Loans originated under the Limited Documentation Program include
cash-out refinance loans and mortgage loans secured by investor-owned
properties. Permitted maximum Loan-to-Value Ratios (including secondary
financing) under the Limited Documentation Program, which range up to 90%, are
more restrictive than under the Full Documentation Program or the Alternative
Documentation Program.
The Flex Series Program also allows for approval of applications
pursuant to the "No Ratio" Program. The "No Ratio" Program, available to
borrowers in the Flex Extra Program, is designed for a mortgage loan which
requires a minimum 20% down payment from the borrower with employment
information, but no income information, stated on the application (and,
therefore, the debt service-to-income ratio is not calculated). The
certification of assets is confirmed by written verification of deposits and
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<PAGE> 48
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 80% is not
eligible.
Under the Full/Alternative Documentation Program the Loan Seller may
verbally verify the borrower's employment prior to closing and under the
Limited Documentation and "No Ratio" Programs the Loan Seller does verbally
verify 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 the Limited Documentation Programs. In
addition, in order to qualify for the Limited 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 70 % with respect to the Gold Flex Program and 80 %
with respect to the Flex Extra Program and, with respect to the Gold Flex
Program, mortgage loans on mortgaged property used as a second or vacation home
by the prospective borrowers are not eligible for the Limited Documentation
Program. In general, the maximum loan amount for mortgage loans underwritten
in accordance with the Limited Documentation Program is $650,000 with respect
to the Gold Flex Program and $300,000 with respect to the Flex Extra Program
for purchase transactions and rate-term transactions and, with respect to the
Gold Flex Program a maximum loan amount of $650,000 for cash out refinance
transactions. 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" Program. In all cases, liquid assets
are verified and 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. Under all Flex Series Programs, a FICO Score is
obtained from two to three major credit repositories. "FICO Scores" are
statistical credit scores obtained by many mortgage lenders in connection with
the loan application to help assess a borrower's creditworthiness. FICO Scores
are generated by models developed by a third party and are made available to
lenders through three national credit bureaus. The FICO Score is based on a
borrower's historical credit data, including, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit and bankruptcy experience. FICO Scores
range from approximately 250 to approximately 900, with higher scores
indicating an individual with a more favorable credit history compared to an
individual with a lower score. However, a FICO Score purports only to be a
measurement of the relative degree of risk a borrower represents to a lender,
i.e., that a borrower with a higher score is statistically expected to be less
likely to default in payment than a borrower with a lower score. In addition,
it should be noted that FICO Scores were developed to indicate a level of
default probability over a two-year period which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the
affect of mortgage loan characteristics on the probability of repayment by the
borrower.
Approximately 99.91% (by aggregate principal balance as of the Cut-off
Date) of the Mortgage Loans have FICO scores. The weighted average FICO score
for the Mortgage Loans that were scored is 724. The weighted average FICO
scores for the Gold Flex and Flex Extra Mortgage Loans that were scored are 733
and 716, respectively.
For all Gold Flex mortgage loans, a FICO Score of 675 is generally
required. FICO Scores below 675 generally are allowed with compensating
factors, one of which may be an acceptable pmiAURA(SM) score as determined by
PMI (defined below) and the Loan Seller.
For all Flex Extra mortgage loans, a FICO Score of 660 with exemplary
credit references from borrower is generally required. FICO Scores below 660
with satisfactory credit references will be considered as well with
compensating factors, one of which may be an acceptable pmiAURA(SM) score as
determined by PMI and the Loan Seller. If a FICO Score is not available or
obtainable, a satisfactory pmiAURA(SM) score is generally required.
Generally, the minimum allowable FICO Score is 620. However, on a
limited case by case basis, with significant compensating factors, lower FICO
Scores may be considered.
Additionally, the Loan Seller may utilize a pmiAURA(SM) mortgage score,
created from the risk analysis platform of PMI Mortgage Insurance Co. ("PMI").
The PMI Automated Underwriting and Risk Analysis System ("pmiAURA(SM)") is an
automated residential mortgage loan underwriting system developed by PMI in
1987 in conjunction with the Allstate Research and Planning Center.
pmiAURA(SM) is designed to help estimate the relative likelihood of foreclosure
over the life of the loan that is scored. The system is licensed to a number
of residential mortgage lenders and investors, including North American
Mortgage Company, and
S-48
<PAGE> 49
is designed to assist such lenders and investors in analyzing credit and
property risk, tracking loan quality and improving underwriting efficiencies.
pmiAURA(SM) considers loan, property and borrower characteristics, borrower
credit information, property appraisal information as well as geodemographic
information for approximately 100 metropolitan statistical areas. Severity
risk is not measured. The pmiAURA(SM) system provides a pmiAURA(SM) score
which is a statistical risk predictive score. A pmiAURA(SM) score does not
give assurance about whether there will or will not be a default in the payment
of, a foreclosure on, or a mortgage insurance claim paid on a particular
mortgage loan, nor is the score a guarantee, prediction or forecast concerning
loan performance or a recommendation to purchase, sell or hold a loan, or to
purchase, sell or hold any security. Approximately 89.98% (by aggregate
principal balance as of the Cut-off Date) of the Mortgage Loans were scored by
pmiAURA(SM) (approximately 8.76% of the Mortgage Loans (by aggregate principal
balance as of the Cut-Off Date) are No Ratio Documentation Mortgage Loans and
thus are ineligible for pmiAURA(SM) scoring due to the absence of
debt-to-income ratios, and the remaining Mortgage Loans were not scored).
Approximately 98.50% and 82.46% (by aggregate principal balance as of the
Cut-Off Date) of the Gold Flex and Flex Extra Mortgage Loans, respectively,
were scored by pmiAURA(SM). The Mortgage Loans that were scored received
weighted average scored of 80. The Gold Flex and Flex Extra Mortgage Loans
that were scored received weighted average scores of 57 and 104, respectively.
pmiAURA(SM) scores are on a scale of 1 - 999 (scores of 998 and 999 indicate
inadequate data to render an accurate score). Higher scores indicate greater
risk. A score of 100 indicates average foreclosure risk. A score of 100
represents the average score for PMI data sets for the base period used in
system development. Relative risk is expressed in a linear manner such that a
score of 200 is considered twice as risky as a score of 100.
Credit risk analysis tools, such as FICO and pmiAURA(SM), are utilized
to create representative risk scores on each mortgage loan. Generally, these
scores have demonstrated predictable patterns of repayment expectations from
borrowers based upon the combination of variables from many loan
characteristics as measured by statistical models. The FICO and pmiAURA(SM)
scores set forth herein were obtained at either the time of origination of the
Mortgage Loan or more recently. Neither the Issuer, the Loan Seller, nor the
Underwriter or any of their respective affiliates make any representations or
warranties as to the actual performance of any Mortgage Loan or that a
particular FICO or pmiAURA(SM) score should be relied upon as a basis for an
expectation that the borrower will repay the Mortgage Loan according to its
terms.
The Flex Series Program further defines an acceptable credit history as
one that might include isolated derogatory items provided that the borrower
supplies a satisfactory written explanation of the circumstances causing such
derogatory items. Loans underwritten under the Limited Documentation Flex
Series Program must have at least two years of established credit history on at
least three open accounts where the accounts have been paid according to their
terms. Judgments, bankruptcies, tax liens or foreclosures generally will
require that the mortgage loan be underwritten under the Full Documentation
Flex Series Program.
In general, borrowers may not have more than two thirty-day and no
sixty-day late payments within the past twenty-four months on any revolving
credit account, a maximum of two thirty-day late payments within the past
twenty- four months on any installment credit account and a maximum of one
thirty-day late payment on previous mortgage loans within the past twelve
months. All bankruptcies must be at least twenty-four months old under the
Gold Flex Program and thirty-six months old under the Flex Extra Program, fully
discharged ai borrower must have re-established satisfactory credit.
For equity take-out refinances under the Full Documentation Flex Series
Program, with Loan-to-Value Ratios in excess of 75% for the Gold Flex Program
and 80% for the Flex Extra Program, no late payments on previous mortgage loans
are allowed. No late payments on previous mortgage loans are allowed on equity
take-out refinances under the Limited Documentation Flex Series Program.
Quality Control. The Loan Seller performs a post-funding audit on a
statistical percentage of all Flex Series Program mortgage loans. This audit
includes a review for compliance with Flex Series Program parameters and
accuracy of the legal documents. In a selected audit, the Loan Seller performs
a 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 of the mortgage loan. Verification of occupancy and applicable
information is made by regular mail. Additionally, Loan Seller will conduct
pre-funding quality assurance audits of selected Flex Series Program mortgage
loans. In a selected pre-funding audit the Loan Seller performs a complete
re-verification of employment, income and all assets used to qualify for such
mortgage loan.
Appraisals. One- to four-family residential properties that are to
secure Flex Series Program mortgage loans are appraised by independent
appraisers who are approved by the Loan Seller. 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
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<PAGE> 50
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 FNMA and FHLMC. As part of the Loan Seller's quality control
procedures, either field or desk appraisal reviews are obtained on 10% of all
mortgage loans originated under the Flex Series Program. Selected mortgage
loans will also be reviewed for compliance and document accuracy. Desk
reviews, field appraisals and/or additional full appraisals may be required on
those mortgage loans originated under the Flex Series Program with greater risk
characteristic such as higher loan amounts, 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. The Loan Seller uses the foregoing parameters as
guidelines only. On a case-by-case basis, the Loan Seller may determine that
the prospective mortgagor warrants an exception outside the standard Flex
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.
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<PAGE> 51
DESCRIPTION OF INSURANCE
PRIMARY MORTGAGE INSURANCE POLICIES
All of the Mortgage Loans with Loan-to-Value Ratios at origination in
excess of 80% are insured by a primary mortgage insurance policy (each, a "PMI
Policy") insuring a portion of the balance of each such Mortgage Loan generally
equal to the product of the original principal balance of such Mortgage Loan
and a fraction, the numerator of which is the excess of the original principal
balance of such Mortgage Loan over 75% of the lesser of the appraised value and
selling price of the related Mortgaged Premises and the denominator of which is
the original principal balance of the related Mortgage Loan plus accrued
interest thereon and related foreclosure expenses. No such PMI Policy will be
required with respect to any such Mortgage Loan after the date on which the
related Loan-to-Value Ratio decreases to 80% or less or, based upon a new
appraisal, the principal balance of such Mortgage Loan represents 80% or less
of the appraised value of the related Mortgaged Premises. All of the insurers
which have issued primary mortgage guaranty insurance policies with respect to
the Mortgage Loans meet FNMA's or FHLMC's standards or are acceptable to the
Rating Agencies.
Claim payments, if any, under each PMI Policy will be required to be
remitted by the Master Servicer to the Certificate Trustee and will be treated
in the same manner as a prepayment of a Mortgage Loan.
STANDARD HAZARD INSURANCE POLICIES, FIRE INSURANCE POLICIES AND FLOOD INSURANCE
POLICIES
The Pooling and Servicing Agreement requires the Master Servicer to cause
to be maintained for each Mortgage Loan a primary hazard insurance policy
(each, a "Standard Hazard Policy") with extended coverage on the related
Mortgaged Premises in an amount equal to the replacement value of the
improvements thereon, as determined by the related insurer. In general, the
standard form of Standard Hazard Policy covers physical damage to or
destruction of the Mortgaged Premises by fire, lightning, explosion, smoke,
windstorm, hail, riot, strike and civil commotion, subject to the conditions
and exclusions specified in each policy. Although the Standard Hazard Policies
relating to the Mortgage Loans will be underwritten by different insurers under
different state laws in accordance with different applicable state forms and
therefore will 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 mudflows), nuclear reactions, wet or dry
rot, vermin, rodents, insects, 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.
The Pooling and Servicing Agreement also requires the Master Servicer to
cause to be maintained for on property acquired upon foreclosure, or deed in
lieu of foreclosure, of any Mortgage Loan, a fire insurance policy (each, a
"Fire Policy") with extended coverage in an amount equal to the replacement
value of the improvements thereon. In addition, whenever the improvements
securing a Mortgage Loan are located in a federally designated special flood
hazard area, the Pooling and Servicing Agreement requires the Master Servicer
to cause a flood insurance policy (each, a "Flood Policy") to be maintained in
respect thereof. The amount of coverage under such Flood Policy shall be equal
to the lesser of (i) the replacement value of the improvements which are part
of the related Mortgaged Premises on a replacement cost basis and (ii) the
maximum amount of insurance available for such Mortgaged Premises under the
national flood insurance program (assuming that the area in which such
Mortgaged Premises is located is participating in such program. The ability of
the Master Servicer to assure that insurance proceeds are appropriately applied
may be dependent on its being named as an additional insured under any Standard
Hazard Policy, Fire Policy or Flood Policy, or upon the extent to which
information in this regard is furnished to the Master Servicer by the related
Mortgagors. All amounts collected by the Master Servicer under any Standard
Hazard Policy, Fire Policy or Flood Policy will be deposited in the Custodial
Account.
Since the amount of insurance to be maintained on the Mortgaged Premises
may decline over time as the principal balances owing on the related Mortgage
Loans decrease, and since residential properties have generally appreciated in
value over time, in the event of partial loss, insurance proceeds under any
Special Hazard Policy, Fire Policy or Flood Policy may be insufficient to
restore fully the damaged property.
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TITLE INSURANCE POLICIES
The Pooling and Servicing Agreement requires that a policy of title
insurance ("Title Insurance Policy") be in effect on each of the Mortgaged
Premises and that such Title Insurance Policy contain no coverage exceptions,
except those permitted pursuant to the guidelines heretofore established by
FNMA.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans and
Mortgaged Premises is based upon the Mortgage Pool as constituted at the close
of business on the Cut-Off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Offered
Securities, Mortgage Loans may be removed from the Mortgage Pool as a result of
incomplete documentation or otherwise, if the Issuer deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Offered Securities.
A Current Report on Form 8-K will be available to purchasers of the
Offered Securities and will be filed, together with the Pooling and Servicing
Agreement and the Indenture, with the Commission after the initial issuance of
the Offered Securities. In the event that Mortgage Loans are removed from or
added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in such Current Report on Form 8-K.
THE LOAN SELLER
The information set forth in the following paragraphs has been provided by
the Loan Seller. None of the Issuer, the Underwriter, the Certificate Trustee,
the Indenture Trustee or any of their respective affiliates has made or will
make any representation as to the accuracy or completeness of the information
provided by the Loan Seller.
North American Mortgage Company (the "Loan Seller" or "NAMC"), a Delaware
corporation, is among one of the nation's largest independent mortgage bankers.
At the present time and until consummation of the acquisition referred to
below, the common and preferred stock of the Loan Seller are and will continue
to be registered under the Securities Act of 1933 and quoted on the New York
Stock Exchange. The Loan Seller is currently subject to the reporting
requirements of the Securities and Exchange Act of 1934, and in accordance
therewith, files reports and other information with the Commission. Copies of
such materials may be obtained at prescribed rates at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or by mailing a written request to the corporate secretary of the
Loan Seller at 3883 Airway Drive, Santa Rosa, California 95403.
On June 23, 1997 the Loan Seller and Dime Bancorp, Inc. ("Dime") announced
an agreement whereby Dime expects to acquire the Loan Seller by means of an
exchange of Dime stock for stock of the Loan Seller. The acquisition is
expected to close in the fourth quarter of 1997 and is subject to certain
conditions. If the acquisition is consummated, the Loan Seller will become an
indirect wholly-owned subsidiary of Dime and expects to continue to operate
under its current name in most markets. As a result of the announcement of the
merger, the Loan Seller has been placed on credit watch with negative
implications by S&P and under review for possible downgrading by Moody's
Investors Service, Inc. It is expected that the Loan Seller will continue to
act as Master Servicer with respect to the Mortgage Loans after consummation of
the acquisition.
The Loan Seller originates, acquires, sells and services mortgage loans
which are principally first-lien mortgage loans secured by single (one-to-four)
family residences. The Loan Seller also sells the servicing rights associated
with a portion of such mortgage loans.
The Loan Seller originates mortgage loans through wholesale, retail, and
telemarketing. Substantially all mortgage loans originated by the Loan Seller
through such sources are underwritten, funded and closed by the Loan Seller.
During 1996, the Loan Seller originated approximately $9.5 billion in mortgage
loans. As of June 30, 1997, the Loan Seller's largest volume of mortgage loan
originations were in California, Texas, Minnesota, Florida and Arizona. As of
June 30, 1997, the Loan Seller operated 104 origination offices located in 30
states.
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The Loan Seller customarily sells all of the mortgage loans it originates,
generally retaining the right to service such loans. The Loan Seller sells the
majority of the conventional mortgage loans it originates under purchase and
guarantee programs sponsored by FHLMC and FNMA. The Loan Seller's mortgage
loans insured by FHA or partially guaranteed by VA or the Farms Home
Administration are pooled to form GNMA securities. The Loan Seller sells FNMA,
FHLMC and GNMA securities to investment banking firms that are usually primary
dealers in government securities. Mortgage loans not conforming to
requirements of such agencies are sold to private institutional investors.
The Loan Seller also engages in mortgage loan servicing, which includes
the processing of mortgage loan payments and the administration of mortgage
loans. The primary source of servicing is from mortgage loans it has
originated and sold. At June 30, 1997, the Loan Seller's loan servicing
portfolio totaled $12.7 billion. See "Pooling and Servicing Agreement -- The
Master Servicer" herein.
In addition to its mortgage banking activity, the Loan Seller wholly owns
an insurance agency known as North American Mortgage Insurance Services
("NAMIS"). NAMIS is a California corporation that offers a full range of
insurance products in most states where the Loan Seller originates mortgage
loans.
At June 30, 1997, the Loan Seller had approximately 2,982 employees. The
Loan Seller's executive offices are located at 3883 Airway Drive, Santa Rosa,
California 95403, and its telephone number is (707) 546-3310.
No person other than the Loan Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the remedies
for any breach thereof. See "Pooling and Servicing Agreement -- Assignment of
Mortgage Loans" herein.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued pursuant to an Indenture to be dated as of
the Cut-off Date between the Issuer and the Indenture Trustee. Copies of the
Indenture will be available following the Closing Date from the Master Servicer
and will be filed with the Commission after the Closing Date. See "Indenture"
herein and in the Prospectus.
The Securities constitute a Series of "Bonds" that are "Special Allocation
Bonds" as described in the Prospectus and will be non-recourse obligations of
the Issuer. Proceeds of the Trust Estate are the sole source of payments on
the Securities. The Trust Estate will include all of the Issuer's right, title
and interest in and to the Certificates and such assets as from time to time
are identified as deposited in respect of the Certificates in the one or more
Security Accounts established by the Indenture Trustee for the benefit of the
Securityholders. The Certificates will represent the beneficial ownership
interest in (i) the Mortgage Loans, including such assets as are identified as
deposited in respect of the Mortgage Loans in one or more Custodial Accounts
established by the Master Servicer under the Pooling and Servicing Agreement
for the collection of payments on the Mortgage Loans and in the Excess Proceeds
Account (as established under the Pooling and Servicing Agreement, (ii)
property acquired by foreclosure of such Mortgage Loans or by deed in lieu of
foreclosure, and (iii) any applicable hazard insurance policies, any applicable
primary mortgage insurance policies, any other applicable insurance policies
and all proceeds thereof.
Payments on the Offered Securities will be made on each Payment Date,
commencing in October 1997, to Securityholders of record on the immediately
preceding Record Date.
The Offered Securities (with the exception of the Principal Only and
Residual Securities) will be issued as Book- Entry Securities, maintained and
transferred on the book-entry records of the DTC and its participants. The
Book-Entry Securities will be represented by one or more certificates
registered in the name of the nominee of DTC. The Issuer has been informed by
DTC that DTC's nominee will be Cede. Payments on the Book-Entry Securities
will be made by or on behalf of the Indenture Trustee to DTC (as described
below) by wire transfer. No Beneficial Owner of a Book-Entry Security will be
entitled to receive a Definitive Certificate representing such person's
interest, except as set forth below under " -- Book Entry Registration --
Definitive Securities." Unless and until Definitive Certificates are issued
for the Book-Entry Securities under the limited circumstances described herein,
all references to actions by Securityholders with respect to the Book-Entry
Securities shall refer to actions taken by DTC upon instructions from its
Participants, and all references herein to payments, notices, reports and
statements to Securityholders with respect to the Book-Entry Securities shall
refer to payments, notices, reports and statements to
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DTC or Cede, as the registered holder of the Book-Entry Securities, for
distribution to Beneficial Owners by DTC in accordance with DTC procedures.
The Principal Only and Residual Securities will be issued in certificated,
fully-registered form. Payments on the Offered Securities that are issued in
certificated form will be made to each registered holder entitled thereto,
either (i) by check mailed to the address of such Securityholder as it appears
on the books of the Indenture Trustee or (ii) at the request, submitted to the
Indenture Trustee in writing at least five business days prior to the related
Record Date, of any holder of such an Offered Security having an initial
Security Principal Balance of not less than $1,000,000, by wire transfer in
immediately available funds, provided, that the final payment in respect of any
Offered Security will be made only upon presentation and surrender of such
Security at the Corporate Trust Office of the Indenture Trustee. See "The
Indenture Trustee" herein.
The Class FXA-6, Class FXA-7, Class A-3 and Class A-6 and Principal Only
Securities will be issued in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof. The Class FXA-1, Class FXA-2, Class
FXA-3, Class FXA-4, Class FXA-5, Class A-1, Class A-4, Class A-5, Class A-7,
Class A-8, Class A-9 and Offered Subordinate Securities will be issued in
minimum denominations of $250,000 and integral multiples of $1,000 in excess
thereof. The Residual Securities will be issued in minimum denominations of
$10 and integral multiples of $1.00 in excess thereof. The Strip Securities
will be issued in minimum initial Notional Amounts (as defined herein) of $1.00
and integral multiples of $1.00 in excess thereof. In addition, one Security
of each Class may be issued evidencing the sum of an authorized denomination
thereof and the remainder of the aggregate initial Security Principal Balance
of such Class.
BOOK-ENTRY REGISTRATION
General. Beneficial Owners that are not participants or indirect
participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, the related Book-Entry Securities may do so only through
participants and indirect participants. In addition, Beneficial Owners will
receive all payments of principal of and interest on the related Book-Entry
Securities through DTC and its participants and indirect participants.
Accordingly, Beneficial Owners may experience delays in their receipt of
payments. Unless and until Definitive Certificates are issued for the related
Book-Entry Securities, it is anticipated that the only registered
Securityholder of such Book-Entry Securities will be Cede, as nominee of DTC.
Beneficial Owners will not be recognized by the Indenture Trustee or the Master
Servicer as Securityholders, as such term is used in the Indenture, and
Beneficial Owners will be permitted to receive information furnished to
Securityholders and to exercise the rights of Securityholders only indirectly
through DTC, its participants and indirect participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Securities among participants and to receive and transmit payments
of principal of and interest on such Book-Entry Securities. Participants and
indirect participants with which Beneficial Owners have accounts with respect
to such Book-Entry Securities similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
physical certificates evidencing their interests in the Book-Entry Securities,
the Rules provide a mechanism by which Beneficial Owners, through their
participants and indirect participants, will receive payments and will be able
to transfer their interests in the Book-Entry Securities.
None of the Issuer, the Loan Seller, DLJMC, the Master Servicer, the
Underwriter, the Certificate Trustee, the Indenture Trustee or any of their
respective affiliates will have any liability for any actions taken by DTC or
its nominee, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Book-Entry Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Certificates. Each Class of the Book-Entry Securities will be
issued in definitive, registered form to Beneficial Owners or their nominees,
and thereupon such Beneficial Owners will become Securityholders if, and only
if, one of the following events shall occur (any such event being referred to
as "Book-Entry Termination"): (i) DTC or the Issuer advises the Indenture
Trustee in writing that DTC is no longer willing or able properly to discharge
its responsibilities as a clearing corporation with respect to such Book-Entry
Securities and the Issuer and the Indenture Trustee are unable to engage a
qualified successor to serve as DTC, or (ii) an event of default under the
Indenture (an "Indenture Event of Default") shall occur and be continuing and
DTC and its participants or indirect participants, at the direction of
Beneficial Owners representing a majority of the outstanding principal amount
of such Book-Entry Securities, advise the Indenture Trustee in writing that the
continuation of a book entry system is no longer in the best interests of
Beneficial Owners. Upon Book-Entry Termination, Beneficial Owners will become
registered
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Securityholders and will deal directly with the Indenture Trustee with respect
to transfers, notices, payments and requests for redemption.
The DTC has advised the Issuer and the Indenture Trustee that, prior to
Book-Entry Termination, DTC will take any action permitted to be taken by a
Securityholder under the Indenture only at the direction of one or more DTC
participants to whom the Book-Entry Securities are credited in an account
maintained by DTC. The DTC has advised that it will take such action with
respect to any principal amount of the Book-Entry Securities only at the
direction of and on behalf of DTC Participants with respect to that principal
amount of such Book-Entry Securities. For example, if a vote of Beneficial
Owners is required to accelerate maturity of one or more Classes of the
Book-Entry Securities following an Indenture Event of Default, DTC, acting at
the direction of its participants or indirect participants (which in turn are
acting at the direction of Beneficial Owners), may vote in favor of
acceleration of maturity with respect to a portion of the principal amount of
such Class or Classes of the Book-Entry Securities owned by a group of
Beneficial Owners and against acceleration with respect to other principal
amounts of such Class or Classes of the Book-Entry Securities owned by a
different group of Beneficial Owners.
ISSUANCE OF THE BOOK-ENTRY SECURITIES OFFERED HEREBY IN BOOK ENTRY FORM
RATHER THAN AS PHYSICAL CERTIFICATES MAY ADVERSELY AFFECT THE LIQUIDITY OF THE
BOOK-ENTRY SECURITIES IN THE SECONDARY MARKET AND THE ABILITY OF BENEFICIAL
OWNERS TO PLEDGE THEM. IN ADDITION, AS DESCRIBED ABOVE, PRIOR TO BOOK-ENTRY
TERMINATION DISTRIBUTIONS ON THE BOOK-ENTRY SECURITIES WILL BE MADE BY THE
INDENTURE TRUSTEE TO DTC AND DTC WILL CREDIT SUCH DISTRIBUTIONS TO THE ACCOUNTS
TO ITS PARTICIPANTS, WHICH WILL FURTHER CREDIT THEM TO THE ACCOUNTS OF INDIRECT
PARTICIPANTS OR BENEFICIAL OWNERS. AS A RESULT, BENEFICIAL OWNERS MAY
EXPERIENCE DELAYS IN THE RECEIPT OF SUCH DISTRIBUTIONS. SEE "RISK FACTORS --
BOOK ENTRY REGISTRATION" AND "DESCRIPTION OF THE BONDS -- BOOK ENTRY
REGISTRATION" IN THE PROSPECTUS.
For additional information regarding DTC and the Book-Entry Securities,
see "Description of Book-Entry Procedures" herein and "Description of the Bonds
- -- Book Entry Registration" in the Prospectus.
AVAILABLE FUNDS
The "Available Funds" for any Payment Date and either Mortgage Loan Group
will equal (a) the sum of (i) the balance on deposit in the Custodial Account
relating to such Mortgage Loan Group as of the close of business on the related
Determination Date, (ii) all Advances relating to such Mortgage Loan Group made
with respect to such Payment Date and (iii) certain other related amounts to be
deposited by the Master Servicer in the Security Account relating to such
Mortgage Loan Group, reduced by (b) the sum of (i) scheduled payments on the
Mortgage Loans collected with respect to such Mortgage Loan Group but due after
the related Due Date, (ii) reinvestment income on amounts relating to such
Mortgage Loan Group in the Custodial Account, (iii) all amounts reimbursable
with respect to such Payment Date to the Master Servicer, any subservicer, the
Certificate Trustee or the Issuer relating to such Mortgage Loan Group and (iv)
any unscheduled payments with respect to such Mortgage Loan Group, including
mortgagor prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation
Proceeds and proceeds from repurchases of the Mortgage Loans in such Mortgage
Loan Group, in each case received after the applicable Prepayment Period
relating to such Payment Date, all as reduced by the amount of certain
reimbursements to be made to the Master Servicer pursuant to the Pooling and
Servicing Agreement. Notwithstanding the foregoing, with respect to the
Subordinate Securities and the Residual Securities (after the Security
Principal Balance of the Residual Securities has been reduced to zero),
"Available Funds" means, with respect to any Payment Date, the sum of (x) the
Available Funds for Group I for such Payment Date, plus (y) the Available Funds
for Group II for Such Payment Date, in each case, after any payments required
to made prior to such Classes of Securities on such Payment Date as described
below under the headings "-- Interest Payments" and "-- Principal Payments."
With respect to any Payment Date, the "Determination Date" is the 15th day of
the month in which such Payment Date occurs or, if such day is not a business
day, the immediately preceding business day.
PRIORITY OF PAYMENTS
On each Payment Date prior to the Credit Support Depletion Date (as
defined herein), payments will be made in the order and priority as follows:
(a) With respect to the Class FX and Residual Securities to the extent of
the Available Funds for Group I remaining following prior payments, if
any, on such Payment Date:
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(i) first, to the Residual Securities, as principal, pro rata,
until their respective Security Principal Balances have been
reduced to zero;
(ii) second, to the Class FXP Securities, the Class FXP Discount
Mortgage Loan Principal Payment Amount;
(iii) third, pro rata, to the Class FXA, Class FXS and Residual
Securities, accrued and unpaid interest at the respective
Security Interest Rates on their respective Security Principal
Balances (or the Class FXS Notional Amount, in the case of the
Class FXS Securities);
(iv) fourth, to the Class FXA Securities, as principal, the Class
FXA Principal Payment Amount in the order described in "--
Payments of Principal -- Class FXA Principal Payment Amount"
herein; and
(v) fifth, for so long as the Subordinate Securities are
outstanding, to the Class FXP Securities, the sum of (a)
principal in an amount equal to the Class FXP Fraction of
certain principal losses on the Group I Discount Mortgage
Loans ("Group I Losses Payable"), as described in "--
Principal Payments" herein to the extent of amounts otherwise
available to pay the Subordinate Principal Payment Amount (as
defined herein) (without regard to clause (B) of such
definition) on such Payment Date and (b) the sum of amounts,
if any, by which the Group I Losses Payable on each prior
Payment Date exceeded the amount actually paid in respect
thereof on such prior Payment Dates and not subsequently paid,
to the extent of amounts otherwise available to pay the
Subordinate Principal Payment Amount on such Payment Date (any
amounts distributed in respect of losses pursuant to this
paragraph shall not cause a further reduction in the Security
Principal Balances of the Class FXP Securities), provided,
that such payments in respect of Group I Losses Payable shall
not cause a further reduction of the outstanding Securities
Principal Balance of the Class FXP Securities; provided
further, that if the amounts otherwise available to pay the
Subordinate Principal Payment Amount for any such Payment Date
are insufficient to cover such outstanding principal losses
for the Class FXP Securities as provided above and Class P
Securities as provided in clause (v) of paragraph (b) below,
then the amounts otherwise available to pay the Subordinate
Principal Payment Amount will be allocated pro rata to the
Class FXP and Class P Securities based on the amount such
Securities are entitled to receive pursuant to this clause, in
the case of the Class FXP Securities, and clause (v) of
paragraph (b) below, in the case of the Class P Securities;
(b) With respect to the Class II Securities, to the extent of the
Available Funds for Group II remaining following prior payments, if
any, on such Payment Date:
(i) first, to the Class P Securities, the Class P Discount
Mortgage Loan Principal Payment Amount;
(ii) second, pro rata, to the Class A and Class S Securities,
accrued and unpaid interest at their respective Security
Interest Rates on their respective Security Principal Balances
(or the Class S Notional Amount and the Class A-2 Notional
Amount, in the case of the Class S Securities and the Class
A-2 Securities, respectively); provided that on each Payment
Date through the applicable Accretion Termination Date, such
amount with respect to the Class A-9 Securities will not be
paid to the Class A- 9 Securities but will instead be added
to the Security Principal Balance of the Class A-9 Securities;
(iii) third, to the Class A-7, Class A-8 and Class A-9 Securities in
reduction of the Security Principal Balances thereof, the
applicable Accretion Amount in the order described herein
under "-- Payments of Principal -- Accretion Directed
Securities";
(iv) fourth, to the Class A Securities which are entitled to
receive principal, as principal, the Class A Principal Payment
Amount in the order described in "-- Payments of Principal --
Class A Principal Payment Amount" herein; and
(v) fifth, for so long as the Subordinate Securities are
outstanding, to the Class P Securities, the sum of (a)
principal in an amount equal to the Class P Fraction of
certain principal losses on the Group II Discount Mortgage
Loans ("Group II Losses Payable"), as described in "--
Principal Payments" herein to the extent of amounts otherwise
available to pay the Subordinate Principal Payment Amount
(without regard to clause (B) of such definition) on such
Payment Date and (b) the sum of amounts, if any, by which the
Group II Losses Payable on each prior
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Payment Date exceeded the amount actually paid in respect
thereof on such prior Payment Dates and not subsequently paid,
to the extent of amounts otherwise available to pay the
Subordinate Principal Payment Amount on such Payment Date (any
amounts distributed in respect of losses pursuant to this
paragraph shall not cause a further reduction in the Security
Principal Balances of the Class P Securities); provided, that
such payments in respect of Group II Losses Payable shall not
cause a further reduction of the outstanding Securities
Principal Balance of the Class P Securities; provided
further, that if the amounts otherwise available to pay the
Subordinate Principal Payment Amount for any such Payment Date
are insufficient to cover such outstanding principal losses
for the Class P Securities as provided above and Class FXP
Securities as provided in clause (iv) of paragraph (a) above,
then the amounts otherwise available to pay the Subordinate
Principal Payment Amount will be allocated pro rata to the
Class FXP and Class P Securities based on the amount such
Securities are entitled to receive pursuant to this clause, in
the case of the Class P Securities, and clause (iv) of
paragraph (a) above, in the case of the Class FXP Securities.
(c) With respect to the Subordinate Securities and the Residual
Securities, subject to the payment of the Senior Securities and
Residual Securities as described above, and to the extent of the
Available Funds for both Mortgage Loan Groups remaining, if any,
following prior payments on such Payment Date:
(i) first, to the Class B-1 Securities, accrued and unpaid
interest at the Class B-1 Security Interest Rate on the
Security Principal Balance of the Class B-1 Securities;
(ii) second, to the Class B-1 Securities, their pro rata share of
the Subordinate Principal Payment Amount (based upon such
Class' Security Principal Balance as a percentage of the
Security Principal Balance of all of the Subordinate
Securities);
(iii) third, to the Class B-2 Securities, accrued and unpaid
interest at the Class B-2 Security Interest Rate on the
Security Principal Balance of the Class B-2 Securities;
(iv) fourth, to the Class B-2 Securities, their pro rata share of
the Subordinate Principal Payment Amount (based upon such
Class' Security Principal Balance as a percentage of the
Security Principal Balance of all of the Subordinate
Securities);
(v) fifth, to the Class B-3 Securities, accrued and unpaid
interest at the Class B-3 Security Interest Rate on the
Security Principal Balance of the Class B-3 Securities;
(vi) sixth, to the Class B-3 Securities, their pro rata share of
the Subordinate Principal Payment Amount (based upon such
Class' Security Principal Balance as a percentage of the
Security Principal Balance of all of the Subordinate
Securities);
(vii) seventh, to the remaining Subordinate Securities, interest and
principal in the same manner as for the Subordinate Securities
in clauses (i) through (vi) above, first to the Class B-4
Securities, then to the Class B-5 Securities and then to the
Class B-6 Securities;
(viii) eighth, to each Class of the Subordinate Securities in the
order of seniority, the remaining portion, if any, of the
Available Funds, up to the amount of unreimbursed Realized
Losses previously allocated to such Class, if any, provided
payment of any amount pursuant to this paragraph shall not
cause a further reduction in the Security Principal Balances
of such Class of Subordinate Securities; and
(ix) ninth, to the Class R and Class RP Securities, the remaining
portion, if any, of the Available Funds for both Mortgage Loan
Groups for such Payment Date after all prior payments on such
Payment Date in respect of the Upper REMIC and the Lower
REMIC, as their respective interests are described in the
Indenture.
With respect to the Subordinate Securities, notwithstanding the
foregoing, on any Payment Date on which the Subordination Level for any
Class of Subordinate Securities is less than such percentage as of the
Cut-off Date, the portion of the Subordinate Principal Payment Amount
otherwise allocable to the Class or Classes junior to such Class will be
allocated to the most senior Class of Subordinate Securities for which the
Subordination Level is less than such percentages as of the
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Cut-off Date and to the Class or Classes of Subordinate Securities senior
thereto, pro rata according to the Security Principal Balances of such
Classes. The "Subordination Level" on any specified date with respect to
any Class of Subordinate Securities is the percentage obtained by dividing
the sum of the Security Principal Balances of all Classes of Securities
which are subordinate in right of payment to such Class by the sum of the
Security Principal Balances of all of the Securities as of such date prior
to giving effect to payments or allocations of Realized Losses on the
Mortgage Loans on such date.
On each Payment Date on or after the Credit Support Depletion Date,
payments will be made in the order and priority as follows:
(a) With respect to the Class FX Securities (and to the limited extent
described below, the Class R, Class RP and Class A Securities),
subject, in each case, to the extent of the Available Funds for Group
I remaining following prior payments, if any, on such Payment Date:
(i) first, to the Class FXP Securities, the Class FXP Discount
Mortgage Loan Principal Payment Amount;
(ii) second, to the Class FXA and Class FXS Securities, accrued and
unpaid interest at their respective Security Interest Rates on
their respective Security Principal Balances (or the Class FXS
Notional Amount, in the case of the Class FXS Securities), pro
rata (based on the amount of interest to which each Class of
Class FX Securities (other than the Class FXP Securities) is
entitled to receive);
(iii) third, to the Class FXA Securities, the Class FXA Principal
Payment Amount, pro rata according to their respective
Security Principal Balances;
(iv) fourth, to the Class II Securities as additional Available
Funds; and
(v) fifth, to the Class R and Class RP Securities, the remaining
portion, if any, of the Available Payment for Group I for such
Payment Date after all prior payments on such Payment Date in
respect of the Upper REMIC and the Lower REMIC, as their
respective interests are described in the Indenture.
(b) With respect to the Class II Securities (and to the limited extent
described below, the Class R, Class RP and Class FX Securities),
subject, in each case, to the extent of the Available Funds for Group
II remaining following prior payments, if any, on such Payment Date:
(i) first, to the Class P Securities, the Class P Discount
Mortgage Loan Principal Payment Amount;
(ii) second, to the Class A and Class S Securities, accrued and
unpaid interest at their respective Security Interest Rates on
their respective Security Principal Balances (or the Class S
Notional Amount and the Class A-2 Notional Amount, in the case
of the Class S and Class A-2 Securities, respectively), pro
rata (based on the amount of interest to which each Class of
Class A Securities (other than the Class P Securities) is
entitled to receive);
(iii) third, to the Class A Securities entitled to receive
principal, the Class A Principal Payment Amount, pro rata,
according to their respective Security Principal Balances;
(iv) fourth, to the Class FX Securities as additional Available
Funds; and
(v) fifth, to the Class R and Class RP Securities, the remaining
portion, if any, of the Available Funds for Group II for such
Payment Date after all prior payments on such Payment Date in
respect of the Upper REMIC and the Lower REMIC, as their
respective interests are described in the Indenture.
The "Credit Support Depletion Date" is the first Payment Date on which the
aggregate of the Security Principal Balances of the Subordinate Securities has
been or will be reduced to zero as a result of payments or allocations of
Realized Losses.
Except in the limited circumstances described herein, payments of interest
and principal to the Class FX and Class II Securities will be based solely on
payments received with respect to Group I Mortgage Loans and Group II Mortgage
Loans, respectively.
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INTEREST PAYMENTS
With respect to each Class of Securities (except the Principal Only
Securities and, through the related Accretion Termination Date, the Companion
Securities), interest will be paid monthly on each Payment Date, commencing in
October 1997. With respect to each Payment Date, an amount of interest will
accrue during the related Interest Accrual Period on each Class of Securities
generally equal to 1/12th of the applicable Security Interest Rate for such
Class multiplied by the related Security Principal Balance or Notional Amount,
as applicable. Interest to be paid on the Securities on any Payment Date will
consist of accrued and unpaid interest as of previous Payment Dates and
interest accrued during the related Interest Accrual Period. All payments of
interest for each Class of Securities will generally be made only to the extent
of the Available Funds for the related Mortgage Loan Group as described herein
under "-- Priority of Payments." Interest payable on the Securities shall be
calculated based on the Security Principal Balance, or Notional Balance or
Component Principal Balance, as applicable, of each Class of Securities after
giving effect to all payments of principal and allocations of Realized Losses
on all preceding Payment Dates. For each Payment Date, the "Interest Accrual
Period" for each Class of Securities is the calendar month preceding such
Payment Date.
On each Payment Date through the Class A-9 Component 1 Accretion
Termination Date, the Class A-9 Component 1 Accretion Amount will not be paid
on the Class A-9 Securities but will instead be added to the Component
Principal Balance thereof. On each Payment Date after the Class A-9 Component
1 Accretion Termination Date, the Class A-9 Component 1 Accretion Amount will
be paid on the Class A-9 Securities and will not be added to the Security
Principal Balance thereof.
On each Payment Date through the Class A-9 Component 2 Accretion
Termination Date, the Class A-9 Component 2 Accretion Amount will not be paid
on the Class A-9 Securities but will instead be added to the Component
Principal Balance thereof. On each Payment Date after the Class A-9 Component
2 Accretion Termination Date, the Class A-9 Component 2 Accretion Amount will
be paid on the Class A-9 Securities and will not be added to the Security
Principal Balance thereof.
The "Class A-9 Component 1 Accretion Termination Date" is the earlier of
(i) the Credit Support Depletion Date, and (ii) the Payment Date on which the
Security Principal Balance of the Class A-7 Securities is reduced to zero. The
"Class A-9 Component 2 Accretion Termination Date" is the earlier of (i) the
Credit Support Deletion Date, and (ii) the Payment Date on which the Security
Principal Balance of the Class A-8 Securities is reduced to zero. The Class
A-9 Component 1 Accretion Termination Date and the Class A-9 Component 2
Accretion Termination Date are sometimes referred to herein as the "Accretion
Termination Date" with respect to a Class A-9 Component.
The "Class A-9 Component 1 Accretion Amount" for each Payment Date is an
amount equal to accrued and unpaid interest at the Security Interest Rate for
the Class A-9 Securities on the Component Principal Balance of the Class A-9
Component 1 during the related Interest Accrual Period. The "Class A-9
Component 2 Accretion Amount" for each Payment Date is an amount equal to
accrued and unpaid interest at the Security Interest Rate for the Class A-9
Securities on the Component Principal Balance of the Class A-9 Component 2
during the related Interest Accrual Period. The Class A-9 Component 1
Accretion Amount and the Class A-9 Component 2 Accretion Amount are sometimes
referred to herein as the "Accretion Amount" with respect to a Class A-9
Component.
The Security Interest Rates for the Senior Securities are set forth on the
cover page hereof. The Strip Securities will accrue interest on the applicable
Notional Amount. The Class FXS Notional Amount with respect to any Payment
Date will equal the product of (x) the aggregate Scheduled Principal Balance,
as of the second preceding Due Date after giving effect to payments scheduled
to be received as of such Due Date, whether or not received, or with respect to
the initial Payment Date, as of the Cut-off Date, of the Group I Premium Rate
Mortgage Loans and (y) a fraction, the numerator of which is the weighted
average of the Stripped Interest Rates (as defined herein) for the Group I
Premium Rate Mortgage Loans and the denominator of which is 7.25%. The Class
FXS Notional Amount as of the Cut-off Date will be approximately $22,244,414.
The "Stripped Interest Rate" for each Group I Premium Rate Mortgage Loan is the
excess of the Net Rate for such Mortgage Loan over 7.25% per annum. The Class S
Notional Amount with respect to any Payment Date will equal the product of (x)
the aggregate Scheduled Principal Balance, as of the second preceding Due Date
after giving effect to payments scheduled to be received as of such Due Date,
whether or not received, or with respect to the initial Payment Date, as of the
Cut-off Date, of the Group II Premium Rate Mortgage Loans and (y) a fraction,
the numerator of which is the weighted average of the Stripped Interest Rates
(as defined herein) for the Group II Premium Rate Mortgage Loans and the
denominator of which is 7.25%. The Class S Notional Amount as of the Cut-off
Date will be approximately $8,500,913. The "Stripped Interest Rate" for each
Group II Premium Rate Mortgage Loan is the excess of the Net Rate for such
Mortgage Loan over 7.25% per annum.
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As of any Payment Date, the "Class A-2 Notional Amount" will equal the sum
of (A) the product of (x) 8.9655172309% and (y) the Component Principal Balance
of the Class A-1 Component 1, and (B) the product of (x) 8.9655172309% and (y)
the Component Principal Balance of the Class A-1 Component 2. The Class A-2
Notional Amount as of the Cut-off Date will be approximately $2,063,265.
The Security Interest Rate applicable to the Class B-1, Class B-2 and
Class B-3 Securities will equal 7.25% per annum for each Payment Date.
Subject to the limitations described in this Prospectus Supplement under
"Certain Yield and Prepayment Considerations," on each Payment Date the Master
Servicer is obligated to deposit into the Custodial Account an amount equal to
the lesser of (a) any shortfall for the related month in interest collections
resulting from the timing of prepayments in full made from the 15th day of the
calendar month preceding such Payment Date, or from the Cut-off Date in the
case of the first Payment Date to the last day of such month, and (b) the
monthly Servicing Fee. The amount so deposited will hereinafter be referred to
as "Compensating Interest." If the amount of Compensating Interest with
respect to any Payment Date is not sufficient to cover all Prepayment Interest
Shortfalls, there will be a corresponding shortfall to the extent of the amount
of Prepayment Interest Shortfalls not offset by such Compensating Interest in
the interest paid to Securityholders on such Payment Date, and any such
shortfall, as well as any Soldiers' and Sailors' Shortfall, will be allocated
pro rata to reduce the interest payment to which each Class of Securities would
otherwise be entitled.
PRINCIPAL PAYMENTS
General. On each Payment Date, Securityholders will be entitled to
receive principal payments from the Available Funds to the extent and priority
described herein. See "-- Priority of Payments" herein. Except in the limited
circumstances described herein, the Class FX Securities (other than the Class
FXS Securities which are not entitled to receive principal payments) will
receive principal collected from Group I Mortgage Loans and the Class II
Securities (other than the Class S and Class A-2 Securities which are not
entitled to receive principal payments) will receive principal collected from
Group II Mortgage Loans. The Subordinate Securities will receive principal
collected from Mortgage Loans in both Mortgage Loan Groups. The Strip
Securities will not receive any payments of principal.
Class FXP Principal Payments. On each Payment Date, the Class FXP
Securities will receive a portion of the Available Funds for Group I
attributable to principal received on or in respect of any Group I Mortgage
Loan with a Net Rate of less than 7.25% per annum (a "Group I Discount Mortgage
Loan"), in an amount (the "Class FXP Discount Mortgage Loan Principal Payment
Amount" for such Payment Date) equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 7.25% minus
the Net Rate on such Group I Discount Mortgage Loan and the denominator of
which is 7.25% (the "Class FXP Fraction"). In addition, on each Payment Date
for so long as any Class of Subordinate Securities remains outstanding, the
Class FXP Securities will also receive principal, to the extent of amounts
available to pay the Subordinate Principal Payment Amount (without regard to
clause (B) of such definition) on such Payment Date, in an amount generally
equal to the Class FXP Fraction of any loss on a Group I Discount Mortgage Loan
other than Excess Special Hazard Losses, Excess Fraud Losses or Excess
Bankruptcy Losses, and such payments in respect of losses shall not cause a
further reduction of the outstanding Security Principal Balance of the Class
FXP Securities; provided, that if the amounts otherwise available to pay the
Subordinate Principal Payment Amount (without regard to clause (B) of such
definition) for any such Payment Date are insufficient to cover such
outstanding principal losses for the Class FXP Securities as provided above and
Class P Securities as provided below, then the amounts otherwise available to
pay the Subordinate Principal Payment Amount (without regard to clause (B) of
such definition) will be allocated pro rata to the Class FXP and Class P
Securities based on the amount such Securities are entitled to receive pursuant
to this sentence, in the case of the Class FXP Securities, and the second
sentence under "Class P Principal Payments" below, in the case of the Class P
Securities.
Class FXA Principal Payment Amount. On each Payment Date prior to the
Credit Support Deletion Date, an amount, up to the amount of the Class FXA
Principal Payment Amount for such Payment Date, to the extent of the amount, if
any, remaining following prior payments on such Payment Date, will be paid as
principal to the following Classes of Class FXA Securities in the following
order of priority:
(i) first, to the Residual Securities, pro rata, until their respective
Security Principal Balances have been reduced to zero;
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(ii) second, to the Class FXA-5 Lockout Securities, an amount, up to the
amount of the Class FXA-5 Lockout Principal Payment Amount (as
defined herein), if any, until the Security Principal Balance
thereof has been reduced to zero;
(iii) third, concurrently, to the Class FXA-2, Class FXA-3 and Class
FXA-4 Securities in the following amounts until the Security
Principal Balance of the Class FXA-2 Securities has been reduced to
$40,259,293.46: (A) 39.6326019839% to the Class FXA-3 and Class
FXA-4 Securities, pro rata, and (B) 60.3673980161% as follows: (1)
54.1706485011% to the Class FXA-2 Securities, and (2)
45.8293514989% to the Class FXA-3 and Class FXA-4 Securities, pro
rata;
(iv) fourth, concurrently, to the Class FXA-1, Class FXA-2, Class FXA-3
and Class FXA-4 Securities in the following amounts until the
Security Principal Balance of the Class FXA-1 Securities has been
reduced to zero : (A) 61.0908624618% as follows: (1)
54.1706485011% to the Class FXA-2 Securities, and (2)
45.8293514989% to the Class FXA-3 and Class FXA-4 Securities, pro
rata, and (B) 38.9091375382% to the Class FXA-1 Securities;
(v) fifth, concurrently, to the Class FXA-2, Class FXA-3 and Class
FXA-4 Securities in the following amounts until the Security
Principal Balances of the Class FXA-2, Class FXA-3 and Class FXA-4
Securities have been reduced to zero: (A) 16.9028616814% as
follows: (1) 54.1706485011% to the Class FXA-2 Securities, and (2)
45.8293514989% to the Class FXA-3 and Class FXA-4 Securities, pro
rata, (B) 11.0978227448% to the Class FXA- 3 and Class FXA-4
Securities, pro rata; and (C) 71.9993155738% to the Class FXA-2
Securities;
(vi) sixth, 100% to the Class FXA-6 Securities until the Security
Principal Balance thereof has been reduced to zero;
(vii) seventh, 100% to the Class FXA-7 Securities until the Security
Principal Balance thereof has been reduced to zero; and
(viii) eighth, 100% to the Class FXA-5 Lockout Securities until the
Security Principal Balance thereof has been reduced to zero.
The "Class FXA Principal Payment Amount" for any Payment Date will equal
the sum of (i) the Class FXA Percentage (as defined below) of the Principal
Payment Amount (as defined below) for Group I (exclusive of the portion thereof
attributable to the Class FXP Discount Mortgage Loan Principal Payment Amount
for such Payment Date), (ii) the Class FXA Prepayment Percentage (as defined
below) of the Principal Prepayment Amount (as defined below) for Group I
(exclusive of the portion thereof attributable to the Class FXP Discount
Mortgage Loan Principal Payment Amount for such Payment Date), and (iii) the
Class FXA Liquidation Amount (as defined below).
The "Class FXA Liquidation Amount" with respect to a Payment Date is the
aggregate of, for each Group I Mortgage Loan which became a Liquidated Loan
during the related Prepayment Period, the lesser of (i) the Class FXA
Percentage of the principal balance of such Mortgage Loan (exclusive of the
Class FXP Fraction thereof, with respect to any Group I Discount Mortgage Loan)
and (ii) the Class FXA Prepayment Percentage of the Group I Liquidation
Principal for such Payment Date with respect to such Mortgage Loan.
"Group I Liquidation Principal" with respect to a Payment Date is the
principal portion of Liquidation Proceeds received with respect to a Group I
Mortgage Loan which became a Liquidated Loan (but not in excess of the
principal balance thereof) during the related Prepayment Period, exclusive of
the portion thereof attributable to the applicable Class FXP Discount Mortgage
Loan Principal Payment Amount with respect to such Payment Date.
The "Class FXA Percentage" for any Payment Date will equal the lesser of
(i) 100% and (ii) the sum of the Security Principal Balances of the Class FXA
and Residual Securities immediately prior to such Payment Date, divided by the
aggregate Scheduled Principal Balance of the Group I Mortgage Loans (less the
Class FXP Principal Balance) as of the second preceding Due Date.
The "Class FXA-5 Lockout Principal Payment Amount" for any Payment Date
will equal the sum of (i) the Class FXA-5 Lockout Percentage (as defined below)
of the applicable Principal Payment Amount for Group I (exclusive of the
portion thereof attributable to the applicable Class FXP Discount Mortgage Loan
Principal Payment Amount), (ii) the Class FXA-5 Lockout Prepayment Percentage
(as defined herein) of the applicable Principal Prepayment Amount for Group I
(exclusive of the portion thereof attributable to the applicable Class FXP
Discount Mortgage Loan Principal Payment Amount) and (iii) the Class FXA-5
Lockout Liquidation Amount (as defined below).
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The "Class FXA-5 Lockout Percentage" for any Payment Date will equal the
lesser of (i) 100% and (ii) the aggregate Security Principal Balances of the
Class FXA-5 Lockout Securities immediately prior to such Payment Date, divided
by the aggregate Scheduled Principal Balance of the Group I Mortgage Loans
(less the Security Principal Balance of the Class FXP Securities) as of the
second preceding Due Date. The "Class FXA-5 Lockout Liquidation Amount" with
respect to a Payment Date is the aggregate of, for each Group I Mortgage Loan
which became a Liquidated Loan during the related Prepayment Period, the lesser
of (i) the Class FXA-5 Lockout Percentage of the principal balance of such
Mortgage Loan (exclusive of the Class FXP Fraction thereof, if applicable) and
(ii) the Class FXA-5 Lockout Prepayment Percentage (as defined herein) of the
Group I Liquidation Principal with respect to such Mortgage Loan.
Class P Principal Payments. On each Payment Date, the Class P Securities
will receive a portion of the Available Funds for Group II attributable to
principal received on or in respect of any Group II Mortgage Loan with a Net
Rate of less than 7.25% per annum (a "Group II Discount Mortgage Loan") in an
amount (the "Class P Discount Mortgage Loan Principal Payment Amount" for such
Payment Date), equal to the amount of such principal so attributable multiplied
by a fraction, the numerator of which is 7.25% minus the Net Rate on such Group
II Discount Mortgage Loan and the denominator of which is 7.25% (the "Class P
Fraction"). In addition, on each Payment Date for so long as any Class of
Subordinate Securities remains outstanding, the Class P Securities will also
receive principal, to the extent of amounts available to pay the Subordinate
Principal Payment Amount (without regard to clause (B) of such definition) on
such Payment Date, in an amount generally equal to the Class P Fraction of any
loss on a Group II Discount Mortgage Loan other than Excess Special Hazard
Losses, Excess Fraud Losses or Excess Bankruptcy Losses, and such payments in
respect of losses shall not cause a further reduction of the outstanding
Security Principal Balance of the Class P Securities; provided, that if the
amounts otherwise available to pay the Subordinate Principal Payment Amount
(without regard to clause (B) of such definition) for any such Payment Date are
insufficient to cover such outstanding principal losses for the Class P
Securities as provided above and Class FXP Securities as provided above, then
the amounts otherwise available to pay the Subordinate Principal Payment Amount
(without regard to clause (B) of such definition) will be allocated pro rata to
the Class FXP and Class P Securities based on the amount such Securities are
entitled to receive pursuant to this sentence, in the case of the Class P
Securities, and the second sentence of the "Class FXP Principal Payments"
above, in the case of the Class FXP Securities.
Class A-1 and Class A-9 Components. Solely for the purposes of
determining payments of principal thereon, the Class A-1 and Class A-9
Securities will each be deemed to consist of two components (each a "Component"
and respectively, for the Class A-1 Securities, the "Class A-1 Component 1" and
the "Class A-1 Component 2" and for the Class A-9 Securities, the "Class A-9
Component 1" and the "Class A-9 Component 2"), each with a specified principal
balance (a "Component Principal Balance"). The initial Component Principal
Balances of the Class A-1 Component 1 and Class A-1 Component 2 are $12,453,396
and $10,559,953, respectively, in each case subject to the variance described
herein. The initial Component Principal Balances of the Class A-9 Component 1
and the Class A-9 Component 2 are $1,082,000, and $1,606,000, respectively, in
each case subject to the variance described herein.
Accretion-Directed Securities. The Class A-7 and Class A-8 Securities are
Accretion-Directed Securities which are designed to receive principal payments
from accretions of interest on the Component Principal Balances of the Class
A-9 Component 1 and the Class A-9 Component 2, respectively.
On each Payment Date through the Class A-9 Component 1 Accretion
Termination Date, an amount equal to the Class A-9 Component 1 Accretion Amount
will be paid as follows:
(i) first, to the Class A-7 Securities until the TAC Principal Balance
thereof is reached on such Payment Date (as set forth in the TAC
Balances Table set forth in Appendix D hereto); and
(ii) second, any remaining amount to the Class A-9 Component 1 until the
Component Principal Balance thereof is reduced to zero.
In addition, on each Payment Date through the Class A-9 Component 2
Accretion Termination Date, an amount equal to the Class A-9 Component 2
Accretion Amount will be paid as follows:
(i) first, to the Class A-8 Securities until the TAC Principal Balance
thereof is reached on such Payment Date (as set forth in the TAC
Balances Table set forth in Appendix D hereto); and
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(ii) second, any remaining amount to the Class A-9 Component 2 until
the Component Principal Balance thereof is reduced to zero.
Class A Principal Payment Amount. On each Payment Date prior to the
Credit Support Depletion Date, an amount, up to the amount of the Class A
Principal Payment Amount for such Payment Date, to the extent of the amount, if
any, remaining following prior payments on such Payment Date, will be paid as
principal to the following Classes of Class A and Residual Securities in the
following order of priority:
(i) first, to the Class A-4 Lockout Securities, an amount, up to the
Class A-4 Lockout Principal Payment Amount, (as defined herein), if
any, until the Security Principal Balance thereof has been reduced
to zero;
(ii) second, concurrently, to the Class A-1 Component 1 and Class A-1
Component 2, Class A-5, Class A-6, Class A- 7 and Class A-8
Securities, and the Class A-9 Component 1 and Class A-9 Component 2
in the following amounts until the Security Principal Balances of
the Class A-5 and Class A-6 Securities are reduced to zero: (A)
10.9493055910% to the Class A-5 and Class A-6 Securities,
sequentially, until the Security Principal Balances thereof have
been reduced to zero; (B) 48.1887076414% as follows: (1) to the
Class A-1 Component 1 until the PAC Component Principal Balance
thereof is reached on such Payment Date (as set forth in the Class
A-1 Component 1 PAC Balances Table set forth in Appendix C hereto),
(2) to the Class A-7 Securities until the TAC PrincipalBalance
thereof is reached on such Payment Date on such Payment Date (as
set forth in the Class A-7 TAC Balances Table set forth in Appendix
D hereto), (3) to the Class A-9 Component 1 until the Component
Principal Balance thereof is reduced to zero, (4) to the Class A-7
Securities until the Security Principal Balance thereof is reduced
to zero, and (5) to the Class A-1 Component 1 until the Component
Principal Balance thereof is reduced to zero; and (C)
40.8619867676% as follows: (1) to the Class A-1 Component 2 until
the PAC Component Principal Balance thereof is reached on such
Payment Date (as set forth in the Class A-1 Component 2 PAC
Balances Table set forth in Appendix C hereto), (2) to the Class
A-8 Securities until the TAC PrincipalBalance thereof is reached on
such Payment Date (as set forth in the Class A-8 TAC Balances Table
set forth in Appendix D hereto), (3) to the Class A-9 Component 2
until the Component Principal Balance thereof is reduced to zero,
(4) to the Class A-8 Securities until the Security Principal
Balance thereof is reduced to zero, and (5) to the Class A-1
Component 2 until the Component Principal Balance thereof is
reduced to zero;
(iii) third, concurrently, to the Class A-1 Component 1, Class A-1
Component 2, the Class A-7 Securities, the Class A-8 Securities,
the Class A-9 Component 1 and the Class A-9 Component 2 in the
following amounts until the Component Principal Balances or
Security Principal Balances, as applicable, thereof have been
reduced to zero: (A) 54.1137941813% as follows: (1) 100% to the
following: (a) to the Class A-1 Component 1 until the PAC
Component Principal Balance thereof is reached on such Payment Date
(as set forth in the Class A-1 Component 1 PAC Balances Table set
forth in Appendix C hereto), (b) to the Class A-7 Securities until
the TAC PrincipalBalance thereof is reached on such Payment Date
(as set forth in the Class A-7 TAC Balances Table set forth in
Appendix D hereto), (c) to the Class A-9 Component 1 until the
Component Principal Balance thereof is reduced to zero, (d) to the
Class A-7 Securities until the Security Principal Balance thereof
is reduced to zero, (e) to the Class A-1 Component 1 until the
Component Principal Balance thereof is reduced to zero; and (f)
100% to the Class A-3 Securities until the Security Principal
Balance thereof is reduced to $2,606,265.00; and (B) 45.8862058187%
as follows: (1) 100% to the following: (a) to the Class A-1
Component 2 until the PAC Component Principal Balance thereof is
reached on such Payment Date (as set forth in the Class A-1
Component 2 PAC Balances Table set forth in Appendix C), (b) to the
Class A-8 Securities until the TAC PrincipalBalance thereof is
reached on such Payment Date (as set forth in the Class A-8 TAC
Balances Table set forth in Appendix D hereto), (c) to the Class
A-9 Component 2 until the Component Principal Balance thereof is
reduced to zero, (d) to the Class A-8 Securities until the Security
Principal Balance thereof is reduced to zero, (e) to the Class A-1
Component 2 until the Component Principal Balance thereof is
reduced to zero; and (f) 100% to the Class A-3 Securities until the
Security Principal Balance thereof is reduced to $2,606,265.00;
(iv) fourth, 100% to the Class A-3 Securities, until the Security
Principal Balance of the Class A-3 Securities has been reduced to
zero; and
(v) fifth, 100% to the Class A-4 Lockout Securities, until the Security
Principal Balance of the Class A-4 Lockout Securities have been
reduced to zero.
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The "Class A Principal Payment Amount" for any Payment Date will equal the
sum of (i) the Class A Percentage (as defined below) of the Principal Payment
Amount for Group II (exclusive of the portion thereof attributable to the Class
P Discount Mortgage Loan Principal Payment Amount for such Payment Date), (ii)
the Class A Prepayment Percentage (as defined below) of the Principal
Prepayment Amount for Group II (exclusive of the portion thereof attributable
to the Class P Discount Mortgage Loan Principal Payment Amount for such Payment
Date), and (iii) the Class A Liquidation Amount (as defined below).
The "Class A Liquidation Amount" with respect to a Payment Date is the
aggregate of, for each Group II Mortgage Loan which became a Liquidated Loan
during the related Prepayment Period, the lesser of (i) the Class A Percentage
of the principal balance of such Mortgage Loan (exclusive of the Class P
Fraction thereof, with respect to any Group II Discount Mortgage Loan) and (ii)
the Class A Prepayment Percentage of the Group II Liquidation Principal for
such Payment Date with respect to such Mortgage Loan.
"Group II Liquidation Principal" with respect to a Payment Date is the
principal portion of Liquidation Proceeds received with respect to a Group II
Mortgage Loan which became a Liquidated Loan (but not in excess of the
principal balance thereof) during the related Prepayment Period, exclusive of
the portion thereof attributable to the applicable Class P Discount Mortgage
Loan Principal Payment Amount with respect to such Payment Date.
The "Class A Percentage" for any Payment Date will equal the lesser of (i)
100% and (ii) the Security Principal Balance of the Class A Securities
immediately prior to such Payment Date, divided by the aggregate Stated
Principal Balance of the Group II Mortgage Loans (less the Class P Principal
Balance) as of the second preceding Due Date.
The "Class A-4 Lockout Principal Payment Amount" for any Payment Date will
equal the sum of (i) the Class A-4 Lockout Percentage (as defined below) of the
applicable Principal Payment Amount for Group II (exclusive of the portion
thereof attributable to the applicable Class P Discount Mortgage Loan Principal
Payment Amount), (ii) the Class A-4 Lockout Prepayment Percentage (as defined
herein) of the applicable Principal Prepayment Amount for Group II (exclusive
of the portion thereof attributable to the applicable Class P Discount Mortgage
Loan Principal Payment Amount) and (iii) the Class A-4 Lockout Liquidation
Amount (as defined below).
The "Class A-4 Lockout Percentage" will equal (a) with respect to any
Payment Date occurring prior to the Payment Date occurring in October 2002, 0%,
and (b) with respect to any Payment Date occurring in October 2002 and
thereafter, the lesser of (i) 100% and (ii) the aggregate Security Principal
Balances of the Class A-4 Lockout Securities immediately prior to such Payment
Date, divided by the aggregate Scheduled Principal Balances of the Group II
Mortgage Loans (less the Class P Principal Balance) as of the second preceding
Due Date. The "Class A-4 Lockout Liquidation Amount" with respect to a Payment
Date is the aggregate of, for each Group II Mortgage Loan which became a
Liquidated Loan during the related Prepayment Period, the lesser of (i) the
Class A-4 Lockout Percentage of the principal balance of such Mortgage Loan
(exclusive of the Class P Fraction thereof, if applicable) and (ii) the Class
A-4 Lockout Prepayment Percentage (as defined herein) of the Group II
Liquidation Principal with respect to such Mortgage Loan.
For any Payment Date and for either Mortgage Loan Group, the "Principal
Payment Amount" is the sum of scheduled principal payments on the Mortgage
Loans in such Mortgage Loan Group due on the related Due Date. For any Payment
Date and for either Mortgage Loan Group, the "Principal Prepayment Amount" is
the sum of (i) all partial principal prepayments from the Mortgage Loans in
such Mortgage Loan Group which were received during the preceding calendar
month, (ii) all principal prepayments in full from the Mortgage Loans in such
Mortgage Loan Group received during the related Prepayment Period (provided
that principal prepayments in full received from the Cut-off Date through
September 14, 1997 will be passed through to holders of Securities on the
October 1997 Payment Date), (iii) the principal portion of repurchase proceeds
received with respect to any Mortgage Loan in such Mortgage Loan Group which
was repurchased as permitted or required by the Pooling and Servicing Agreement
during the calendar month preceding the month of the Payment Date and (iv) any
other unscheduled payments of principal which were received from the Mortgage
Loans in such Mortgage Loan Group during the preceding calendar month, other
than principal prepayments in full, partial principal prepayments or
Liquidation Principal. Except as described herein, principal payments to the
Class FXA Securities will be based on the Principal Payment Amount, Principal
Prepayment Amount and Group I Liquidation Principal for the Group I Mortgage
Loans and principal payments to the Class A Securities will be based on the
Principal Payment Amount, Principal Prepayment Amount and Group II Liquidation
Principal for the Group II Mortgage Loans. Principal payments to the
Subordinate Securities will be based on the Principal Payment Amount, Principal
Prepayment Amount and Liquidation Principal for both Mortgage Loan Groups.
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The "Class FXA Prepayment Percentage" and "Class A Prepayment Percentage"
for any Payment Date occurring will be as follows: for any Payment Date
occurring prior to October 2002, 100%; for any Payment Date in October 2002
through and including September 2003, the Class FXA or Class A Percentage, as
the case may be, for such Payment Date plus 70% of the Subordinate Percentage
(as defined herein) for the related Mortgage Loan Group for such Payment Date;
for any Payment Date occurring in October 2003 through and including September
2004, the Class FXA or Class A Percentage, as the case may be, for such Payment
Date plus 60% of the Subordinate Percentage for the related Mortgage Loan Group
for such Payment Date; for any Payment Date occurring in October 2004 through
and including September 2005, the Class FXA or Class A Percentage, as the case
may be, for such Payment Date plus 40% of the Subordinate Percentage for the
related Mortgage Loan Group for such Payment Date; for any Payment Date
occurring in October 2005 through and including September 2006, the Class FXA
or Class A Percentage, as the case may be, for such Payment Date plus 20% of
the Subordinate Percentage for the related Mortgage Loan Group for such Payment
Date; and for any Payment Date occurring in or after October 2006, the Class
FXA or Class A Prepayment Percentage will be the Class FXA or Class A
Percentage, as the case may be, for such Payment Date. Any scheduled reduction
to the Class FXA and Class A Prepayment Percentage described above shall not be
made as of any Payment Date unless for the related Mortgage Loan Group both
(i)(X) the average outstanding principal balance of the Mortgage Loans in the
related Mortgage Loan Group delinquent 60 days or more over the last six
months, as a percentage of the related Class B Loan Group Component Balance (as
defined below), is less than 50% or (Y) the average outstanding principal
balance of the Mortgage Loans in the related Mortgage Loan Group delinquent 60
days or more over the last six months, as a percentage of the aggregate average
outstanding principal balance of all Mortgage Loans in such Mortgage Loan Group
over the last six months, does not exceed 2% and (ii) realized losses on the
Mortgage Loans in the related Mortgage Loan Group to date for such Payment
Date, if occurring during the sixth, seventh, eighth, ninth or tenth year (or
any year thereafter) after the first Payment Date, are less than 30%, 35%, 40%,
45% or 50%, respectively, of the initial related Class B Loan Group Component
Balance. The "Class B Loan Group Component Balance" at any time for either
Mortgage Loan Group shall equal the then outstanding aggregate Scheduled
Principal Balance of the Mortgage Loans in such Mortgage Loan Group minus the
then outstanding Security Principal Balance of the Class FX Securities, with
respect to Group I, or the Class II Securities, with respect to Group II. Upon
reduction of the Security Principal Balance of the Class FXA Securities, or the
Security Principal Balance of the Class A Securities, as applicable, to zero,
the Class FXA Prepayment Percentage or Class A Prepayment Percentage, as
appropriate, will equal 0%. Notwithstanding the above, if on any Payment Date,
the Class FXA or Class A Percentage exceeds the initial related Class FXA or
Class A Percentage, then both the Class FXA and Class A Prepayment Percentages
for such Payment Date will equal 100%.
The "Class FXA-5 Lockout Prepayment Percentage" will equal the product of
(a) the Class FXA-5 Lockout Percentage and (b) the Step Down Percentage (as
defined below); provided, however, if on any Payment Date the Security
Principal Balances of the Class FXA Securities, other than the Class FXA-5
Lockout Securities, have been reduced to zero, the "Class FXA-5 Lockout
Prepayment Percentage" shall be equal to the Class FXA Prepayment Percentage
for such Payment Date.
The "Class A-4 Lockout Prepayment Percentage" will equal the product of
(a) the Class A-4 Lockout Percentage and (b) the Step Down Percentage;
provided, however, if on any Payment Date the Security Principal Balances of
the Class A Securities, other than the Class A-4 Lockout Securities, have been
reduced to zero, the "Class A-4 Lockout Prepayment Percentage" shall be equal
to the Class A Prepayment Percentage for such Payment Date.
The "Step Down Percentage" for any Payment Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN STEP DOWN PERCENTAGE
------------------------------ --------------------
<S> <C>
October 1997 through September 2002 0%
October 2002 through September 2003 30%
October 2003 through September 2004 40%
October 2004 through September 2005 60%
October 2005 through September 2006 80%
October 2006 and thereafter 100%
</TABLE>
Cross-Collateralization. On each Payment Date prior to the occurrence of
the Credit Support Depletion Date, but on or after the reduction of the
Security Principal Balance of either the Class FX or Class II Securities to
zero, all principal on the Mortgage Loans in the Mortgage Loan Group relating
to either the Class FXA or the Class A Securities that have been paid in full
will be paid as principal, after payments of principal to the related Principal
Only Securities, to the remaining Class FX or Class II Securities, as
applicable, in accordance with the order set forth under the applicable
Principal Payment Amount beginning with
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<PAGE> 66
clause (ii) thereof as described in "-- Principal Payments" herein, and in
reduction of the Security Principal Balances of such remaining Class FX or
Class II Securities, as applicable, provided that on such Payment Date (a) the
then current Class B Percentage is less than two (2) times the initial Class B
Percentage, or (b) the average outstanding principal balance of the Mortgage
Loans in either Mortgage Loan Group delinquent 60 days or more over the last
six months, as a percentage of the related Class B Loan Group Component
Balance, is greater than or equal to 50%.
In addition, if on any Payment Date the aggregate Security Principal
Balances of the Class FX or Class II Securities is greater than the aggregate
Scheduled Principal Balance of the Mortgage Loans in the related Mortgage Loan
Group, less the Class FXP or Class P Fraction of any Group I or Group II
Discount Mortgage Loans (the "Undercollateralized Group"),
(i) the portion of the Available Funds (after giving effect to clause
(ii) below) in respect of principal on the Mortgage Loans in the other
Mortgage Loan Group (the "Overcollateralized Group") remaining after
payments of principal to the Principal Only Securities and the other
Classes of Senior Securities of the Overcollateralized Group will be paid
to the Senior Securities of the Undercollateralized Group in accordance
with the order set forth under the applicable Principal Payment Amount
beginning with clause (ii) thereof, as described above, until the
aggregate Security Principal Balance of the Senior Securities of the
Undercollateralized Group equals the aggregate Scheduled Principal Balance
of the Mortgage Loans in the related Mortgage Loan Group less the Class
FXP or Class P Fraction of any Group I or Group II Discount Mortgage Loans
in such Mortgage Loan Group, as applicable, and
(ii) the Available Funds of the Overcollateralized Group will be reduced
(after payments to the Overcollateralized Group pursuant to subclauses
(a)(i), (a)(ii) and (a)(iii) or (b)(i) and (b)(ii), as applicable, under
"-- Priority of Payments" herein) in an amount equal to one month's
interest on the amount by which the Undercollateralized Group is
undercollateralized at 7.25% per annum, to the extent of any shortfalls of
interest on the Senior Securities of the Undercollateralized Group from
prior Payment Dates, including accrued and unpaid interest on such
shortfall at the rate described above (any amount covering interest
shortfalls and interest accrued thereon, will be paid to the applicable
Class or Classes of Securities in the priority of interest payable on such
Class of Securities on such Payment Date) and such amount will be included
in the Available Funds with respect to the Undercollateralized Group.
The "Class B Percentage," as of any Payment Date is a percentage, the
numerator of which is the outstanding aggregated Scheduled Principal Balance of
the Mortgage Loans as of the second preceding Due Date minus the then
outstanding Security Principal Balance of the Senior Securities immediately
prior to such Payment Date, and the denominator of which is the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the second preceding
Due Date.
Subordinate Principal Payment Amount. The "Subordinate Principal Payment
Amount" for any Payment Date will be equal to the excess of (A) the sum of (i)
the Subordinate Percentage for Group I of the Principal Payment Amount for
Group I (exclusive of the portion thereof attributable to the Class FXP
Discount Mortgage Loan Principal Payment Amount), (ii) the Subordinate
Percentage for Group II of the Principal Payment Amount for Group II (exclusive
of the portion thereof attributable to the Class P Discount Mortgage Loan
Principal Payment Amount), (iii) the Subordinate Prepayment Percentage for
Group I (as defined below) of the Principal Prepayment Amount for Group I
(exclusive of the portion thereof attributable to the Class FXP Discount
Mortgage Loan Principal Payment Amount), (iv) the Subordinate Prepayment
Percentage for Group II of the Principal Prepayment Amount for Group II
(exclusive of the portion thereof attributable to the Class P Discount Mortgage
Loan Principal Payment Amount) and (v) the Subordinate Liquidation Amount (as
defined below) over (B) the sum of (x) the amounts required to be paid to the
Principal Only Securities pursuant to clause (v) of paragraph (a) and clause
(v) of paragraph (b) under "-- Priority of Payments" herein on such Payment
Date, (y) in the event that the Security Principal Balance of either the Class
FXA or Class A Securities has been reduced to zero, principal paid from the
Available Funds for the Mortgage Loan Group related to such Class FXA or Class
A Securities to the remaining Class FXA or Class A Securities and (z) the
amounts in respect of principal paid from the Available Funds of an
Overcollateralized Group to an Undercollateralized Group as described in the
immediately preceding paragraph.
The "Subordinate Percentage" for Group I for any Payment Date will equal
the excess of 100% over the Class FXA Percentage and the "Subordinate
Percentage" for Group II for any Payment Date will equal the excess of 100%
over the Class A Percentage.
The "Subordinate Prepayment Percentage" for Group I will equal the excess
of 100% over the Class FXA Prepayment Percentage and the "Subordinate
Prepayment Percentage" for Group II will equal the excess of 100% over the
Class A Prepayment Percentage.
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The "Subordinate Liquidation Amount" will equal the excess, if any, of the
(i) aggregate Liquidation Principal for all Mortgage Loans which became
Liquidated Loans during the related Prepayment Period (other than any such
amounts allocated to the Principal Only Securities), over (ii) the sum of the
Class FXA Liquidation Amount and the Class A Liquidation Amount for such
Payment Date.
The rights of the holders of the Subordinate Securities to receive
payments of interest and principal are subordinated to the rights of the
holders of the Senior Securities to receive payments of interest and principal.
See "-- Subordination and Allocation of Losses" herein.
SUBORDINATION AND ALLOCATION OF LOSSES
The Subordinate Securities will be subordinate in right of payment to and
provide credit support to the Senior Securities, the Non-Offered Subordinate
Securities will be subordinate in right of payment to and provide credit
support to the Offered Subordinate Securities, the Class B-3 Securities will be
subordinate in right of payment to and provide credit support to the Class B-1
and Class B-2 Securities and the Class B-2 Securities will be subordinate in
right of payment to and provide credit support to the Class B-1 Securities, to
the extent described herein. The support provided by the Subordinate
Securities is intended to enhance the likelihood of regular receipt by the
Senior Securities of the full amount of the monthly payments of interest and
principal, as applicable, to which they are entitled and to afford such
Securities protection against certain losses. The protection afforded to the
Senior Securities by the Subordinate Securities will be accomplished by the
preferential right on each Payment Date of the Senior Securities to receive
payments of interest and principal, as applicable, prior to payments of
interest or principal to the Subordinate Securities. The support provided by
the Non-Offered Subordinate Securities to the Offered Subordinate Securities is
intended to enhance the likelihood of regular receipt by the Offered
Subordinate Securities of the full amount of monthly payments of interest to
which they are entitled and to afford such holders protection against certain
losses. The protection afforded the Class B-1 Securities by the Class B-2 and
Class B-3 Securities, and the protection afforded the Class B-2 Securities by
the Class B-3 Securities, will be similarly accomplished by the preferential
right of the Class B-1 Securities to receive payments of interest prior to
payments of interest to the Class B-2 and Class B-3 Securities and the
preferential right of the Class B-2 Securities to receive such payments of
interest prior to such payments to the Class B-3 Securities.
Except for Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses, any Realized Loss with respect to a
Mortgage Loan will be allocated among the Securities (i) for losses allocable
to principal (a) first, to each Class of Non-Offered Subordinate Securities (in
reverse numerical order), (b) second, to the Class B-3 Securities, (c) third,
to the Class B-2 Securities, (d) fourth, to the Class B-1 Securities, in each
case until the Security Principal Balance of such Class has been reduced to
zero, and then, (x) in the case of losses on a Group I Mortgage Loan, to the
Class FX Securities, other than the Class FXP Securities, pro rata according to
their Security Principal Balances in reduction of their respective Security
Principal Balances and (y) in the case of losses on a Group II Mortgage Loan,
to the Class II Securities, other than the Class P Securities, pro rata
according to their Security Principal Balances in reduction of their respective
Security Principal Balances; provided, however, that in each case if the loss
is recognized with respect to a Group I Discount Mortgage Loan or Group II
Discount Mortgage Loan, the Class FXP or Class P Fraction of such loss will
first be allocated to the Class FXP or Class P Securities, as applicable, and
the remainder of such loss will be allocated as described above in this clause
(i), and (ii) for losses allocable to interest (a) first, to each Class of
Non-Offered Subordinate Securities (in reverse numerical order), in reduction
of accrued but unpaid interest thereon and then in reduction of the aggregate
Security Principal Balance thereof, (b) second, to the Class B-3 Securities, in
reduction of accrued but unpaid interest thereon and then in reduction of the
Security Principal Balance thereof, (c) third, to the Class B-2 Securities, in
reduction of accrued but unpaid interest thereon and then in reduction of the
Security Principal Balance thereof, (d) fourth, to the Class B-1 Securities, in
reduction of accrued but unpaid interest thereon and then in reduction of the
Security Principal Balance thereof and (e) fifth, (x) in the case of losses on
a Group I Mortgage Loan, to the Class FX Securities, other than the Class FXP
Securities, pro rata in reduction of accrued but unpaid interest thereon and
then pro rata according to their Security Principal Balances in reduction of
their respective Security Principal Balances and (y) in the case of losses on a
Group II Mortgage Loan, to the Class II Securities, other than the Class P
Securities, pro rata according to accrued but unpaid interest thereon and then
pro rata according to their Security Principal Balances in reduction of their
respective Security Principal Balances.
On each Payment Date, after giving effect to the principal payments and
allocation of losses as described above, if the Security Principal Balances of
all outstanding Securities exceed the aggregate Scheduled Principal Balance of
the Mortgage Loans, as of such date, then the excess of the Security Principal
Balance of the Securities over such aggregate Scheduled Principal Balance will
be deemed to be a principal loss, which will allocated to the most subordinate
Class of Subordinate Securities.
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<PAGE> 68
Following the allocation of a Realized Loss to a Class of Subordinate
Securities, the Issuer will remain obligated on a nonrecourse basis, solely to
the extent of collateral pledged to secure the Securities, and subject to the
prior right of the holders of the Senior Securities to receive interest and
principal thereon out of Available Funds on any Payment Date, to the holders of
the Subordinate Securities for the full amount of principal outstanding and
accrued interest on the Subordinate Securities. Any regularly scheduled
payment of interest on the Subordinate Securities not paid when due as a result
of the allocation of a Realized Loss or the order of priority of payments on
the Securities will be carried forward to subsequent Payment Dates. If a
recovery is made in respect of a Realized Loss after it has been allocated to
a Class or Classes of Subordinate Securities, the principal amount of such
recovery will be shared pro rata among all Classes of Subordinate Securities to
which the related Realized Loss was allocated, and the share of such recovery
will be applied in reduction of the respective Security Principal Balances of
such Classes of Subordinate Securities.
Under the Series Supplement and the Indenture, an Event of Default will
not occur solely as a reason of the allocation of Realized Losses to any Class
of Subordinate Securities or the Security Principal Balance of any Class of
Subordinate Securities being reduced to zero by reason of the allocation
thereto of Realized Losses or by failure to pay the amount of accrued interest
on the Subordinate Securities or the Subordinate Principal Payment Amount on
any Payment Date as long as all Available Funds are paid on the Securities on
such Payment Date. In addition, an Event of Default will not occur solely by
the failure to pay the amount of accrued interest on the Senior Securities or
the Class A or Class FXA Principal Payment Amount, as applicable, on any
Payment Date, or by the allocation of any Realized Losses on any Payment Date,
so long as all Available Funds are paid on the Securities on such Payment Date.
For purposes of determining whether an Event of Default occurs under the
Indenture, a default in the payment of principal of any Securities, or a
default for five days or more in the payment of interest on any Security will
occur only if all Available Funds for such Payment Date were not paid on the
Securities as required by the Series Supplement and the Indenture.
Investors in the Senior Securities should be aware that because the
Subordinate Securities represent interests in both Loan Groups, the Security
Principal Balances of Subordinate Securities could be reduced to zero as a
result of a disproportionate amount of losses on the Mortgage Loans in one
Mortgage Loan Group. Therefore, notwithstanding that losses on the Mortgage
Loans in one Mortgage Loan Group may only be allocated to the related Senior
Securities (except for Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses and Extraordinary Losses), the allocation to the
Subordinate Securities of losses on the Mortgage Loans in the other Mortgage
Loan Group will increase the likelihood that losses may be allocated to such
Senior Securities.
Special Hazard Losses in excess of the Special Hazard Coverage ("Excess
Special Hazard Losses") will be allocated to the outstanding Classes of
Securities by Pro Rata Allocation. "Special Hazard Coverage" is expected to
equal approximately $2,996,535 as of the Cut-off Date. On each anniversary of
the Cut-off Date, the Special Hazard Coverage will be reduced, but not
increased, to an amount equal to the lesser of (1) the greatest of (a) the
aggregate principal balance of the Mortgage Loans located in the single
California zip code area containing the largest aggregate Scheduled Principal
Balance of the Mortgage Loans, (b) 1% of the aggregate Scheduled Principal
Balance of the Mortgage Loans and (c) twice the Scheduled Principal Balance of
the largest single Mortgage Loan, in each case calculated as of the Due Date in
the immediately preceding month and (2) the Special Hazard Coverage as of the
Cut-off Date as reduced by the Special Hazard Losses allocated to the
Securities since the Cut-off Date.
Fraud Losses in excess of the Fraud Coverage ("Excess Fraud Losses") will
be allocated to the outstanding Classes of Securities by Pro Rata Allocation.
"Fraud Coverage" is expected to equal approximately $5,623,898 as of the
Cut-off Date. Fraud Coverage will be reduced, from time to time, by the amount
of Fraud Losses allocated to the Securities. On each anniversary of the
Cut-off Date, Fraud Coverage will be reduced to the lesser of (i) on the first,
second, third and fourth anniversaries of the Cut-off Date, 1.0% of the
aggregate principal balance of the Mortgage Loans as of the Due Date in the
preceding month and (ii) the excess of the Fraud Coverage as of the Cut-off
Date over cumulative Fraud Losses allocated to the Securities to date. On the
fifth anniversary of the Cut-off Date, Fraud Coverage will be reduced to zero.
Mortgagor Bankruptcy Losses in excess of the Bankruptcy Coverage ("Excess
Bankruptcy Losses") will be allocated to the outstanding Classes of Securities
by Pro Rata Allocation. "Bankruptcy Coverage" is expected to equal
approximately $110,740 as of the Cut-off Date. Bankruptcy Coverage will be
reduced, from time to time, by the amount of Mortgagor Bankruptcy Losses
allocated to the Securities.
Extraordinary Losses also will be allocated to the outstanding Classes of
Securities by Pro Rata Allocation. As used herein, "Pro Rata Allocation" means
(i) the allocation of the principal portion of losses relating to a Mortgage
Loan to all Classes of
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<PAGE> 69
Securities, other than the Principal Only Securities, pro rata according to
their respective Security Principal Balances, except if the loss is recognized
with respect to a Group I Discount Mortgage Loan or a Group II Discount
Mortgage Loan, the applicable Class FXP Fraction or Class P Fraction of such
loss will first be allocated to the related Principal Only Securities, and (ii)
the allocation of the interest portion of losses relating to a Mortgage Loan to
all Classes of Securities pro rata according to the amount of interest accrued
on each such Class, other than the Principal Only Securities, in reduction
thereof and then in reduction of their related Security Principal Balance.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage may also be
reduced upon written confirmation from the Rating Agencies that such reduction
will not adversely affect the then current ratings assigned to the Offered
Securities by the Rating Agencies. Such a reduction, in the event of Special
Hazard Losses, Fraud Losses or Mortgagor Bankruptcy Losses, could adversely
affect the level of protection afforded the Senior Securities by subordination
of the Subordinate Securities or the level of protection afforded the Offered
Subordinate Securities by the Non-Offered Subordinate Securities.
Investors in the Senior Securities should be aware that the applicable
coverages for such losses cover Mortgage Loans in both Mortgage Loan Groups as
long as any Subordinate Securities are outstanding. Therefore, in the event
Mortgage Loans in a Mortgage Loan Group suffer a high level of Special Hazard
Losses, Fraud Losses or Mortgagor Bankruptcy Losses, it will reduce the
available coverage for the related Senior Securities and may cause Senior
Securities relating to the other Mortgage Loan Group to suffer losses in the
event Mortgage Loans in either Mortgage Loan Group suffer such losses after the
available coverage has been exhausted.
OPTIONAL PURCHASE OF DELINQUENT MORTGAGE LOANS
Under the Pooling and Servicing Agreement, the Master Servicer will have
the right to purchase from the Trust any Mortgage Loan that is 90 days or more
delinquent (i.e., any Mortgage Loan on which the related mortgagor has failed
to make four consecutive monthly payments) if the Master Servicer determines
that such Mortgage Loan otherwise would become subject to foreclosure or
related proceedings. The purchase price for any such Mortgage Loan will equal
the outstanding principal balance of such Mortgage Loan plus accrued and unpaid
interest thereon (adjusted to the related Net Rate) to the first day of the
month in which the amount of such purchase price will be paid to the
Securityholders. The Master Servicer will be obligated to deposit into the
Custodial Account the purchase price for any Mortgage Loan purchased by it as
described above.
ADVANCES
Prior to each Payment Date, the Master Servicer is required to make
Advances (out of its own funds or funds held in the Custodial Account for
future distribution or withdrawal) with respect to any payments of principal
and interest (net of the related Servicing Fee) that were due on the Mortgage
Loans on the immediately preceding Due Date and delinquent as of the close of
business on the related Determination Date.
Such Advances are required to be made only to the extent they are deemed
by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or amounts otherwise payable to the
holders of the Subordinate Securities. The purpose of making such Advances is
to maintain a regular cash flow to the Securityholders, rather than to
guarantee or insure against losses. The Master Servicer will not be required
to make any Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to reductions in the amount of monthly
payments due to certain bankruptcy proceedings not including any permanent
forgiveness ("Debt Service Reductions") or Soldiers' and Sailors Shortfalls or
shortfalls due to similar legislation or regulations (as defined herein). Any
failure by the Master Servicer to make an Advance as required under the Pooling
and Servicing Agreement will constitute an Event of Default (as defined herein)
thereunder, in which case the Certificate Trustee, as successor Master
Servicer, will be obligated to make any such Advance, in accordance with the
terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, (i) if
the Offered Subordinate Securities are outstanding and the Security Principal
Balance of the Non-Offered Subordinate Securities has not been reduced to zero,
from amounts otherwise distributable to the Non-Offered Subordinate Securities
(in reverse numerical order), (ii) if the Offered Subordinate Securities are
outstanding but the Security Principal Balance of the Non-Offered Subordinate
Securities have been reduced to zero, from amounts otherwise distributable on
the Class B-3 Securities, (iii) if the Class B-1 and
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Class B-2 Securities are outstanding but the Security Principal Balance of the
Class B-3 Securities has been reduced to zero, from amounts otherwise
distributable on the Class B-2 Securities, and (iv) if the Class B-1 Securities
outstanding but the Security Principal Balances of the Class B-2 and the Class
B-3 Securities have been reduced zero, from amounts otherwise distributable on
the Class B-1 Securities; provided, however, that any such Advances that were
made with respect to delinquencies which ultimately were determined to be
Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
losses occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction and other similar risks ("Extraordinary Losses") are
reimbursable to the Master Servicer out of any funds in the Custodial Account
prior to payments on any of the Securities and the amount of such losses will
be allocated as described herein. In addition, if the Security Principal
Balances of the Subordinate Securities have been reduced to zero, any Advances
previously made which are deemed by the Master Servicer to be nonrecoverable
from related late collections, Insurance Proceeds and Liquidation Proceeds may
be reimbursed to the Master Servicer out of any funds in the Custodial Account
prior to payments on the Securities. The effect of these provisions on the
Subordinate Securities is that, with respect to any Advance that remain
unreimbursed following the final liquidation of the related Mortgage Loan, the
entire amount of the reimbursement for such Advance will be borne by the
holders of the Subordinate Securities (except as described above), to the
extent of all amounts otherwise distributable to such holders.
EXAMPLE OF PAYMENTS ON THE SECURITIES
The following chart sets forth an example of payments on the Securities
for the first month of the transaction.
September 1 . . Cut-off Date. The initial principal
balance of the Mortgage Pool
will be the aggregate
outstanding principal balance
of the Mortgage Loans as of
September 1, 1997, after
deducting any principal
payments due on or before
such date. Any principal and
interest payments due on or
before September 1 will not
be part of the Mortgage Pool.
September 1 through
October 14 . . . Prepayment Period. Prepayments in full with
interest thereon to the date
of such prepayment in full,
received at any time during
this period will be deposited
into the Custodial Account
for payment to
Securityholders on October
27, 1997 (the "October 27th
Payment Date").
September 30 . . Record Date. Payments on the October 27th
Payment Date will be made to
Securityholders of record at
the close of business on the
last business day of
September (the month
immediately preceding the
month of payment).
September 2 through
October 1 . . . Collection Period. Payments due during the
related Due Period (September
2 through October 1) from
mortgagors will be deposited
in the Custodial Account as
received, and will include
scheduled principal payments
plus interest on the
September balances.
October 15 . . Determination Date. On the second business day
following the Determination
Date, the amounts of
principal and interest that
will be paid on the October
27th Payment Date will be
determined by the Indenture
Trustee.
October 23 . . . Security Account
Deposit Date. On the second business day
immediately preceding the
Payment Date, the Master
Servicer will remit to the
Certificate Trustee the
amount of principal and
interest to be paid in
respect of the Certificates
on such Payment Date from
amounts on deposit in the
Certificate Account, together
with any Advances required to
be made by the Master
Servicer for such Payment
Date, and the Certificate
Trustee will remit such
amount to the Security
Account maintained by the
Indenture Trustee for payment
to the Securityholders on
such Payment Date.
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October 27 . . . Payment Date. On October 27, the Indenture
Trustee will pay or cause to
be paid to the
Securityholders the amounts
then on deposit in the
Security Account, determined
as of the second business day
following the Determination
Date. If a Monthly Payment
due during the related Due
Period is received from a
mortgagor after October 15
and an Advance has been made
with respect to such late
payment from the Custodial
Account, such late payment
will be deposited into the
Custodial Account as
reimbursement therefor. If
the Master Servicer has made
an Advance with respect to
such late payment from its
own funds, the Master
Servicer will reimburse
itself to the extent
permitted by the Pooling and
Servicing Agreement by
withdrawing from the
Custodial Account the amount
relating to such Advance. If
no such Advance has been made
with respect to such late
payment, the proceeds of such
late payment will be paid to
the Securityholders on the
Payment Date occurring in
November.
Succeeding months follow the same pattern, except for the Cut-off Date
and except that the Payment Date will be the 25th day of the month (or, if such
day is not a business day, the business day immediately following such day).
OPTIONAL REDEMPTION OF THE SECURITIES
At its option, the Master Servicer may, upon giving written notice to
the Issuer, the Certificate Trustee and the Indenture Trustee, repurchase from
the Trust all of the remaining Mortgage Loans, and thereby effect an early
termination of the Certificates and redemption of the Securities, on any
Payment Date when the aggregate outstanding principal balance of the Mortgage
Loans is equal to or less than 5% of the aggregate outstanding principal
balance of the Mortgage Loans as of the Cut-off Date (any such Payment Date is
referred to herein as an "Optional Redemption Date"). In addition, if the
Master Servicer does not elect to so repurchase the Mortgage Loans on an
Optional Redemption Date, the Issuer may, at its option, upon giving written
notice to the Master Servicer, the Certificate Trustee and the Indenture
Trustee, repurchase the Mortgage Loans from the Trust and effect an early
retirement of the Certificates and an early redemption of the Securities. Any
such repurchase shall be at a price (the "Redemption Price") equal to the
aggregate Security Principal Balances of the then outstanding Securities, plus
accrued and unpaid interest thereon through the end of the month preceding the
month in which the Optional Redemption Date occurs. Upon such optional
repurchase, the Trust Estate will terminate and any remaining assets in the
Trust Estate shall be released to the repurchasing party.
SPECIAL REDEMPTION OF THE SECURITIES
The Securities are not subject to special redemption as described in
the Prospectus.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity of any Security will be affected by the timing
and amount of payments of principal on the Mortgage Loans underlying the
Certificates securing the Securities (including, for this purpose, prepayments
and amounts received by virtue of condemnation, insurance or foreclosure with
respect to the Mortgage Loans) and the amount and timing of borrower
delinquencies and defaults resulting in Realized Losses. If the purchaser of a
Security offered at a discount from its Parity Price (as defined below)
calculates the anticipated yield to maturity of such Security based on an
assumed rate of payment of principal that is faster than that actually received
on certain of the Mortgage Loans, the actual yield to maturity will be lower
than that so calculated. Conversely, if the purchaser of a Security offered at
a premium over its Parity Price calculates the anticipated yield to maturity of
such Security based on an assumed rate of payment of principal that is slower
than that actually received on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. "Parity Price" of a Security is the
price at which such Security will yield its coupon, after giving effect to any
payment delay.
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with
such investor's expectation.
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In general, the earlier a prepayment of principal on the Mortgage Loans, the
greater will be the effect on the investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Securities would not be fully offset
by a subsequent like reduction (or increase) in the rate of principal payments.
Payments of interest on the Securities entitled to interest payments
on any Payment Date will include interest accrued thereon through the last day
of the month preceding the month in which such Payment Date occurs. The
effective yield to the holders of such Securities will be lower than the yield
otherwise produced by the applicable Security Interest Rates and purchase
prices because (i) interest will not be paid on such Securities until the 25th
day (or, if such day is not a business day, then on the next succeeding
business day) of the month following the month in which such interest accrues
on the Mortgage Loans, and (ii) during the first twenty-four calendar days of
each calendar month after the Closing Date, interest accrues on a principal
amount (or notional amount, as applicable) that is less than the principal
amount (or notional amount, as applicable) of such Class of Securities actually
outstanding because the principal payment, or allocation of losses, made (or
the reduction in the respective notional amount) on the Payment Date occuring
during each such calendar month is assumed to have been made (or reduced), for
interest accrual purposes only, at the end of the preceding calendar month.
The Mortgage Loans may be prepaid by the borrowers at any time without
payment of any prepayment fee or penalty. Investors should consider the risk
that rapid rates of prepayments on the Mortgage Loans, and therefore of
principal payments on the Securities, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates
on securities in which an investor may choose to reinvest amounts received as
principal payments on such investor's Security may be lower than the interest
rate borne by such Security. Conversely, slow rates of prepayments on the
Mortgage Loans, and therefore of principal payment on the Securities, may
coincide with periods of high prevailing interest rates. During such periods,
the amount of principal payments available to an investor for reinvestment at
such high prevailing interest rates may be relatively low.
Because the rate of principal payments (including prepayments) on the
Mortgage Loans may significantly affect the weighted average life and other
characteristics of any Class of Securities, 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 Securities to their investment
objectives.
The Securities are subject to various priorities for payment of
principal, as described herein. Payments of principal on the Classes of Class
FXA and Class A Securities having an earlier priority of payment will be
affected by the rates of prepayment of the Group I Mortgage Loans and Group II
Mortgage Loans, respectively, early in the life of the Mortgage Pool. The
timing of commencement of principal payments and the weighted average lives of
the Classes of Class FXA and Class A Securities with a later priority of
payment will be affected by the rates of prepayment experienced both before and
after the commencement of principal payments on such Classes. Furthermore, as
described under "Description of the Securities -- Principal Payments" herein,
during certain periods all or a disproportionately large percentage of
principal prepayments on the Group I Mortgage Loans and Group II Mortgage Loans
will be allocated among the Class FXA Securities (other than the Class FXA-5
Lockout Securities) and Class A Securities (other than the Class A-4 Lockout
Securities), respectively, and, during certain periods, no principal
prepayments or (relative to the related Subordinate Percentage) a
disproportionately small portion of principal prepayments on the Mortgage Loans
will be allocated to the Subordinate Securities. The allocation of all or a
disproportionately large percentage of principal prepayments to the Senior
Securities (other than the Lockout Securities) will cause the Security
Principal Balances of the Lockout Securities and the Subordinate Securities to
decline more slowly than would be the case if the Lockout Securities and the
Subordinate Securities received their proportionate share of principal
prepayments. In addition, to the extent that all or a disproportionately large
percentage of principal prepayments are allocated to the Senior Securities
during any period as described herein, the percentage upon which future
allocations of prepayments to the Class FXA Securities or Class A Securities,
as applicable, would thereafter be based would, assuming a high level of
prepayments but a low level of losses on the Mortgage Loans, be significantly
decreased, with the result that principal payments, including principal
prepayments subsequent to such periods, would be allocated to the holders of
the Subordinate Securities in a greater percentage than the Subordinate
Percentage. The rates of Prepayments on the Group I Mortgage Loans relative to
the rates of Prepayments on the Group II Mortgage Loans may also reduce the
Security Interest Rates, and therefor the yield, on the Subordinate Securities.
The Security Interest Rates on the Classes of Class FXA Securities and
the Class A Securities are fixed and will not change in response to changes in
market interest rates. The Security Interest Rates on the Offered Subordinate
Securities will equal 7.25% per annum for each Payment Date. While the
Security Interest Rates on the Strip Securities are fixed, the Class FXS and
Class S Notional Amounts are based on the weighted average of the Stripped
Interest on the Group I Premium Rate Mortgage Loans and
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Group II Premium Rate Mortgage Loans, respectively, which will not change in
response to market interest rates. In addition, the amount of interest payable
on the Class A-2 Securities is based on the sum of the Component Principal
Balances of the Class A-1 Components multiplied at a rate of 0.65% per annum,
which rate will not change in response to market conditions. Accordingly, if
market interest rates or market yields for securities similar to the Offered
Securities were to rise, the market value of the Offered Securities may
decline.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans. In general, defaults
on mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance mortgage
loans may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Premises are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values.
As described under "Description of the Securities -- Subordination and
Allocation of Losses" and "Description of the Securities -- Advances," amounts
otherwise distributable to holders of the Subordinate Securities will be made
available to protect the holders of the Senior Securities against interruptions
in payments due to certain mortgagor delinquencies, to the extent not covered
by Advances. Such delinquencies will affect the yield to investors in the
Offered Subordinate Securities to the extent not covered by the Non-Offered
Subordinate Securities, with the yield on the Class B-2 Securities being
relatively more sensitive than on the Class B-I Securities and the Class B-3
Securities being the most sensitive class of Offered Subordinate Securities.
Even if subsequently cured, such delinquencies may affect the timing of the
receipt of payments by the holders of Securities because the entire amount
(rather than a pro rata portion) thereof would be borne by such Class of
Securities. Furthermore, the Classes of Principal Only Securities will share
in the principal portions of Realized Losses on the Mortgage Loans in the
related Mortgage Loan Group only to the extent they are incurred with respect
to Group I or Group II Discount Mortgage Loans, as appropriate, and only to the
extent of the related Class FXP or Class P Fractions thereof, as appropriate.
Thus, after the Subordinate Securities are retired, or in the case of Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and
Extraordinary Losses, the Senior Securities may be affected to a greater extent
by losses on non-discount Mortgage Loans than by losses on Group I and Group II
Discount Mortgage Loans. In addition, a higher than expected rate of
delinquencies or losses will also affect the rate of principal payments on the
Subordinate Securities if it delays the scheduled reduction of the Class FXA or
Class A Prepayment Percentage, as applicable, or affects the allocation of
prepayments among the Subordinate Securities.
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
immediately preceding monthly payment up to the date of such prepayment,
instead of for a full month. Partial principal prepayments are applied as of
the first day of the month of receipt, with a resulting reduction in interest
payable for the month during which the partial prepayment is made. Full
prepayments received after the 15th calendar day of any month will he paid to
Securityholders on the Payment Date in the month following the month of
receipt. Partial prepayments received in any calendar month will be paid to
Securityholders on the Payment Date in the month following the month of
receipt. With respect to such full prepayments, the Master Servicer is
obligated to fund shortfalls in collection of one full month's interest
(adjusted to the related Net Rate) but only to the extent of the Servicing Fee
otherwise payable to the Master Servicer. Accordingly, to the extent any such
shortfall in interest collections exceeds the amount that the Master Servicer
is obligated to fund, the effect of any such principal prepayment will be to
reduce the aggregate amount of interest that is available for payment to the
Securityholders, and will be allocated among the Securities in proportion to
the interest otherwise distributable or accrued thereon.
In addition, the yield to maturity of the Offered Securities will
depend on the prices paid by the holders of the Offered Securities and the
related Security Interest Rates. The extent to which the yield to maturity of
an Offered Security is sensitive to prepayments will depend upon the degree to
which it is purchased at a discount or a premium from its Parity Price.
ANY REDEMPTION OF THE SECURITIES WILL HAVE AN ADVERSE EFFECT ON THE
YIELD TO MATURITY OF ANY SECURITIES PURCHASED AT A PREMIUM, BECAUSE SUCH
REDEMPTION WILL HAVE THE SAME EFFECT AS A PREPAYMENT IN FULL OF THE MORTGAGE
LOANS.
The Class R and Class RP Securities, which represent the residual
interests in the Upper REMIC and the Lower REMIC, respectively, may experience
a highly negative after-tax return. See "Special Tax Considerations" herein.
PAC Securities. The PAC Principal Balances schedules set forth in
Appendix C hereto for the Class A-1 Component 1 and the Class A-1 Component 2
(collectively, the "PAC Securities") were prepared by calculating the amounts
that would be
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available for payments on the PAC Securities using, among other things, the
Modeling Assumptions and a range of constant Mortgage Loan prepayment rates
(the "Structuring Range"), expressed as a percentage of the Basic Prepayment
Assumption, and on the basis of the actual characteristics of the Mortgage
Loans expected to be included in the Mortgage Pool. The Structuring Range is
100% through 500% of the Basic Prepayment Assumption for the PAC Securities.
However, because the actual characteristics of the Mortgage Loans included in
the Mortgage Pool may differ from those expected, and because the Mortgage
Loans may not prepay within the respective Structuring Ranges for the PAC
Securities or at any other specified range of constant prepayment rates, it is
not likely that the PAC Securities will consistently adhere to their PAC
Principal Balances schedules set forth in Appendix C hereto.
Principal payments on the PAC Securities are likely to be relatively
stable and in accordance with their PAC Principal Balances schedules so long as
Mortgage Loan prepayments are neither too fast nor too slow to support such
schedules. Moreover, if the PAC Securities fall behind their schedules, they
will have cumulative priority for future principal distributions from amounts
available for distribution of principal. There is a range of constant Mortgage
prepayment rates (a "Targeted Range") at which the PAC Securities would adhere
to their PAC Principal Balances schedules. The initial Targeted Range for the
PAC Securities may be wider than the Structuring Range described above.
The Targeted Range for the PAC Securities can narrow or "shift" upward
or downward over time as a result of the rates of principal payments actually
experienced on the Mortgage Loans. Moreover, the Mortgage Loans will not
prepay at any constant rate and there can be no assurance that the amount
available for principal distributions on the PAC Securities on any Payment Date
will be sufficient to reduce the Component Principal Balances thereof to their
PAC Principal Balances for such Payment Date indicated on the applicable PAC
Principal Balances schedules. Non-constant prepayment rates can cause the PAC
Securities not to adhere to their PAC Principal Balances schedules, even if
such rates remain within the initial Targeted Range.
If the Mortgage Loans prepay at rates that are generally below the
Targeted Range for the PAC Securities, the amount available for principal
payments thereon on any Payment Date may be insufficient to reduce the
Component Principal Balances thereof to their PAC Principal Balances for such
Payment Date indicated on the applicable PAC Principal Balances schedules, and
the weighted average life of the PAC Securities may be extended, perhaps
significantly. Conversely, if the Mortgage Loans prepay at rates that are
generally above the Targeted Range of the PAC Securities, the weighted average
life thereof may be shortened, perhaps significantly.
The principal payment stability of the Class A-1 Component 1 will be
supported, to varying degrees, by the Class A-7 Securities and the Class A-9
Component 1. As a result, the Class A-1 Component 1 will be less sensitive to
Mortgage Loan prepayment rates than the Class A-7 Securities or the Class A-9
Component 1. When the Security Principal Balance of the Class A-9 Component 1
or the Class A-7 Securities has been reduced to zero, the Class A-1 Component 1
will become more sensitive to Mortgage Loan prepayments.
The principal payment stability of the Class A-1 Component 2 will be
supported, to varying degrees, by the Class A-8 Securities and the Class A-9
Component 2. As a result, the Class A-1 Component 2 will be less sensitive to
Mortgage Loan prepayment rates than the Class A-8 Securities or the Class A-9
Component 2. When the Security Principal Balance of the Class A-9 Component 2
or the Class A-8 Securities has been reduced to zero, the Class A-1 Component 2
will become more sensitive to Mortgage Loan prepayments.
TAC Securities. Principal payments on the Class A-7 and Class A-8
Securities (together, the "TAC Securities") are expected to be more stable than
would be the case if the TAC Securities were not entitled to receive payments,
to the extent of available principal, according to their TAC Principal Balances
schedules. Based on the Modeling Assumptions, the TAC Securities would adhere
to their TAC Principal Balances schedules if the Mortgage Loans were to prepay
at a constant rate of 250% of the Basic Prepayment Assumption until the
Security Principal Balances thereof have been reduced to zero. However,
because the actual characteristics of the Mortgage Loans included in the
Mortgage Pool may differ from those expected, and because the Mortgage Loans
will not prepay at a constant rate of 250% of the Basic Prepayment Assumption
or any other constant rate, it is not likely that the TAC Securities will
consistently adhere to their TAC Principal Balances schedules set forth in
Appendix D hereto.
The principal payment stability of the Class A-7 Securities will be
supported by the Class A-9 Component 1. When the Component Principal Balance
of the Class A-9 Component 1 has been reduced to zero, the Class A-7
Securities, if then outstanding, will become more sensitive to Mortgage Loan
prepayments. The Class A-7 Securities will support the principal payment
stability
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of the Class A-1 Component 1. As a result, the Class A-7 Securities will be
more sensitive to Mortgage Loan prepayments than the Class A-1 Component 1, but
less sensitive to such prepayments than the Class A-9 Component 1.
The principal payment stability of the Class A-8 Securities will be
supported by the Class A-9 Component 2. When the Component Principal Balance
of the Class A-9 Component 2 has been reduced to zero, the Class A-8
Securities, if then outstanding, will become more sensitive to Mortgage Loan
prepayments. The Class A-8 Securities will support the principal payment
stability of the Class A-1 Component 2. As a result, the Class A-8 Securities
will be more sensitive to Mortgage Loan prepayments than the Class A-1
Component 2, but less sensitive to such prepayments than the Class A-9
Component 2.
If the Mortgage Loans prepay at rates that are generally below 250% of
the Basic Prepayment Assumption, the TAC Securities will not be reduced to
their TAC Principal Balances schedules and the weighted average lives of the
TAC Securities may be extended, perhaps significantly. If the Mortgage Loans
prepay at rates that are generally above 250% of the Prepayment Assumption, the
weighted average lives of the TAC Securities may be shortened, perhaps
significantly.
The entire Available Funds will be paid monthly on each Payment Date
and will not be retained for distribution on subsequent Payment Dates. Thus,
the likelihood that the TAC Securities will adhere to their TAC Principal
Balances schedules will not be enhanced by averaging high and low principal
payments in different months.
Companion Securities. The Class A-9 Component 1 and Class A-9
Component 2 are "Companion Securities." The Class A-9 Component 1 will support
the principal payment stability of the Class A-1 Component 1 and Class A-7
Securities. As a result, the Class A-9 Component 1 will be more sensitive to
Mortgage Loan prepayments than the Class A-1 Component 1 and Class A-7
Securities. The Class A-9 Component 2 will support the principal payment
stability of the Class A-1 Component 2 and Class A-8 Securities. As a result,
the Class A-9 Component 2 will be more sensitive to Mortgage Loan prepayments
than the Class A-1 Component 2 and Class A-8 Securities. The Companion
Securities may receive no principal payments for extended periods of time or
may receive principal payments that vary widely from period to period. To the
extent that a low rate of principal payments on the Mortgage Loans results in
Available Funds on any Payment Date being equal to or less than the amounts
required to be distributed as principal on the Class A-1 Component 1 in
accordance with its PAC Principal Balances schedules and on the Class A-7
Securities in accordance with their TAC Principal Balances schedule, no
principal will be distributed in respect of the Class A-9 Component 1 on such
Payment Date. Conversely, to the extent that a high rate of prepayment results
in Available Funds being in excess of such amounts, such excess will be applied
to the Class A-9 Component 1 until the Component Principal Balance thereof has
been reduced to zero. To the extent that a low rate of principal payments on
the Mortgage Loans results in Available Funds on any Payment Date being equal
to or less than the amounts required to be distributed as principal on the
Class A-1 Component 2 in accordance with its PAC Principal Balances schedules
and on the Class A-8 Securities in accordance with their TAC Principal Balances
schedule, no principal will be distributed in respect of the Class A-9
Component 2 on such Payment Date. Conversely, to the extent that a high rate
of prepayment results in Available Funds being in excess of such amounts, such
excess will be applied to the Class A-9 Component 2 until the Component
Principal Balance thereof has been reduced to zero. Thus, a rapid rate of
prepayments in respect of the Mortgage Loans may significantly shorten the
weighted average lives of the Companion Securities, and a relatively slow rate
of prepayments on such Mortgage Loans may significantly extend the weighted
average lives of the Companion Securities.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of payment to the
investor of each dollar paid in reduction of principal of such security
(assuming no losses). The weighted average life of the Offered Securities will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. This Prospectus Supplement uses two different
models: the Class II Securities use the Basic Prepayment Assumption (the "Basic
Prepayment Assumption") and the Class FX Securities use the Alternative
Prepayment Assumption (the "Alternative Prepayment Assumption," and together
with the Basic Prepayment Assumption, the "Prepayment Assumptions"), each as
described herein. The Offered Subordinate Securities use both Prepayment
Assumption models.
Basic Prepayment Assumption. The Basic Prepayment Assumption assumes
a per annum rate of prepayment of 0.20% of the then outstanding principal
balance of a pool of mortgage loans in the first month after formation of such
pool of mortgage
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loans, following which, such annual prepayment rate increases by 0.20% each
month until the 30th month after formation of such pool of mortgage loans and
remains constant at 6% per annum in the 30th month after formation of such pool
of mortgage loans and in each month thereafter. 0% of the Basic Prepayment
Assumption indicates no prepayments are received; 100 % of the Basic Prepayment
Assumption indicates prepayments at 1.00 times the Basic Prepayment Assumption;
150% of the Basic Prepayment Assumption indicates prepayments at 1.50 times the
Basic Prepayment Assumption; 200% of the Basic Prepayment Assumption indicates
prepayments at 2.00 times the Basic Prepayment Assumption; 300% of the Basic
Prepayment Assumption indicates prepayments at 3.00 times the Basic Prepayment
Assumption; and 500% of the Basic Prepayment Assumption indicates prepayments
at 5.00 times the Basic Prepayment Assumption.
Alternative Prepayment Assumption. The Alternative Prepayment
Assumption represents an assumed rate of prepayment each month relative to then
outstanding principal balance of a pool of mortgage loans. A 100% Alternative
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 1.09% per annum
in each month thereafter through the twelfth month. Beginning in the twelfth
month and in each month thereafter during the life of the mortgage loans, a
100% Alternative Prepayment Assumption assumes a CPR of 16% per annum each
month. As used in the table below, a 50% Alternative Prepayment Assumption
assumes prepayment rates equal to 50% of the Alternative Prepayment Assumption.
Correspondingly, a 200% Alternative Prepayment Assumption assumes prepayment
rates equal to 200% of the Alternative Prepayment Assumption, and so forth.
Neither Prepayment Assumption purports to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Pool, and there is no assurance that the Mortgage Loans
will prepay at any given percentage of either Prepayment Assumption. The
actual rate of principal prepayments on the Mortgage Loans may be influenced by
a variety of economic, geographic, social and other factors. In general, if
prevailing interest rates fall significantly below the interest 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 interest rates
on the Mortgage Loans.
Conversely, if interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease. A
comparatively low interest-rate environment may result in a higher than
expected rate of prepayments on the Mortgage Loans and an earlier than expected
retirement of the Securities.
The Issuer makes no representation as to the specific factors that
will affect the prepayment of the Mortgage Loans or the relative importance of
such factors. Factors not identified by the Issuer or discussed herein may
significantly affect the prepayment rate of the Mortgage Loans. In particular,
the Issuer makes no representation as to the percentage of the principal amount
of the Mortgage Loans that will be paid as of any date or as to the overall
rate of prepayment.
For purposes of the tables set forth in Appendices A and B, it is
assumed that (i) scheduled payments on all Mortgage Loans are received on the
first day of each month beginning October 1, 1997, (ii) any payoff in full on
the Mortgage Loans are received on the last day of each month beginning in
September 1997 and include 30 days of interest thereon, (iii) there are no
defaults or delinquencies on the Mortgage Loans, (iv) optional termination of
the Trust does not occur, (v) the Mortgage Loans in each Mortgage Loan Group
are as described herein under "Description of the Mortgage Pool," (vi) there
are no partial prepayments on the Mortgage Loans and prepayments are computed
after giving effect to scheduled payments received on the following day, (vii)
the Mortgage Loans prepay at the indicated constant percentages of applicable
Prepayment Assumption, (viii) the date of issuance for the Securities is
September 29, 1997, (ix) cash payments are received by the Securityholders on
the 25th day of each month when due, beginning October 25, 1997 and (x) the
Monthly Payments for each Mortgage Loan are computed based upon its unpaid
Scheduled Principal Balance, Note Rate and remaining term such that the
Mortgage Loan will fully amortize on its maturity date (collectively, the
"Modeling Assumptions").
Any discrepancy between the actual characteristics of the Mortgage
Loans and the characteristics of the Mortgage Loans set forth above may affect
the percentages of the initial Security Principal Balances set forth in the
tables and the weighted average lives of the Offered Securities. In addition,
to the extent that the characteristics of the Mortgage Loans differ and the
initial Security Principal Balances differ from those assumed in preparing the
tables in Appendices A and B, the outstanding Security Principal Balance of any
Class of Offered Securities may be reduced to zero earlier or later than
indicated by such tables.
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Variations in actual prepayment experience may increase or decrease
the percentages of the original outstanding Security Principal Balances and the
weighted average lives shown in the tables in Appendices A and B. Such
variations may occur even if the average prepayment experience of all the
Mortgage Loans equals the indicated percentage of the applicable Prepayment
Assumption. There is no assurance, however, that prepayment of the Mortgage
Loans will conform to any given percentage of the applicable Prepayment
Assumption. Based on the foregoing assumptions, the tables indicate the
projected weighted average lives of the Offered Securities and set forth the
percentages of the initial outstanding Security Principal Balance of each such
Class of Offered Securities that would be outstanding after each of the dates
shown at various constant percentages of the applicable Prepayment Assumption.
YIELD CONSIDERATIONS WITH RESPECT TO THE STRIP SECURITIES
AND PRINCIPAL ONLY SECURITIES
The yields to maturity on the Class FXS and Class S Securities and the
Principal Only Securities will be extremely sensitive to the level of both the
timing of and overall rate of receipt of prepayments on the Mortgage Loans in
the related Mortgage Loan Group. The interest payable to the Class FXS
Securities is based on the weighted average of the Stripped Interest Rates of
the Group I Premium Rate Mortgage Loans. The interest payable to the Class S
Securities is based on the weighted average of the Stripped Interest Rates of
the Group II Premium Rate Mortgage Loans. Therefore the yield to maturity on
the Class FXS and Class S Securities will generally decrease as a result of
faster than expected prepayments on the Group I or Group II Premium Rate
Mortgage Loans. Prospective investors should fully consider the risks
associated with an investment in the Class FXS and Class S Securities,
including the possibility that if the rate of prepayments on the Mortgage Loans
in the related Mortgage Loan Group is rapid, such investors may not fully
recoup their initial investments. Because the principal payable with respect
to the Class FXP Securities (which are entitled to receive payments of
principal only) is derived from Group I Discount Mortgage Loans, the yield to
maturity on the Class FXP Securities will be adversely affected by slower than
expected prepayments of Group I Discount Mortgage Loans. Because the principal
payable with respect to the Class P Securities (which are entitled to receive
payments of principal only) is derived from Group II Discount Mortgage Loans,
the yield to maturity on the Class P Securities will be adversely affected by
slower than expected prepayments of Group II Discount Mortgage Loans. Because
the interest payable on the Class FXS and Class S Securities and the principal
distributable to the Class FXP and Class P Securities are in part derived from
different groups of Mortgage Loans within the related Mortgage Loan Group, it
is possible that faster than expected prepayments with respect to the Class FXS
and Class S Securities may occur at the same time as slower than expected
prepayments with respect to the Principal Only Securities.
To illustrate the significance of different rates of prepayment on the
payments on the Strip and the Principal Only Securities, the following tables
indicate the approximate pre-tax yields to maturity (on a corporate bond
equivalent basis) under the different percentages of the Basic Prepayment
Assumption or Alternative Prepayment Assumption indicated. Because the rate of
payment of interest on the Class FXS and Class S Securities and the rate of
payment of principal on the Principal Only Securities will be directly related
to the actual amortization (including prepayments) of the Mortgage Loans, which
will include Mortgage Loans that have remaining terms to maturity shorter or
longer than those assumed and interest rates higher or lower than those
assumed, the pre-tax yields to maturity on the Class FXS and Class S and the
Principal Only Securities are likely to differ from those shown in the
following tables even if all the Mortgage Loans prepay at the indicated
constant percentages of the applicable Prepayment Assumption and the weighted
average remaining terms to maturity of the Mortgage Loans are as assumed. Any
differences between such assumptions and the actual characteristics and
performance of the Mortgage Loans and of the Securities may result in yields to
maturity being different from those shown in such tables. Similarly, the yield
on the Class A-2 Securities will be sensitive to principal payments on the
Class A-1 Components. To the extent that payments of principal on the Group II
Mortgage Loans, including prepayments thereon, are allocated to the Class A-1
Components, the Class A-2 Notional Amount will decrease, thereby decreasing the
yield. Discrepancies between assumed and actual characteristics and
performances underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields to maturity
in varying prepayment scenarios.
In addition, it is highly unlikely that the Mortgage Loans will prepay
at a constant level of Prepayment Assumption until maturity or that all of such
Mortgage Loans will prepay at the same rate.
The yield to maturity on the Strip Securities may be adversely
affected if an optional redemption of the Securities occurs.
S-77
<PAGE> 78
The tables set forth below are based on the Modeling Assumptions
described under "Certain Yield and Repayment Considerations - Weighted Average
Life" and assume further that the Securities are purchased at prices (which
include accrued interest in the case of the Strip Securities) equal to those
set forth in the tables. There can be no assurance that the Mortgage Loans
will have the assumed characteristics, will prepay at any of the rates shown
herein, that the purchase prices of the Securities will be as assumed, or that
the pre-tax yields to maturity will correspond to any of the pre-tax yields
shown herein. The actual prices to be paid on the Strip and Principal Only
Securities have not been determined and will be dependent on the
characteristics of the Mortgage Pool as ultimately constituted. In addition to
any other factors an investor may deem material, 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 of Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS FXS SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 0% 50% 100% 150% 179% 200%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5,186,038 32.140% 23.689% 14.888% 5.687% 0.145% -3.972%
</TABLE>
On the basis of approximately 179% of the Alternative Prepayment Assumption
with a purchase price of $5,186,038, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class FXS
Securities would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling such rates
for all other months, an investor in the Class FXS Securities would not fully
recoup the initial purchase price of such Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS FXP SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 0% 50% 100% 150% 200%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3,651 2.357% 5.695% 10.074% 14.801% 19.721%
</TABLE>
S-78
<PAGE> 79
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS A-2 SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 0% 100% 250% 350% 500% 820%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$357,232 41.372% 10.812% 10.812% 10.812% 10.812% 0.001%
</TABLE>
On the basis of approximately 820% of the Basic Prepayment Assumption with a
purchase price of $357,232, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class A-2
Securities would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling such rates
for all other months, an investor in the Class A-2 Securities would not fully
recoup the initial purchase price of such Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS S SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 0% 100% 250% 350% 500% 514%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2,300,678 27.079% 21.999% 14.212% 8.905% 0.772% 0.003%
</TABLE>
On the basis of approximately 514% of the Basic Prepayment Assumption, a
purchase price of $2,300,678, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class S
Securities would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling such rates
for all other months, an investor in the Class S Securities would not fully
recoup the initial purchase price of such Securities.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS P SECURITIES TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ASSUMED PRICE 0% 100% 250% 350% 500%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$98,541 2.367% 4.421% 8.041% 10.378% 13.622%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates (whether positive or
negative) which, when applied to the assumed streams of cash flows to be paid
on the Strip and Principal Only Securities, would cause the discounted present
values of such assumed streams of cash flows to equal the assumed purchase
price, including accrued interest, where applicable. These monthly discount
rates were converted to corporate bond equivalent rates, which are higher than
the monthly discount rates because they are based on semiannual compounding.
These yields to maturity
S-79
<PAGE> 80
do not take into account the different interest rates at which investors may be
able to reinvest funds received by them as payments on the Strip or Principal
Only Securities and thus do not reflect the return on any investment in the
Strip or Principal Only Securities when any reinvestment rates other than the
discount rates are considered.
There are no historical prepayment data available for the Mortgage
Pool, and comparable data are not available because the Mortgage Loans do not
constitute a representative sample of mortgage loans generally. In addition,
historical data available with respect to mortgage loans underlying mortgage
pass-through certificates issued by the GNMA, FNMA and FHLMC may not be
comparable to prepayments expected to be experienced by the Mortgage Pool
because the Mortgage Loans may have characteristics which differ from the
mortgage loans underlying certificates issued by GNMA, FNMA and FHLMC.
The Issuer makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed above. Each investor must make
its own decision as to the appropriate prepayment assumptions to be used in
deciding whether or not to purchase any of the Securities. Since the rate of
principal payments (including prepayments) with respect to, and repurchases of,
the Mortgage Loans will significantly affect the yields to maturity on the
Offered Securities, prospective investors are urged to consult their investment
advisors as to both the anticipated rate of future principal payments
(including prepayments) on the Mortgage Loans and the suitability of the
Securities to their investment objectives.
INDENTURE
GENERAL
The Securities will be issued pursuant to the Indenture. Reference is
made to the Prospectus for important information in addition to that set forth
herein regarding the terms and conditions of the Indenture. The Offered
Securities will be transferable and exchangeable at the Corporate Trust Office
of the Indenture Trustee, which will serve as Security Registrar and Paying
Agent. The Indenture Trustee will provide a prospective or actual
Securityholder without charge, on written request, a copy (without exhibits) of
the Indenture. Requests should be addressed to the Corporate Trust Office of
the Indenture Trustee at One First National Plaza, Mail Suite 0126, Chicago,
Illinois 60670-0126.
VOTING RIGHTS
Ninety-six percent of all voting rights under the Indenture ("Voting
Rights") will be allocated among all holders of the Securities (other than the
Strip Securities and the Residual Securities) in proportion to their then
outstanding Security Principal Balances, 3 % of all Voting Rights will be
allocated among the holders of the Classes of Strip Securities (pro rata, based
upon their applicable Notional Amounts) in proportion to the Percentage
Interests evidenced by their respective Securities, and 0.50% of all Voting
Rights will be allocated to each Class of Residual Securities in proportion to
their initial respective Security Principal Balance. The percentage ownership
of a Holder of a Strip Security is the percentage of the related Notional
Amount of such Class evidenced by such Security. The Indenture will be subject
to amendment without the consent of the holders of the Securities in certain
circumstances.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. The Pooling and Servicing Agreement will be subject to amendment
without the consent of the Securityholders in certain circumstances. The
Certificate Trustee will provide a prospective or actual Securityholder without
charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the Corporate Trust
Office of the Certificate Trustee at One First National Plaza, Mail Suite 0126,
Chicago, Illinois 60670-0126.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans will be assigned by the Issuer to the Certificate
Trustee pursuant to the terms of the Pooling and Servicing Agreement, together
with all principal and interest due on the Mortgage Loans after the Cut-off
Date. The Certificate
S-80
<PAGE> 81
Trustee will, concurrently with such assignment, authenticate and deliver the
Certificates to the Indenture Trustee. Each Mortgage Loan will be identified
in a schedule appearing as an exhibit to the Pooling and Servicing Agreement
which will specify with respect to each Mortgage Loan, among other things, the
original principal balance, the principal balance as of the close of business
on the Cut-off Date, the Monthly Payment, the maturity date and the Note Rate.
As to each Mortgage Loan, the following documents are required to be
delivered to the Certificate Trustee in accordance with the Pooling and
Servicing Agreement: (i) the original Mortgage Note endorsed "Pay to the order
of The First National Bank of Chicago, as trustee without recourse"; (ii) the
original Mortgage with evidence of recording thereon, or a certified copy
thereof; (iii) a duly executed original assignment of the Mortgage in
recordable form to "The First National Bank of Chicago, as trustee for the
holders of CMC Securities Corporation IV, Mortgage Pass-Through Certificates";
(iv) originals or certified copies of all recorded intervening assignments of
Mortgage; (v) the original or a certified copy of the policy of title
insurance, or if the policy has not yet been issued, a written commitment or
interim binder or preliminary report of title issued by the title insurance or
escrow company; (vi) originals, or certified copies, of each assumption,
extension, modification, written assurance or substitution agreements, if
applicable; and (vii) evidence of any primary mortgage insurance policy. The
assignments to the Certificate Trustee in connection with each Mortgage Loan
are required to be submitted for recording promptly after the Closing Date.
Pursuant to the terms of the Pooling and Servicing Agreement, if the
Issuer cannot deliver the original recorded Mortgage Loan Documents or the
original policy of title insurance, including riders and endorsements thereto,
on the Closing Date, the Loan Seller will, promptly upon receipt of notice
thereof and in any case not later than 180 days from the Closing Date, deliver
such original documents, including original recorded documents, to the
Certificate Trustee or its designee (unless the Loan Seller is delayed in
making such delivery by reason of the fact that such documents shall not have
been returned by the appropriate recording office). If delivery is not
completed within 180 days solely due to delays in making such delivery by
reason of the fact that such documents shall not have been returned by the
appropriate recording office, the Loan Seller will be required to deliver such
documents to the Certificate Trustee, or its designee, within such time period
as specified in an officer's certificate of the Certificate Trustee. The
Pooling and Servicing Agreement provides that this procedure will be repeated
until the documents have been received and delivered, and that the Loan Seller
will continue to use its best efforts to effect delivery within 270 days of the
Closing Date. Pursuant to the terms of the Pooling and Servicing Agreement,
the Loan Seller and the Issuer will deliver any such document directly to the
Certificate Trustee promptly upon receipt of any such document.
The Certificate Trustee will review each Mortgage File within 90 days
of the Closing Date, and if any such document is found to be defective in any
material respect (after taking into account any time period specified above)
and the Loan Seller does not cure such defect within 60 days of notice thereof
from the Certificate Trustee, the Loan Seller will be obligated to purchase the
related Mortgage Loan from the Trust within 90 days of such notice.
Pursuant to the Pooling and Servicing Agreement, NAMC will make
certain representations and warranties with respect to the Mortgage Loans.
Such representations and warranties will generally have included, among other
things: (i) that each Mortgage Loan has been originated in compliance with all
applicable laws, rules and regulations; (ii) that, except as set forth under
the heading "The Mortgage Pool", no Mortgage Loan is more than 30 days
delinquent as of the Cut-off Date; (iii) that title insurance and any required
hazard and primary mortgage insurance were effective; (iv) that the Loan Seller
had good title to each such Mortgage Loan and such Mortgage Loan was subject to
no offsets, defenses, counterclaims or rights of rescission; (v) that each
Mortgage constituted a valid, subsisting, enforceable and perfected first lien
on the related Mortgaged Premises (subject only to certain permissible
exceptions), and (vi) that, to the best of the Loan Seller's knowledge, the
Mortgaged Premises was free from material damage caused by waste, fire,
earthquake, windstorm, flood or other casualty and was in good repair. Upon
discovery by the Issuer, the Master Servicer, NAMC or the Certificate Trustee
of a breach of any representation or warranty which materially and adversely
affects the interests of the Securityholders in a Mortgage Loan, the party
discovering such breach will give prompt written notice to the other parties.
NAMC will have 90 days from its discovery or its receipt of such notice to cure
such breach or repurchase the Mortgage Loan. NAMC will not have any right to
substitute another mortgage loan for a Mortgage Loan as to which such a breach
has occurred. See "The Loan Seller" herein.
None of the Issuer, the Master Servicer (in its capacity as such),
DLJMC, the Underwriter, the Certificate Trustee, the Indenture Trustee or any
of their respective affiliates will make any representations or warranties with
respect to the Mortgage Loans, or have any obligation to purchase a Mortgage
Loan if NAMC defaults on its obligation to repurchase a Mortgage Loan in
connection with a breach of a representation and warranty or in connection with
a defective document as described above, and no assurance can be given that
NAMC will carry out such obligations with respect to such Mortgage Loans.
Although no form of credit enhancement (other than the subordination feature
described herein) will be available to support the Loan Seller's
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<PAGE> 82
obligation to repurchase any Mortgage Loan, to the extent any such Mortgage
Loan is not repurchased by NAMC, and losses occur on such Mortgage Loans,
credit enhancement with respect to such Mortgage Loans will be available to the
extent of the subordination feature described herein. To the extent that the
subordination is so utilized, such subordination will be depleted more quickly
than if such Mortgage Loans had been repurchased by NAMC.
THE MASTER SERVICER
NAMC will act as Master Servicer of the Mortgage Loans pursuant to the
Pooling and Servicing Agreement. For a description of NAMC see "The Loan
Seller" herein. The Master Servicer has the right to resign from the
obligations and duties imposed on it under the Pooling and Servicing Agreement
upon the appointment of a successor servicer and delivery to the Certificate
Trustee of a letter from each Rating Agency that such resignation and
appointment will not, in and of itself, result in a downgrading of the
Securities. Except under limited circumstances, the Master Servicer may not
assign its obligations and duties under the Pooling and Servicing Agreement.
The following table sets forth certain information regarding the
principal balance of one- to four-family residential mortgage loans included in
the Master Servicer's servicing portfolio:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
SERVICING PORTFOLIO
BEGINNING PORTFOLIO $17,276 $14,836 $14,109 $13,293
Add:
Loans Originated 9,755 7,496 9,473 4,401
Deduct:
Sale of Servicing Rights (9,853) (6,679) (8,246) (3,747)
Loans Transferred Out (1) (191) (9) (1) (160)
Run-off (2) (2,151) (1,535) (2,042) (1,059)
Ending Portfolio (3)(4) $14,836 $14,109 $13,293 $12,728
Number of Loans 151,847 143,317 136,815 129,135
Average Loan Size $98,000 $98,000 $97,000 $98,564
</TABLE>
(1) Loans transferred out represent termination of servicing under
agreements with investors. For 1996, loans transferred out were $.725
million.
(2) Run-off refers to regular amortization of loans, prepayments and
foreclosures.
(3) Does not include servicing rights of $1.2 million, $2.1 billion and
$2.6 billion for the years ended December 31, 1994, 1995 and 1996,
respectively, which were sold but were being sub-serviced by the
Master Servicer prior to transfer.
(4) Does not include $3 million, $.3 million and $.3 million for the years
ended December 31, 1994, 1995 and 1996, respectively, of mortgage
loans which the Master Servicer serviced under sub-servicing contracts
with other companies that had primary servicing responsibility.
At December 31, 1996, the Master Servicer's loan servicing portfolio
totaled $13.3 billion, excluding servicing rights sold and sub-serviced by the
Master Servicer prior to transfer.
S-82
<PAGE> 83
The following table sets forth certain information regarding the
Master Servicer's delinquency statistics for its one- to-four family
residential mortgage servicing portfolio for the periods presented:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1994* 1995* 1996* AS OF JUNE 30, 1997
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
NUMBER OF SERVICING NUMBER SERVICING NUMBER SERVICING NUMBER SERVICING
LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO OF LOANS PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan delinquent for:
30-59 days 2,287 1.41% 3,015 1.84% 3,248 2.06% 2,785 1.93%
60-89 days 497 0.31 611 0.37 735 0.47 628 0.44%
90 days and over 635 0.39 669 0.42 604 0.38 582 0.40%
----- ----- ----- ----- ----- ---- ----- -----
Total delinquencies 3,419 2.10 4,295 2.63 4,587 2.91 3,995 2.77%
Foreclosures pending 537 0.33 705 0.43 1,061 0.67 942 0.65%
----- ----- ----- ----- ----- ---- ----- -----
Total 3,956 2.43% 5,000 3.06% 5,648 3.58% 4,937 3.42%
===== ===== ===== ===== ===== ==== ===== =====
</TABLE>
*Includes the $1.2 billion, $2.1 billion and $2.6 billion for the
years ended December 31, 1994, 1995 and 1996, respectively, of loan
servicing rights sold to others but temporarily being sub-serviced by
the Master Servicer prior to transfer.
There can be no assurance that the delinquency experience of the
Mortgage Loans will correspond to the delinquency experience of the Master
Servicer's servicing portfolio set forth in the foregoing tables. The
statistics shown above represent the delinquency experience for the Master
Servicer's servicing portfolio only for the periods presented, whereas the
aggregate delinquency experience on the Mortgage Loans will depend on the
results obtained over the life of the Mortgage Pool. The Master Servicer's
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 Master Servicer's servicing portfolio includes mortgage loans underwritten
pursuant to guidelines not necessarily representative of those applicable to
the Mortgage Loans.
It also should be noted that if the residential real estate market
should experience a decline in property values, the actual rates of delinquency
and foreclosure could be higher than those previously experienced by the Master
Servicer. 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 delinquency, bankruptcy
and foreclosure with respect to the Mortgage Pool.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee (the "Servicing Fee") in respect of each Mortgage
Loan will be payable at a rate (the "Servicing Fee Rate") equal to 0.26% per
annum on the outstanding principal balance of each Mortgage Loan and out of the
interest payments on such Mortgage Loan. The Master Servicer is entitled to
retain as additional servicing compensation all ancillary fees, including
without limitation, all assumption fees, reconveyance fees, prepayment fees and
late fees to the extent such fees are collected from mortgagors and are in
excess of any other amounts due and payable with respect to the related
Mortgage Loan, and any interest or other income earned on funds held in the
Custodial Account. Under the terms of the Pooling and Servicing Agreement, the
Master Servicer may also be entitled to additional servicing compensation in
the form of excess proceeds following disposition of property in connection
with defaulted Mortgage Loans and as otherwise specified therein. It is not
anticipated that the Master Servicer will enter into any subservicing
arrangements with respect to the Mortgage Loans.
The Master Servicer is obligated to pay certain ongoing expenses
associated with the Trust and incurred by the Master Servicer in connection
with its responsibilities under the Pooling and Servicing Agreement, including
possibly, among other things without limitation, the payment of the fees and
expenses of the Certificate Trustee, the Indenture Trustee and independent
accountants, subservicing and other related compensation payable to any
subservicer, payment of insurance policy premiums and the cost of credit
support, if any, payment of expenses incurred in enforcing the obligations of
others, and in the preparation of reports to Securityholders. Certain of these
expenses may be reimbursable pursuant to the terms of the Pooling and Servicing
S-83
<PAGE> 84
Agreement from Liquidation Proceeds and the proceeds of insurance policies, and
in the case of enforcement of the obligations of others, from any recoveries in
excess of amounts due with respect to the related Mortgage Loans or from
specific recoveries of costs.
The Master Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans. If claims are either not made or paid under the applicable
insurance policies or if coverage thereunder has been exhausted, the Trust will
suffer a loss to the extent that Liquidation Proceeds, after reimbursement of
the Master Servicer's expenses, are less than the outstanding principal balance
of and unpaid interest on the related Mortgage Loan which would be
distributable to Securityholders. In addition, the Master Servicer will be
entitled to reimbursement of expenditures incurred by it in connection with the
restoration of property securing a defaulted Mortgage Loan, such right of
reimbursement being prior to the rights of the Securityholders to receive any
related proceeds of insurance policies, Liquidation Proceeds or amounts derived
from other forms of credit support. The Master Servicer is also entitled to
reimbursement from the Security Account and the Custodial Account for Advances.
The rights of the Master Servicer to receive funds from the Security
Account and the Custodial Account, whether as the Servicing Fee or other
compensation, or for the reimbursement of Advances, expenses or otherwise, are
not subordinate to the rights of Securityholders.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Master Servicer to
enter into a special servicing agreement with an unaffiliated holder of
Subordinate Securities. Pursuant to such an agreement, such holder may instruct
the Master Servicer to commence or delay foreclosure proceedings with respect
to delinquent Mortgage Loans. Such commencement or delay at such holder's
direction will be taken by the Master Servicer only after such holder deposits
a specified amount of cash with the Master Servicer. Such cash will be
available for payment to Securityholders if Liquidation Proceeds are less than
they otherwise may have been had the Master Servicer acted pursuant to its
normal servicing procedures.
EVENTS OF DEFAULT
Events of default ("Events of default") under the Pooling and
Servicing Agreement will consist of: (i) any failure by the Master Servicer to
distribute or cause to be distributed to the Indenture Trustee any required
distribution in respect of the Certificates (other than any Advance) which
continues unremedied for five days after the giving of written notice of such
failure to the Master Servicer by the Issuer (with a copy to the Certificate
Trustee) or the Certificate Trustee, or to the Master Servicer, the Issuer and
the Certificate Trustee by the Indenture Trustee; (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 Pooling and Servicing Agreement which
continues unremedied for thirty days after the giving of written notice of such
failure to the Master Servicer by the Issuer (with a copy to the Certificate
Trustee) or the Certificate Trustee, or to the Master Servicer, the Issuer, and
the Certificate Trustee by the Indenture Trustee; (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 or inability to pay its obligations; and (iv) any
failure of the Master Servicer to make any Advance as required under the terms
of the Pooling and Servicing Agreement as and when due.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing
Agreement as described in clauses (i), (ii) and (iii) of the preceding
paragraph remains unremedied, the Issuer or the Certificate Trustee may, and at
the direction of the Indenture Trustee shall, by notice in writing to the
Master Servicer, terminate all of the rights and obligations of the Master
Servicer, in its capacity as master servicer, under the Pooling and Servicing
Agreement. If an Event of Default under the Pooling and Servicing Agreement as
described in clause (iv) of the preceding paragraph shall occur, the
Certificate Trustee will, by notice to the Master Servicer and the Issuer,
terminate all of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement; provided, however, that if the Certificate
Trustee determines that the failure by the Master Servicer to make any required
Advance was due to circumstances beyond its control and the required Advance
was otherwise made, the Certificate Trustee shall not terminate the Master
Servicer. Upon receipt by the Master Servicer of any such written notice, all
authority and power of the Master Servicer under the Pooling and Servicing
Agreement will pass to and be vested in the Certificate Trustee, and the
Certificate Trustee will be authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact, or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes
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of such termination. Upon receipt by the Master Servicer of notice of
termination, the Certificate Trustee will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under the Pooling and Servicing
Agreement and will be entitled to similar compensation arrangements. In the
event that the Certificate Trustee is unwilling, it may, or if it is unable, it
shall, appoint or petition a court of competent jurisdiction for the
appointment of a FNMA- or FHLMC-approved mortgage loan servicing institution,
with a net worth of at least $10,000,000 to act as successor to the Master
Servicer under the Pooling and Servicing Agreement. Pending such appointment,
the Certificate Trustee is obligated to act in such capacity. The Certificate
Trustee and such successor may agree upon the servicing compensation be paid,
which in no event may be greater than the compensation to the Master Servicer
under the Pooling and Servicing Agreement. In addition, consistent with its
fiduciary obligations to the Securityholders, the Indenture Trustee may waive
such Event of Default; provided, however, that no such waiver is permitted that
would materially adversely affect any Securityholder.
LIMITATION ON RESIGNATION OF THE MASTER SERVICER
The Master Servicer may resign from its obligations and duties under
the Pooling and Servicing Agreement only if such resignation, and the
appointment of a successor, will not result in a downgrading of the ratings
assigned to any Class of Securities, or upon a determination that its duties
under the Pooling and Servicing Agreement are no longer permissible under
applicable law. No such resignation will become effective until the
Certificate Trustee or a successor servicer has assumed the Master Servicer's
responsibilities, liabilities, obligations and duties under the Pooling and
Servicing Agreement. Any proposed successor Master Servicer must be an
established mortgage loan servicing institution, must be reasonably acceptable
to the Certificate Trustee, must be acceptable to each Rating Agency for
purposes of maintaining its then-current ratings of the Securities, and must
comply with any further requirements of a successor Master Servicer under the
Pooling and Servicing Agreement.
LIMITATION ON LIABILITY OF MASTER SERVICER
The Pooling and Servicing Agreement provides that neither the Master
Servicer nor any of the directors, officers, employees or agents of the Master
Servicer shall be under any liability to the Certificateholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
the Pooling and Servicing Agreement, or for errors in judgment; provided,
however, that the Master Servicer shall not be protected against any breach of
warranties or representations made in the Pooling and Servicing Agreement, or
against any specific liability imposed on the Master Servicer pursuant to the
Pooling and Servicing Agreement; and provided further that the Master Servicer
shall not be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the Pooling and Servicing Agreement.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment to the Securityholders of all amounts required to be
paid to the Securityholders pursuant to the Indenture following the earlier of:
(i) the final payment or other liquidation (or any Advance with respect
thereto) of the last Mortgage Loan remaining in the Trust Estate or the
disposition of all property acquired upon foreclosure of any such Mortgage Loan
and (ii) the repurchase of all of the Mortgage Loans by the Master Servicer or
the Issuer when the aggregate principal balance of the Mortgage Loans equals 5%
or less of the aggregate principal balance thereof as of the Cut-off Date,
pursuant to a provision of the Pooling and Servicing Agreement giving the
Master Servicer (or the Issuer) the right to do so.
Any such repurchase of Mortgage Loans and property acquired in respect
of the Mortgage Loans shall be made at a price at least equal to the sum of (a)
100% of the unpaid principal balance of each outstanding Mortgage Loan other
than one as to which a property was acquired in connection with a default
thereunder as of the day of such repurchase plus accrued interest thereon at
the Net Rate to the first day of the month of such repurchase, plus (b) the
appraised value of any property acquired in respect of any defaulted Mortgage
Loan (but not more than the unpaid principal balance of that Mortgage Loan
together with accrued interest at the applicable Net Rate to the first day of
the month of such repurchase) less the good faith estimate of the Master
Servicer of liquidation expenses to be incurred in connection with its disposal
thereof, plus (c) the amount of any Servicing Advances and any other amounts to
be reimbursed to the Master Servicer or the Certificate Trustee under the terms
of the Pooling and Servicing Agreement. The exercise of the right to
repurchase the Mortgage Loans by the Master Servicer or the Issuer as set forth
in clause (ii) of the preceding paragraph will effect early retirement of the
Certificates and an early redemption of the Securities.
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THE CERTIFICATE TRUSTEE
The First National Bank of Chicago will be the Certificate Trustee
under the Pooling and Servicing Agreement. The Issuer and the Master Servicer
may maintain other banking relationships in the ordinary course of business
with the Certificate Trustee. Offered Securities may be surrendered at the
Corporate Trust Office of the Certificate Trustee located at One First National
Plaza, Mail Suite 0126, Chicago, Illinois 60670-0126 or at such other addresses
as the Certificate Trustee may designate from time to time by notice to the
Securityholders, the Issuer and the Master Servicer.
The Certificate Trustee is eligible to serve as such under the Pooling
and Servicing Agreement only if it is a corporation or banking association
organized and doing business under the laws of the United States or any state
thereof, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal or state authority and has
combined capital and surplus of at least $50,000,000.
The Certificate Trustee may, upon written notice to the Master
Servicer, the Issuer and all Securityholders, resign at any time, in which
event the Master Servicer will be obligated to appoint a successor Certificate
Trustee. If no successor Certificate Trustee has been appointed and has
accepted appointment within 60 days after giving such notice of resignation,
the resigning Certificate Trustee may petition any court of competent
jurisdiction for appointment of a successor Certificate Trustee. Any such
successor Certificate Trustee must be approved by each Rating Agency. The
Certificate Trustee may also be removed at any time (i) by the Master Servicer,
if the Certificate Trustee ceases to be eligible to continue as such as
described above or if the Certificate Trustee becomes insolvent or (ii) by
holders of Certificates evidencing at least 51% of the fractional undivided
interest in the trust fund established by the Pooling and Servicing Agreement.
Any removal or resignation of the Certificate Trustee and appointment of a
successor Certificate Trustee as described above will not become effective
until acceptance of appointment by the successor Certificate Trustee.
SPECIAL TAX CONSIDERATIONS
RESIDUAL SECURITYHOLDERS
THE CLASS R AND CLASS RP SECURITIES, WHICH REPRESENT THE RESIDUAL
INTEREST IN THE UPPER REMIC AND THE LOWER REMIC, RESPECTIVELY, MAY EXPERIENCE A
HIGHLY NEGATIVE AFTER-TAX RETURN. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED
TO CONSULT THEIR OWN TAX ADVISERS AND CONSIDER THE AFTER-TAX EFFECT OF
OWNERSHIP OF A RESIDUAL SECURITY AND THE SUITABILITY OF THE RESIDUAL SECURITIES
TO THEIR INVESTMENT OBJECTIVES.
Holders of Class R and Class RP Securities will be treated as owners
of the "residual interest" in the Upper REMIC and the Lower REMIC,
respectively, for federal income tax purposes. Accordingly, Residual
Securityholders will not be treated as holders of debt instruments for such
purposes, and their taxable income will not be computed with reference to the
stated interest or amortization of premium on the Residual Securities, but
rather will be computed as described in "Certain Federal Income Tax
Consequences -- Special Tax Considerations Applicable to Residual Bonds" in the
Prospectus. Taxable income to Residual Securityholders may exceed principal
and interest payments received by such Securityholders with respect to their
Residual Securities for the corresponding period, which would result in a
highly negative after-tax return for such period. See "Certain Federal Income
Tax Consequences -- Special Tax Considerations Applicable to Residual Bonds" in
the Prospectus. Consequently, such Securityholders should have other sources
of funds sufficient to pay any federal or state income taxes due as a result of
ownership of the Residual Securities.
The Upper REMIC and the Lower REMIC may generate income, a portion of
which will be treated as "excess inclusion" income. Excess inclusion income
(a) is taxable to a tax-exempt Class R or Class RP Securityholder,
respectively, as unrelated business taxable income ("UBTI"), (b) in the case of
foreign holders, is subject to withholding tax at a rate of 30% (regardless of
any statutory of treaty exemptions or rate reduction that otherwise would
apply), and (c) generally cannot be offset by any net operating losses or
current deductions of Residual Securityholders. Furthermore, Residual
Securityholders who are individuals, estates or trusts may be subject to
limitations on the deductibility of administrative expenses of the Upper REMIC
or Lower REMIC, as applicable, for purposes of determining their taxable income
and alternative minimum taxable income. See "Certain Federal Income Tax
Consequences -- Special Tax Considerations Applicable to Residual Bonds
- --Restrictions on Transfer of a Residual Bond" in the Prospectus.
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Prospective purchasers of Residual Securities should be aware that the
REMIC Regulations provide that the transfer of noneconomic residual interests
to United States persons may be disregarded for federal income tax purposes if
any significant purpose of the transfer was to impede the assessment and
collection of tax. For purposes of those Regulations, a residual interest is
considered to be a noneconomic residual interest if, at the time of transfer,
either (a) the present value of the expected payments is less than the present
value of the expected tax on the excess inclusions or (b) the transferee is not
to receive cash distributions at or after the time that tax accrues on the
anticipated excess inclusions in an amount sufficient to pay the accrued tax.
See "Certain Federal Income Tax Consequences -- Special Tax Considerations
Applicable to Residual Bonds" in the Prospectus. If a transfer of a Residual
Security is disregarded, the transferor would be liable for any federal income
tax imposed upon taxable income derived by the transferee from the Upper REMIC
or the Lower REMIC, as applicable. A significant purpose to impede the
assessment or collection of tax will exist if the transferor fails to establish
that it neither knew nor should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of such
REMIC. See "Certain Federal Income Tax Consequences -- Special Tax
Considerations Applicable to Residual Bonds" in the Prospectus. It is expected
that the Class R Securities would be treated as noneconomic residual interests
for purposes of the REMIC Regulations on the Closing Date. Each Class R
Securityholder considering the transfer of such Security to a United States
person (i.e., a citizen or resident of the United States, a domestic
corporation, partnership, estate or trust) should consult with its tax advisor
to determine whether (a) the Class R Security to be transferred would be
considered to be a noneconomic residual interest at the time of the transfer
thereof and (b) any significant purpose of the transfer is to impede the
collection and assessment of tax within the meaning of the REMIC Regulations.
The REMIC Regulations also provide that the transfer of a residual
interest to a foreign person will be disregarded if the residual interest has
tax avoidance potential (is a "TAPRI") and the income derived from the residual
interest is not effectively connected with the conduct of a United States trade
or business. A Residual Security will be deemed to have tax avoidance
potential under the REMIC Regulations unless, at the time of the transfer, the
transferor reasonably expects that the applicable REMIC will distribute to the
transferee amounts that are sufficient to pay the tax on the excess inclusion
accruing during each calendar year with respect to the related residual
interest not later than the close of the calendar year following the calendar
year of accrual. Moreover, if a foreign person transfers a Residual Security to
a United States person and otherwise would avoid withholding tax on accrued
excess inclusion income, the transfer will be disregarded for tax purposes and
distributions with respect to the Residual Security will continue to be subject
to 30% withholding as though the foreign person still owed the Residual
Security. See "Certain Federal Income Tax Consequences -- Special Tax
Considerations Applicable to Residual Bonds -- Restrictions on Transfer of a
Residual Bond" in the Prospectus. It is expected that the Class R Securities
would be treated as TAPRls for purposes of the REMIC Regulations on the Closing
Date. A Class R Securityholder should consult with its tax counsel, before
transferring a Residual Security to a foreign person, to determine whether the
Class R Security would be considered a TAPRI under the REMIC Regulations at the
time of the proposed transfer. A transferee that is a foreign person will be
required to deliver to the Indenture Trustee certain certifications (and to
satisfy certain other conditions) in connection with the transfer of a Residual
Security.
The Taxpayer Relief Act of 1997 provides, for taxable years beginning
after December 31, 1997, that if an "electing large partnership" holds a Class
R or Class RP Security, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860(E)(e) of the Code. An exception to
this tax, otherwise available to a pass-through entity that is furnished
certain affidavits by record holders of interests in the entity that does not
know such affidavits are false, is not available to an electing large
partnership. An "electing large partnership" is a partnership that had 100 or
more partners during the preceding taxable year and that has filed an election
with the Internal Revenue Service to be so treated.
REGULAR SECURITYHOLDERS
Under section 166 of the Code, both corporate Holders of the Offered
Subordinate Securities and noncorporate Holders that acquire such Securities in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Offered
Subordinate Securities become wholly or partially worthless as the result of
one or more Realized Losses. However, a noncorporate Holder that does not
acquire an Offered Subordinate Security in connection with its trade or
business will not be entitled to deduct a loss under Code section 166 until its
Offered Subordinate Security becomes wholly worthless, and the loss will be
characterized as a short-term capital loss.
Each Holder of an Offered Subordinate Security will be required to
accrue interest and original issue discount income ("Current Income") with
respect to such Security without giving effect to any reduction in payments
attributable to a default or
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delinquency on the Mortgage Loans until a related Realized Loss is allocated to
such Security or until such earlier time as it can be established that any such
reduction ultimately will not be recoverable. As a result, the amount of
Current Income reported in any period by the Holder of an Offered Subordinate
Security could exceed significantly the amount of economic income actually
realized by the Holder in such period. Although the Holder of an Offered
Subordinate Security eventually will recognize a loss or a reduction in income
attributable to previously included Current Income that, as the result of a
Realized Loss, ultimately will not be realized, the law is unclear with respect
to the timing of such loss or reduction in income. Accordingly, Holders of the
Offered Subordinate Securities should consult their own tax advisors with
respect to the federal income tax consequences of Realized Losses on Current
Income.
The Indenture Trustee intends to adjust the accrual of Current Income
on the Subordinate Securities in a manner that it believes to be appropriate to
take account of Realized Losses. However, there can be no assurance that the
Internal Revenue Service will not contend successfully that a different method
of accounting for the effect of Realized Losses is correct and that such method
will not have an adverse effect upon the Holders of the Offered Subordinate
Securities.
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL SECURITIES
The Residual Securities are not offered for sale to any investor that
is (a) a "disqualified organization" as described in "Certain Federal Income
Tax Consequences -- Special Tax Considerations Applicable to Residual Bonds --
Restrictions on Transfer of a Residual Bond" in the Prospectus or (b) a Plan or
a Plan Investor.
A Residual Security may not be transferred except in compliance with
the restrictions on transfer set forth in the Indenture. As a prerequisite to
any such transfer, the proposed transferee must provide the Indenture Trustee
with (a) a transferee affidavit and agreement to the effect that the transferee
is not a disqualified organization or a Non- U.S. Person, (b) one or more
investor representation letters to the effect that the transferee is not a Plan
Investor described in or subject to the Plan Asset Regulations (as defined
herein), and that the proposed transferee either is not an insurance company or
is an insurance company and that none of the funds used by it in connection
with its purchase of the Residual Securities will constitute "plan assets" as
defined in the Plan Asset Regulations, and (c) a certificate, signed by
transferor, stating that the purpose of the proposed transfer is not to impede
the assessment or collection of taxes, confirming its investigation of the
transferee and absence of actual knowledge on the part of the transferor that
the proposed transferee is a disqualified organization or a Non-U.S. Person. A
"Non-U.S. Person" is a person other than (a) a citizen or resident of the
United States, (b) a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, (c) an estate whose income from sources without the United
States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States, or (d) a trust if a United States court is able to
exercise primary supervision over the administration of the trust and one or
more of the United States fiduciaries have the authority to control all
substantial decisions of the trust. Notwithstanding the fulfillment of the
prerequisites described above, the Indenture Trustee may withhold registration
of a proposed transfer if it has actual knowledge that the proposed transferee
is a Non-U.S. Person or a disqualified organization. A transfer in violation
of the restrictions set forth herein may subject a Residual Securityholder to
taxation and the payment of certain fees to the Indenture Trustee. See
"Certain Federal Income Tax Consequences -- Special Tax Considerations
Applicable to Residual Bonds -- Restrictions on Transfer of a Residual Bond" in
the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Issuer and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Underwriter"), the Issuer has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Issuer, the Offered Securities.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Securities is subject
to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of
the Issuer's Registration Statement shall be in effect, and that no proceedings
for such purpose shall be pending before or threatened by the Commission.
The payment of the Offered Securities by the Underwriter will be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of
sale. The proceeds to the Issuer from the sale of the Offered Securities will
be approximately $281,682,544, plus accrued interest on the Offered Securities
from
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September 1, 1997, before deducting issuance expenses payable by the Issuer.
The Underwriter may effect such transactions by selling the Offered Securities
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for
whom they act as agent. In connection with the sale of the Offered Securities,
the Underwriter may be deemed to have received compensation from the Issuer in
the form of an underwriting discount. The Underwriter and any dealers that
participate with the Underwriter in the payment of the Offered Securities may
be deemed to be underwriters and any profit on the resale of the Offered
Securities positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Issuer and CMC will
indemnify the Underwriter, and under limited circumstances the Underwriter will
indemnify the Issuer and CMC, against certain civil liabilities under the
Securities Act of 1933, or, in each case, contribute to payments required to be
made in respect thereof.
There can be no assurance that a secondary market for the Offered
Securities will develop or, if it does develop, that it will continue or will
provide investors with a sufficient level of liquidity. The primary source of
information available to investors concerning the Offered Securities will be
the monthly statements discussed in the Prospectus under "The Indenture --
Reports by Indenture Trustee to Bondholders," which will include information as
to the outstanding principal balance of the Offered Securities and the status
of the applicable form of credit enhancement. There can be no assurance that
any additional information regarding the Offered Securities will be available
through any other source. In addition, the Issuer is not aware of any source
through which price information about the Offered Securities will be generally
available on an ongoing basis. The limited nature of such information
regarding the Offered Securities may adversely affect the liquidity of the
Offered Securities, even if a secondary market for the Offered Securities
becomes available.
USE OF PROCEEDS
The Issuer will apply the net proceeds from the sale of the Offered
Securities against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Issuer by Andrews & Kurth L.L.P., Dallas, Texas and for the Underwriter
by Stroock & Stroock & Lavan LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Securities that each
Class of Class FXA Securities, the Residual Securities and Class A Securities
(other than the Class A-2 Securities) be rated "AAA" by the Rating Agencies,
that the Strip Securities and Principal Only Securities be rated "AAA" by DCR
and "AAAr" by S&P, that the Class B-1 Securities be rated not lower than "AA"
by DCR, that the Class B-2 Securities be rated not lower than "A" by DCR and
that the Class B-3 Securities be rated not lower than "BBB" by DCR.
Publications of S&P indicate that it assigns a rating of "AAA" to
securities for which "the capacity to pay interest and repay principal is
extremely strong." In addition, S&P assigns the additional rating of "r" to
highlight classes of securities that it believes may experience high volatility
or a variability in expected returns due to noncredit risks; however, the
absence of an "r" symbol should not be taken as an indication that a class will
exhibit no volatility or variability in total return.
Publications of DCR indicate that it assigns a rating of (i) "AAA" to
securities that are of the "highest credit quality" where "risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt;"
(ii) "AA" to securities that are of "high credit quality" where "protection
factors are strong" and "risk is modest but may vary slightly from time to time
because of economic conditions;" (iii) "A" to securities where the "protection
factors are average but adequate, but are more variable and greater in periods
of economic stress;" and (iv) "BBB" to securities where there are "below
average protection factors but are still considered sufficient for prudent
investment," but where there is "considerable variability in risk during
economic cycles." The ratings assigned by DCR to collateralized mortgage
obligations address the likelihood of the receipt by certificateholders of all
payments to which they are entitled under the transaction structure. DCR's
ratings reflect its analysis of the riskiness of the
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mortgage loans and its analysis of the structure of the transaction as set
forth in the operative documents. DCR's ratings do not address the effect on
the securities' yield attributable to prepayments or recoveries on the
underlying mortgages. Further, in the case of the Strip Securities, the rating
does not address whether investors will recoup their initial investment.
The ratings assigned to the Residual Securities do not assess the
likelihood of return to investors in the Residual Securities, except to the
extent of the nominal initial principal amount of such Class and interest
thereon at the applicable Security Interest Rate.
The Issuer has not requested ratings on the Offered Securities by any
rating agency other than S&P and DCR. However, there can be no assurance as to
whether any other rating agency will rate the Offered Securities, or, if it
does, what ratings would be assigned by such other rating agency. Ratings on
the Offered Securities by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Offered Securities by S&P and DCR.
A securities 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 securities rating should be evaluated
independently of similar ratings on different securities.
LEGAL INVESTMENT
The Senior Securities and the Class B-1 Securities will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA") so long as they are rated in at
least the second highest rating category by any Rating Agency or another
nationally recognized statistical rating organization.
THE CLASS B-2 AND CLASS B-3 SECURITIES WILL NOT CONSTITUTE "MORTGAGE
RELATED SECURITIES" FOR PURPOSES OF SMMEA, BECAUSE THOSE CLASSES ARE NOT RATED
IN THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY RECOGNIZED RATING
ORGANIZATION.
Any financial institution that is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration, any state insurance
commission, or any other federal or state agencies with similar authority
should review any applicable rules, guidelines and regulations prior to
purchasing any Securities. Financial institutions should review and consider
the applicability of the Federal Financial Institutions Examination Council
Supervisory Policy Statement on the Selection of Securities Dealers and
Unsuitable Investment practices (to the extent adopted by their respective
federal regulators), which, among other things, sets forth guidelines for
investing in certain types of mortgage related securities and prohibits
investment in certain "high-risk" mortgage securities.
Except as to the status of certain Classes of Offered Securities as
"mortgage related securities,' no representations are made as to the proper
characterization of any Class of Offered Securities for legal investment,
financial institution registry or other purposes, or as to the ability of
particular investors to purchase any Class of Offered Securities under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Securities. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent any Class of the Offered Securities, and, in particular, the
Class B-1 Securities, constitutes a legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh plans
and collective investment funds in which such plans, accounts, annuities or
arrangements are invested (any of the foregoing a "Plan"), persons acting on
behalf of a Plan, or persons using the assets of a Plan ("Plan Investors"),
should review carefully with their legal advisors whether the purchase or
holding of the Securities could either give rise to a transaction that is
prohibited under ERISA or the Code
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or cause the collateral securing the Securities to be treated as plan assets
for purposes of regulations of the Department of Labor set forth in 29 C.F.R.
2510.3-101 (the "Plan Asset Regulation").
PROHIBITED TRANSACTIONS
General. Section 406 of ERISA prohibits parties in interest or
disqualified persons ("Parties in Interest") with respect to a Plan from
engaging in certain transactions (including loans) involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of
ERISA) on Parties in Interest which engage in non-exempt prohibited
transactions.
Plan Asset Regulation and The Securities. The United States
Department of Labor (the "DOL") has issued the Plan Asset Regulation concerning
the definition of what constitutes the assets of a Plan for purposes of ERISA
and the prohibited transaction provisions of the Code. The Plan Asset
Regulation describes the circumstances under which the assets of an entity in
which a Plan invests will be considered to be "plan assets" such that any
person who exercises control over such assets would be subject to ERISA's
fiduciary standards. Under the Plan Asset Regulation, generally when a Plan
invests in another entity, the Plan's assets do not include, solely by reason
of such investment, any of the underlying assets of the entity. However, the
Plan Asset Regulation provides that, if a Plan acquires an "equity interest" in
an entity, the assets of the entity will be treated as assets of the Plan
investor unless certain exceptions not applicable here apply.
Under the Plan Asset Regulation, the term "equity interest" is defined
as any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." If the Securities are not treated as equity interests in the Issuer
for purposes of the Plan Asset Regulation, a Plan's investment in the
Securities would not cause the assets of the Issuer to be deemed Plan assets.
However, the Issuer, the Master Servicer, the Certificate Trustee, the
Indenture Trustee and the Underwriter may be the sponsor of or investment
advisor with respect to one or more Plans. Because such parties may receive
certain benefits in connection with the sale of Securities, the purchase of
Securities using Plan assets over which any such parties has investment
authority might be deemed to be a violation of the prohibited transaction rules
of ERISA and the Code for which no exemption may be available.
The Securities may not be purchased with the assets of a Plan if the
Issuer, the Master Servicer, the Certificate Trustee, the Indenture Trustee,
the Underwriter or any of their respective affiliates (a) has investment or
administrative discretion with respect to such Plan assets; (b) has authority
or responsibility to give, or regularly gives, investment advice with respect
to such Plan assets, for a fee and pursuant to an agreement or understanding
that such advice (i) will serve as a primary basis for investment decisions
with respect to such Plan assets and (ii) will be based on the particular
investment needs for such Plan; or (c) is an employer maintaining or
contributing to such Plan.
If the Securities are deemed to be equity interests in the Issuer, the
Issuer could be considered to hold Plan assets by reason of a Plan's investment
in the Securities. In such an event, the Master Servicer and other persons
exercising management or discretionary control over the assets of the Issuer
may be deemed to be fiduciaries with respect to investing Plans and thus
subject to the fiduciary responsibility provisions of Title I of ERISA,
including the prohibited transaction provisions of section 406 of ERISA, and
section 4975 of the Code with respect to transactions involving the Issuer's
assets. There can be no assurance that any statutory or administrative
exemption will apply to all prohibited transactions that might arise in
connection with the purchase or holding of an equity interest in the Issuer by
a Plan.
The Residual Securities are expected to have "substantial equity
characteristics." Accordingly, no Residual Security may be acquired by a
Plan, a person acting on behalf of a Plan, or any person using the assets of a
Plan (each, a "Plan Investor"). Although the matter is not entirely clear, the
Class B-3 Securities and the Strip Securities may have "substantial equity
characteristics." Consequently, no transfer of the Class B-3 Securities or
Strip Securities will be permitted to be made to any person unless the proposed
transferee delivers to the Indenture Trustee either (i) a certificate from such
transferee to the effect that such transferee is not a Plan Investor or, in the
case of an insurance company, is not a Plan Investor, is eligible for an
exemption to the applicable prohibited transaction provisions of ERISA and the
Code, or is using the assets of its general account to purchase such Securities
at a time in which the amount of the reserves for contracts issued to Plans
that vary with the investment experience of the insurance company's general
account does not exceed 10% of the total liabilities of such general account,
or (ii) an opinion of counsel satisfactory to the Indenture Trustee and the
Issuer to the effect that the purchase and holding of such Securities will not
constitute or result in a prohibited transaction under ERISA or the Code and
will not subject the Master Servicer, the Certificate
S-91
<PAGE> 92
Trustee, the Indenture Trustee, the Issuer or their respective affiliates to
any obligation or liability (including obligations or liabilities under ERISA
or Section 4975 of the Code in addition to those undertaken in the Indenture (a
"Benefit Plan Opinion").
In addition, without regard to whether the Securities are considered
to be equity interests in the Issuer, certain affiliates of the Issuer or the
Master Servicer might be considered or might become Parties in Interest with
respect to a Plan. In either case, the acquisition or holding of Securities by
or on behalf of such a Plan could be considered to give rise to an indirect
prohibited transaction within the meaning of ERISA and the Code, unless it is
subject to one or more exemptions such as Prohibited Transaction Class
Exemption ("PTCE") 84-14, which exempts certain transactions effected on behalf
of a Plan by a "qualified professional asset manager", PTCE 90-1, which exempts
certain transactions involving insurance company pooled separate accounts,
PTCE-91-38, which exempts certain transactions involving bank collective
investment funds, PTCE 95-60, which exempts certain transactions involving
insurance company general accounts, or PTCE 96-23, which exempts certain
transactions effected on behalf of a Plan by certain "in-house asset managers".
Each purchaser or transferee of a Class B-1 Security, Class B-2 Security or
Senior Security, other than the Strip Securities, that is a Plan Investor shall
have represented that the relevant conditions for exemptive relief under at
least one of the foregoing exemptions have been satisfied.
The sale of Offered Securities to a Plan is in no respect a
representation by the Issuer or the Underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan.
ANY PLAN INVESTOR PROPOSING TO INVEST IN THE SECURITIES SHOULD CONSULT
WITH ITS COUNSEL TO CONFIRM THAT SUCH INVESTMENT WILL NOT RESULT IN A
PROHIBITED TRANSACTION THAT IS NOT SUBJECT TO AN EXEMPTION OF WILL SATISFY THE
OTHER REQUIREMENTS OF ERISA AND THE CODE APPLICABLE TO PLANS.
S-92
<PAGE> 93
INDEX OF TERMS
<TABLE>
<S> <C>
"Accretion Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Accretion Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Accretion Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Advances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Bankruptcy Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Basic Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . S-76
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Benefit Plan Opinion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
"CCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
"Certificate Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Class A Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class A Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class A Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class A Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Class A-1 Component 1" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Class A-1 Component 2" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Class A-2 Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-61
"Class A-9 Component 1 Accretion Amount" . . . . . . . . . . . . . . . . . . . . S-60
"Class A-9 Component 1 Accretion Termination Date" . . . . . . . . . . . . . . . S-60
"Class A-9 Component 1" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Class A-9 Component 2 Accretion Amount" . . . . . . . . . . . . . . . . . . . . S-60
"Class A-9 Component 2 Accretion Termination Date" . . . . . . . . . . . . . . . S-60
"Class A-9 Component 2" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Class B Loan Group Component Balance" . . . . . . . . . . . . . . . . . . . . . S-66
"Class FX Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Class FXA Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Class FXA Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Class FXA Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class FXA Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Class FXP Discount Mortgage Loan Principal Payment Amount" . . . . . . . . . . . S-61
"Class FXP Fraction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Class FXS Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
"Class P Discount Mortgage Loan Principal Payment Amount" . . . . . . . . . . . . S-63
"Class P Fraction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Class S Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CLTV" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"CMCSC IV" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"CMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Companion Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"CPR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-77
"Credit Support Depletion Date" . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Current Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
"Custodial Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Debt Service Reductions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
"Dime" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"DLJMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"DOL" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-92
</TABLE>
S-93
<PAGE> 94
<TABLE>
<S> <C>
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
"Events of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"Excess Bankruptcy Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Excess Fraud Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Excess Special Hazard Losses" . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Extraordinary Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
"FICO Scores" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Fire Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Flood Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Fraud Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Gold Flex Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-47
"Group I Discount Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . S-61
"Group I Liquidation Principal" . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Group I Losses Payable" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Group I Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-29
"Group I Premium Rate Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . S-13
"Group II Discount Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . S-63
"Group II Liquidation Principal" . . . . . . . . . . . . . . . . . . . . . . . S-65
"Group II Losses Payable" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Group II Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-29
"Group II Premium Rate Mortgage Loans" . . . . . . . . . . . . . . . . . . . . S-13
"Group II" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-29
"Group I" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-29
"Indenture Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Indenture Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-12, S-54
"Interest Accrual Period" . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-60
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9
"Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"Loan Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9, S-53
"Loan-to-Value Ratio at origination" . . . . . . . . . . . . . . . . . . . . . S-31
"Lower REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9
"Modeling Assumptions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-77
"Monthly Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Mortgage Loan Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-29
"Mortgage related securities" . . . . . . . . . . . . . . . . . . . . . . S-25, S-91
"Mortgaged Premises" . . . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-29
"NAMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9, S-53
"NAMIS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"NERDs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
"Net Mortgage Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"No Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48, S-49
"Non-U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
"Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"October 27th Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Offered Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Optional Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . S-16, S-72
"Overcollateralized Group" . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Parity Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-72
"Parties In Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-92
"Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-9
</TABLE>
S-94
<PAGE> 95
<TABLE>
<S> <C>
"Plan assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89, S-92
"Plan Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-23, S-92
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23, S-91
"PMI Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"PMI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Prepayment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"Principal Only Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Principal Prepayment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Pro Rata Allocation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Prohibited Transaction Provisions" . . . . . . . . . . . . . . . . . . . . . . S-23
"PTCE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
"Rating Agencies" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Real estate assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"REITs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Residual Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"S&P" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Security Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Servicing Fee Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-84
"Servicing Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-84
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-25, S-91
"Special Hazard Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Standard Hazard Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Step Down Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Strip Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Stripped Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-60
"Subordinate Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . S-67
"Subordinate Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Subordinate Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . S-67
"Subordinate Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Subordination Level" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
"TAPRIs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
"TAPRI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
"Title Insurance Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Trust Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-16
"UBTI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22, S-87
"Undercollateralized Group" . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-89
"Underwriting Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
"Upper REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-21
"Voting Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
</TABLE>
S-95
<PAGE> 96
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-1 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 99 99 99 99
September 25, 1999 95 75 75 75 75
September 25, 2000 90 43 43 43 43
September 25, 2001 85 12 12 12 12
September 25, 2002 80 0 0 0 0
September 25, 2003 75 0 0 0 0
September 25, 2004 70 0 0 0 0
September 25, 2005 64 0 0 0 0
September 25, 2006 58 0 0 0 0
September 25, 2007 52 0 0 0 0
September 25, 2008 45 0 0 0 0
September 25, 2009 37 0 0 0 0
September 25, 2010 29 0 0 0 0
September 25, 2011 20 0 0 0 0
September 25, 2012 10 0 0 0 0
September 25, 2013 0 0 0 0 0
September 25, 2014 0 0 0 0 0
September 25, 2015 0 0 0 0 0
September 25, 2016 0 0 0 0 0
September 25, 2017 0 0 0 0 0
September 25, 2018 0 0 0 0 0
September 25, 2019 0 0 0 0 0
September 25, 2020 0 0 0 0 0
September 25, 2021 0 0 0 0 0
September 25, 2022 0 0 0 0 0
September 25, 2023 0 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 9.6 2.8 2.8 2.8 2.8
</TABLE>
- --------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-1
<PAGE> 97
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 100 100 100 100
September 25, 1999 100 100 100 100 100
September 25, 2000 100 100 100 100 100
September 25, 2001 100 100 100 100 100
September 25, 2002 100 100 100 100 0
September 25, 2003 100 100 100 100 0
September 25, 2004 100 100 100 48 0
September 25, 2005 100 100 100 10 0
September 25, 2006 100 100 100 0 0
September 25, 2007 100 100 100 0 0
September 25, 2008 100 100 97 0 0
September 25, 2009 100 100 81 0 0
September 25, 2010 100 100 67 0 0
September 25, 2011 100 100 55 0 0
September 25, 2012 100 100 45 0 0
September 25, 2013 100 100 37 0 0
September 25, 2014 100 100 30 0 0
September 25, 2015 100 100 25 0 0
September 25, 2016 100 100 20 0 0
September 25, 2017 100 100 16 0 0
September 25, 2018 100 100 12 0 0
September 25, 2019 100 100 10 0 0
September 25, 2020 100 100 8 0 0
September 25, 2021 100 100 6 0 0
September 25, 2022 100 86 4 0 0
September 25, 2023 100 67 3 0 0
September 25, 2024 100 48 2 0 0
September 25, 2025 100 31 1 0 0
September 25, 2026 95 14 * 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 29.5 27.0 15.7 7.1 4.7
</TABLE>
- --------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-2
<PAGE> 98
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-4 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 100 100 100 100
September 25, 1999 100 100 100 100 100
September 25, 2000 100 100 100 100 100
September 25, 2001 100 100 100 100 100
September 25, 2002 100 100 100 100 98
September 25, 2003 99 97 94 92 61
September 25, 2004 97 93 87 83 37
September 25, 2005 96 88 78 71 23
September 25, 2006 94 83 67 56 15
September 25, 2007 92 76 56 44 10
September 25, 2008 90 70 46 34 7
September 25, 2009 88 64 38 26 5
September 25, 2010 86 59 32 20 3
September 25, 2011 83 54 26 15 2
September 25, 2012 80 49 22 12 1
September 25, 2013 78 44 18 9 1
September 25, 2014 74 40 14 7 1
September 25, 2015 71 36 12 5 *
September 25, 2016 67 32 9 4 *
September 25, 2017 63 28 8 3 *
September 25, 2018 59 25 6 2 *
September 25, 2019 54 21 5 2 *
September 25, 2020 49 18 4 1 *
September 25, 2021 43 15 3 1 *
September 25, 2022 37 12 2 1 *
September 25, 2023 31 9 1 * *
September 25, 2024 24 7 1 * *
September 25, 2025 16 4 1 * *
September 25, 2026 8 2 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 21.3 15.8 11.8 10.4 7.2
</TABLE>
- --------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-3
<PAGE> 99
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-5 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 98 95 89 86 81
September 25, 1999 96 84 66 55 38
September 25, 2000 94 70 36 16 0
September 25, 2001 92 56 10 0 0
September 25, 2002 89 43 0 0 0
September 25, 2003 87 32 0 0 0
September 25, 2004 85 22 0 0 0
September 25, 2005 82 14 0 0 0
September 25, 2006 79 7 0 0 0
September 25, 2007 76 * 0 0 0
September 25, 2008 73 0 0 0 0
September 25, 2009 70 0 0 0 0
September 25, 2010 66 0 0 0 0
September 25, 2011 62 0 0 0 0
September 25, 2012 58 0 0 0 0
September 25, 2013 53 0 0 0 0
September 25, 2014 48 0 0 0 0
September 25, 2015 42 0 0 0 0
September 25, 2016 36 0 0 0 0
September 25, 2017 29 0 0 0 0
September 25, 2018 22 0 0 0 0
September 25, 2019 15 0 0 0 0
September 25, 2020 7 0 0 0 0
September 25, 2021 0 0 0 0 0
September 25, 2022 0 0 0 0 0
September 25, 2023 0 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 15.1 4.8 2.5 2.1 1.7
</TABLE>
- --------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-4
<PAGE> 100
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-6 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 100 100 100 100
September 25, 1999 100 100 100 100 100
September 25, 2000 100 100 100 100 74
September 25, 2001 100 100 100 66 0
September 25, 2002 100 100 74 14 0
September 25, 2003 100 100 41 0 0
September 25, 2004 100 100 17 0 0
September 25, 2005 100 100 0 0 0
September 25, 2006 100 100 0 0 0
September 25, 2007 100 100 0 0 0
September 25, 2008 100 89 0 0 0
September 25, 2009 100 77 0 0 0
September 25, 2010 100 66 0 0 0
September 25, 2011 100 56 0 0 0
September 25, 2012 100 46 0 0 0
September 25, 2013 100 37 0 0 0
September 25, 2014 100 28 0 0 0
September 25, 2015 100 20 0 0 0
September 25, 2016 100 12 0 0 0
September 25, 2017 100 5 0 0 0
September 25, 2018 100 0 0 0 0
September 25, 2019 100 0 0 0 0
September 25, 2020 100 0 0 0 0
September 25, 2021 95 0 0 0 0
September 25, 2022 75 0 0 0 0
September 25, 2023 53 0 0 0 0
September 25, 2024 29 0 0 0 0
September 25, 2025 4 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 26.1 14.9 5.9 4.4 3.3
</TABLE>
- -------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-5
<PAGE> 101
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-7 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 98 96 91 91 87
September 25, 1999 98 95 80 73 58
September 25, 2000 98 95 67 51 26
September 25, 2001 97 95 56 35 5
September 25, 2002 97 87 41 17 0
September 25, 2003 97 77 28 3 0
September 25, 2004 96 68 18 0 0
September 25, 2005 96 60 11 0 0
September 25, 2006 95 53 5 0 0
September 25, 2007 95 47 2 0 0
September 25, 2008 94 42 0 0 0
September 25, 2009 94 36 0 0 0
September 25, 2010 93 31 0 0 0
September 25, 2011 92 25 0 0 0
September 25, 2012 92 21 0 0 0
September 25, 2013 91 16 0 0 0
September 25, 2014 85 11 0 0 0
September 25, 2015 79 7 0 0 0
September 25, 2016 73 2 0 0 0
September 25, 2017 66 0 0 0 0
September 25, 2018 58 0 0 0 0
September 25, 2019 50 0 0 0 0
September 25, 2020 41 0 0 0 0
September 25, 2021 32 0 0 0 0
September 25, 2022 22 0 0 0 0
September 25, 2023 11 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.9 10.2 4.5 3.2 2.3
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-6
<PAGE> 102
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-8 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 98 95 91 91 89
September 25, 1999 97 95 80 75 59
September 25, 2000 97 94 67 52 26
September 25, 2001 96 94 56 36 6
September 25, 2002 96 86 41 18 0
September 25, 2003 95 75 28 3 0
September 25, 2004 94 66 18 0 0
September 25, 2005 93 57 11 0 0
September 25, 2006 93 50 5 0 0
September 25, 2007 92 43 2 0 0
September 25, 2008 91 37 0 0 0
September 25, 2009 90 30 0 0 0
September 25, 2010 89 24 0 0 0
September 25, 2011 87 19 0 0 0
September 25, 2012 86 13 0 0 0
September 25, 2013 84 8 0 0 0
September 25, 2014 78 2 0 0 0
September 25, 2015 71 0 0 0 0
September 25, 2016 64 0 0 0 0
September 25, 2017 56 0 0 0 0
September 25, 2018 47 0 0 0 0
September 25, 2019 38 0 0 0 0
September 25, 2020 28 0 0 0 0
September 25, 2021 17 0 0 0 0
September 25, 2022 6 0 0 0 0
September 25, 2023 0 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 19.4 9.4 4.5 3.3 2.3
</TABLE>
- ----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-7
<PAGE> 103
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS A-9 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 107 107 91 25 0
September 25, 1999 116 116 80 0 0
September 25, 2000 124 124 67 0 0
September 25, 2001 134 134 56 0 0
September 25, 2002 144 144 41 0 0
September 25, 2003 154 154 28 0 0
September 25, 2004 166 166 18 0 0
September 25, 2005 178 178 11 0 0
September 25, 2006 192 192 5 0 0
September 25, 2007 206 206 2 0 0
September 25, 2008 221 221 0 0 0
September 25, 2009 238 238 0 0 0
September 25, 2010 256 256 0 0 0
September 25, 2011 275 275 0 0 0
September 25, 2012 296 296 0 0 0
September 25, 2013 318 318 0 0 0
September 25, 2014 342 342 0 0 0
September 25, 2015 367 338 0 0 0
September 25, 2016 395 316 0 0 0
September 25, 2017 424 276 0 0 0
September 25, 2018 456 210 0 0 0
September 25, 2019 490 142 0 0 0
September 25, 2020 527 78 0 0 0
September 25, 2021 567 17 0 0 0
September 25, 2022 609 0 0 0 0
September 25, 2023 590 0 0 0 0
September 25, 2024 497 0 0 0 0
September 25, 2025 264 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 27.7 21.5 4.5 0.8 0.5
</TABLE>
- ---------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each net reduction of the Security Principal Balance by the
number of years from the date of issuance of the Security to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate of net reductions described above.
A-8
<PAGE> 104
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS P SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 98 96 94 92
September 25, 1999 98 93 86 81 74
September 25, 2000 97 87 72 64 52
September 25, 2001 96 80 61 50 36
September 25, 2002 94 75 51 39 25
September 25, 2003 93 69 43 30 17
September 25, 2004 91 64 36 23 12
September 25, 2005 90 59 30 18 8
September 25, 2006 88 54 25 14 6
September 25, 2007 86 50 21 11 4
September 25, 2008 84 46 17 8 3
September 25, 2009 82 42 14 6 2
September 25, 2010 80 38 12 5 1
September 25, 2011 77 35 10 4 1
September 25, 2012 75 32 8 3 1
September 25, 2013 72 29 6 2 *
September 25, 2014 69 26 5 2 *
September 25, 2015 65 23 4 1 *
September 25, 2016 62 21 3 1 *
September 25, 2017 58 18 3 1 *
September 25, 2018 54 16 2 1 *
September 25, 2019 49 14 2 * *
September 25, 2020 45 12 1 * *
September 25, 2021 40 10 1 * *
September 25, 2022 34 8 1 * *
September 25, 2023 28 6 1 * *
September 25, 2024 22 4 * * *
September 25, 2025 15 3 * * *
September 25, 2026 8 1 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.0 11.6 6.6 5.1 3.9
</TABLE>
- -----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-9
<PAGE> 105
APPENDIX A
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS B-1, B-2 AND B-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 100% 250% 350% 500%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 99 99 99 99
September 25, 1999 98 98 98 98 98
September 25, 2000 97 97 97 97 97
September 25, 2001 96 96 96 96 96
September 25, 2002 95 95 95 95 95
September 25, 2003 94 92 90 88 85
September 25, 2004 93 89 83 79 72
September 25, 2005 91 84 74 67 58
September 25, 2006 90 79 64 55 43
September 25, 2007 88 73 53 42 29
September 25, 2008 86 67 44 33 20
September 25, 2009 84 61 37 25 14
September 25, 2010 82 56 30 20 9
September 25, 2011 80 51 25 15 6
September 25, 2012 77 47 21 11 4
September 25, 2013 74 42 17 9 3
September 25, 2014 71 38 14 7 2
September 25, 2015 68 34 11 5 1
September 25, 2016 65 31 9 4 1
September 25, 2017 61 27 7 3 1
September 25, 2018 57 24 6 2 *
September 25, 2019 52 21 4 1 *
September 25, 2020 47 17 3 1 *
September 25, 2021 42 15 3 1 *
September 25, 2022 36 12 2 1 *
September 25, 2023 30 9 1 * *
September 25, 2024 23 7 1 * *
September 25, 2025 16 4 1 * *
September 25, 2026 8 2 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.6 15.2 11.4 10.1 8.9
</TABLE>
- ----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
A-10
<PAGE> 106
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-1 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 99 88 77 66
September 25, 1999 100 83 60 39 19
September 25, 2000 100 69 37 10 0
September 25, 2001 100 56 18 0 0
September 25, 2002 100 45 2 0 0
September 25, 2003 100 35 0 0 0
September 25, 2004 100 26 0 0 0
September 25, 2005 98 19 0 0 0
September 25, 2006 96 14 0 0 0
September 25, 2007 94 9 0 0 0
September 25, 2008 91 4 0 0 0
September 25, 2009 88 * 0 0 0
September 25, 2010 85 0 0 0 0
September 25, 2011 82 0 0 0 0
September 25, 2012 78 0 0 0 0
September 25, 2013 74 0 0 0 0
September 25, 2014 70 0 0 0 0
September 25, 2015 65 0 0 0 0
September 25, 2016 60 0 0 0 0
September 25, 2017 54 0 0 0 0
September 25, 2018 48 0 0 0 0
September 25, 2019 42 0 0 0 0
September 25, 2020 35 0 0 0 0
September 25, 2021 27 0 0 0 0
September 25, 2022 18 0 0 0 0
September 25, 2023 9 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 19.7 5.1 2.6 1.8 1.4
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-1
<PAGE> 107
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-2 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 93 87 80 74
September 25, 1999 99 84 70 57 45
September 25, 2000 98 75 56 40 14
September 25, 2001 97 68 44 16 0
September 25, 2002 96 61 35 0 0
September 25, 2003 95 55 20 0 0
September 25, 2004 94 50 8 0 0
September 25, 2005 93 45 0 0 0
September 25, 2006 91 42 0 0 0
September 25, 2007 90 39 0 0 0
September 25, 2008 88 36 0 0 0
September 25, 2009 87 34 0 0 0
September 25, 2010 85 29 0 0 0
September 25, 2011 83 24 0 0 0
September 25, 2012 81 19 0 0 0
September 25, 2013 78 15 0 0 0
September 25, 2014 76 11 0 0 0
September 25, 2015 73 7 0 0 0
September 25, 2016 70 4 0 0 0
September 25, 2017 66 1 0 0 0
September 25, 2018 63 0 0 0 0
September 25, 2019 59 0 0 0 0
September 25, 2020 55 0 0 0 0
September 25, 2021 50 0 0 0 0
September 25, 2022 45 0 0 0 0
September 25, 2023 39 0 0 0 0
September 25, 2024 32 0 0 0 0
September 25, 2025 16 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 21.5 8.4 3.7 2.5 1.9
</TABLE>
- -------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-2
<PAGE> 108
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-3, CLASS FXA-4 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 98 81 74 66 58
September 25, 1999 96 70 54 39 24
September 25, 2000 94 60 37 18 5
September 25, 2001 91 51 24 5 0
September 25, 2002 89 43 12 0 0
September 25, 2003 86 36 6 0 0
September 25, 2004 83 30 3 0 0
September 25, 2005 81 25 0 0 0
September 25, 2006 79 21 0 0 0
September 25, 2007 78 17 0 0 0
September 25, 2008 76 14 0 0 0
September 25, 2009 74 11 0 0 0
September 25, 2010 72 9 0 0 0
September 25, 2011 69 8 0 0 0
September 25, 2012 67 6 0 0 0
September 25, 2013 64 5 0 0 0
September 25, 2014 61 4 0 0 0
September 25, 2015 57 2 0 0 0
September 25, 2016 54 1 0 0 0
September 25, 2017 50 * 0 0 0
September 25, 2018 45 0 0 0 0
September 25, 2019 41 0 0 0 0
September 25, 2020 36 0 0 0 0
September 25, 2021 30 0 0 0 0
September 25, 2022 24 0 0 0 0
September 25, 2023 17 0 0 0 0
September 25, 2024 10 0 0 0 0
September 25, 2025 5 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 17.8 5.5 2.6 1.8 1.4
</TABLE>
- -------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-3
<PAGE> 109
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-5 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 99 99 99 99
September 25, 1999 98 98 98 98 98
September 25, 2000 98 98 98 98 98
September 25, 2001 97 97 97 97 97
September 25, 2002 95 95 95 95 56
September 25, 2003 94 92 90 82 30
September 25, 2004 93 88 82 57 14
September 25, 2005 92 82 73 40 7
September 25, 2006 90 76 63 29 3
September 25, 2007 88 68 52 22 2
September 25, 2008 87 62 42 16 1
September 25, 2009 85 55 35 12 1
September 25, 2010 83 50 29 9 1
September 25, 2011 80 44 23 7 *
September 25, 2012 78 40 19 5 *
September 25, 2013 75 35 15 4 *
September 25, 2014 72 31 12 3 *
September 25, 2015 69 27 10 2 *
September 25, 2016 65 24 8 1 *
September 25, 2017 62 21 6 1 *
September 25, 2018 57 18 5 1 *
September 25, 2019 53 15 4 * *
September 25, 2020 48 13 3 * *
September 25, 2021 43 10 2 * *
September 25, 2022 37 8 2 * *
September 25, 2023 31 6 1 * *
September 25, 2024 24 4 1 * *
September 25, 2025 16 3 * * *
September 25, 2026 8 1 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.7 14.1 11.2 8.3 5.6
</TABLE>
- ------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-4
<PAGE> 110
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-6 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 100 100 100 100
September 25, 1999 100 100 100 100 100
September 25, 2000 100 100 100 100 100
September 25, 2001 100 100 100 100 0
September 25, 2002 100 100 100 28 0
September 25, 2003 100 100 100 0 0
September 25, 2004 100 100 100 0 0
September 25, 2005 100 100 99 0 0
September 25, 2006 100 100 57 0 0
September 25, 2007 100 100 36 0 0
September 25, 2008 100 100 18 0 0
September 25, 2009 100 100 3 0 0
September 25, 2010 100 100 0 0 0
September 25, 2011 100 100 0 0 0
September 25, 2012 100 100 0 0 0
September 25, 2013 100 100 0 0 0
September 25, 2014 100 100 0 0 0
September 25, 2015 100 100 0 0 0
September 25, 2016 100 100 0 0 0
September 25, 2017 100 100 0 0 0
September 25, 2018 100 84 0 0 0
September 25, 2019 100 61 0 0 0
September 25, 2020 100 40 0 0 0
September 25, 2021 100 20 0 0 0
September 25, 2022 100 3 0 0 0
September 25, 2023 100 0 0 0 0
September 25, 2024 100 0 0 0 0
September 25, 2025 100 0 0 0 0
September 25, 2026 85 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 29.2 22.6 9.6 4.9 3.6
</TABLE>
- ----------------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-5
<PAGE> 111
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXA-7 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 100 100 100 100 100
September 25, 1999 100 100 100 100 100
September 25, 2000 100 100 100 100 100
September 25, 2001 100 100 100 100 21
September 25, 2002 100 100 100 100 0
September 25, 2003 100 100 100 0 0
September 25, 2004 100 100 100 0 0
September 25, 2005 100 100 100 0 0
September 25, 2006 100 100 100 0 0
September 25, 2007 100 100 100 0 0
September 25, 2008 100 100 100 0 0
September 25, 2009 100 100 100 0 0
September 25, 2010 100 100 85 0 0
September 25, 2011 100 100 69 0 0
September 25, 2012 100 100 57 0 0
September 25, 2013 100 100 46 0 0
September 25, 2014 100 100 37 0 0
September 25, 2015 100 100 30 0 0
September 25, 2016 100 100 24 0 0
September 25, 2017 100 100 19 0 0
September 25, 2018 100 100 15 0 0
September 25, 2019 100 100 11 0 0
September 25, 2020 100 100 9 0 0
September 25, 2021 100 100 6 0 0
September 25, 2022 100 100 5 0 0
September 25, 2023 100 79 3 0 0
September 25, 2024 100 56 2 0 0
September 25, 2025 100 35 1 0 0
September 25, 2026 100 16 1 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 29.7 27.4 16.7 5.5 3.9
</TABLE>
- -----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-6
<PAGE> 112
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS FXP SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 94 88 83 77
September 25, 1999 98 85 73 62 52
September 25, 2000 97 78 61 47 35
September 25, 2001 96 71 51 35 23
September 25, 2002 95 64 42 26 16
September 25, 2003 93 58 35 20 11
September 25, 2004 92 53 29 15 7
September 25, 2005 90 48 24 11 5
September 25, 2006 88 43 20 8 3
September 25, 2007 87 39 16 6 2
September 25, 2008 85 35 13 5 1
September 25, 2009 82 31 11 3 1
September 25, 2010 80 28 9 2 1
September 25, 2011 78 25 7 2 *
September 25, 2012 75 22 6 1 *
September 25, 2013 72 20 5 1 *
September 25, 2014 69 17 4 1 *
September 25, 2015 66 15 3 1 *
September 25, 2016 62 13 2 * *
September 25, 2017 58 11 2 * *
September 25, 2018 54 10 1 * *
September 25, 2019 50 8 1 * *
September 25, 2020 45 7 1 * *
September 25, 2021 40 6 1 * *
September 25, 2022 34 4 * * *
September 25, 2023 28 3 * * *
September 25, 2024 22 2 * * *
September 25, 2025 15 1 * * *
September 25, 2026 7 1 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.1 9.4 5.6 3.8 2.9
</TABLE>
- -----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-7
<PAGE> 113
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS B-1, B-2 AND B-3 SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 99 99 99 99 99
September 25, 1999 98 98 98 98 98
September 25, 2000 97 97 97 97 97
September 25, 2001 96 96 96 96 96
September 25, 2002 95 95 95 95 95
September 25, 2003 94 92 89 87 84
September 25, 2004 93 87 82 77 71
September 25, 2005 91 82 73 64 56
September 25, 2006 90 75 62 51 40
September 25, 2007 88 68 51 38 27
September 25, 2008 86 61 42 28 18
September 25, 2009 84 55 35 21 12
September 25, 2010 82 49 28 15 8
September 25, 2011 80 44 23 11 5
September 25, 2012 77 39 19 8 3
September 25, 2013 74 35 15 6 2
September 25, 2014 71 31 12 4 1
September 25, 2015 68 27 10 3 1
September 25, 2016 65 24 8 2 1
September 25, 2017 61 20 6 2 *
September 25, 2018 57 17 5 1 *
September 25, 2019 52 15 4 1 *
September 25, 2020 47 12 3 1 *
September 25, 2021 42 10 2 * *
September 25, 2022 36 8 2 * *
September 25, 2023 30 6 1 * *
September 25, 2024 23 4 1 * *
September 25, 2025 16 3 * * *
September 25, 2026 8 1 * * *
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.6 14.1 11.1 9.6 8.7
</TABLE>
- -----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-8
<PAGE> 114
APPENDIX B
PERCENTAGE OF INITIAL SECURITY PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE ALTERNATIVE PREPAYMENT ASSUMPTION
CLASS R AND CLASS RP SECURITIES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE 0% 50% 100% 150% 200%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100
September 25, 1998 0 0 0 0 0
September 25, 1999 0 0 0 0 0
September 25, 2000 0 0 0 0 0
September 25, 2001 0 0 0 0 0
September 25, 2002 0 0 0 0 0
September 25, 2003 0 0 0 0 0
September 25, 2004 0 0 0 0 0
September 25, 2005 0 0 0 0 0
September 25, 2006 0 0 0 0 0
September 25, 2007 0 0 0 0 0
September 25, 2008 0 0 0 0 0
September 25, 2009 0 0 0 0 0
September 25, 2010 0 0 0 0 0
September 25, 2011 0 0 0 0 0
September 25, 2012 0 0 0 0 0
September 25, 2013 0 0 0 0 0
September 25, 2014 0 0 0 0 0
September 25, 2015 0 0 0 0 0
September 25, 2016 0 0 0 0 0
September 25, 2017 0 0 0 0 0
September 25, 2018 0 0 0 0 0
September 25, 2019 0 0 0 0 0
September 25, 2020 0 0 0 0 0
September 25, 2021 0 0 0 0 0
September 25, 2022 0 0 0 0 0
September 25, 2023 0 0 0 0 0
September 25, 2024 0 0 0 0 0
September 25, 2025 0 0 0 0 0
September 25, 2026 0 0 0 0 0
September 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 0.1 0.1 0.1 0.1 0.1
</TABLE>
- -----------------
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Security is determined by (i) multiplying
the amount of each distribution in reduction of the Security Principal Balance
by the number of years from the date of issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing the sum
by the initial Security Principal Balance of the Security.
B-9
<PAGE> 115
APPENDIX C
PAC BALANCES TABLE
The PAC Balances set forth in the schedules below were calculated on
the basis of the initial Component Principal Balances of the PAC Securities and
the other assumptions described in Certain Yield and Prepayment Considerations
General PAC Securities herein. If such Component Principal Balances are
increased or decreased in accordance with the variance permitted hereby, the
applicable balances set forth in the table below will be increased or decreased
substantially correspondingly. In such event, the final PAC Balances schedules
will be calculated on or about the Closing Date on the basis of such revised
Component Principal Balances and on the basis of (1) the actual characteristics
of the Mortgage Loans included in the Mortgage Pool, (2) the applicable
Structuring Range of the PAC Securities and (3) the assumptions set forth in the
Modeling Assumptions.
Class A-1 Component 1
<TABLE>
<CAPTION>
PAC Component
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
October 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,453,396.00
November 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
December 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
January 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
February 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
April 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
May 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
June 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
July 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
August 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,453,396.00
September 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,273,094.63
October 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,082,425.92
November 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,881,466.38
December 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,670,297.82
January 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,449,007.40
February 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,217,687.47
March 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,976,435.61
April 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,725,354.49
May 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,464,551.83
June 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,194,140.35
July 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,914,237.65
August 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,624,966.15
September 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,326,453.02
October 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,018,830.04
November 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,702,233.57
December 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,376,823.34
January 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,043,130.94
February 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,704,498.81
March 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,364,417.43
April 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,026,055.40
May 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,689,404.04
June 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,354,454.71
July 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,021,198.84
August 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,689,627.86
September 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,359,733.30
October 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,031,506.69
November 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,704,939.64
December 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,380,023.77
January 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,056,750.78
</TABLE>
C-1
<PAGE> 116
<TABLE>
<CAPTION>
PAC Component
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
February 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,735,112.38
March 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,415,100.36
April 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,096,706.53
May 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,779,922.74
June 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,464,740.91
July 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,151,152.98
August 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,839,150.94
September 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528,726.82
October 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,872.69
November 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912,580.69
December 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606,842.96
January 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,651.72
February 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00
</TABLE>
C-2
<PAGE> 117
Class A-1 Component 2
<TABLE>
<CAPTION>
PAC Component
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
October 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,559,953.00
November 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
December 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559.953.00
January 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
February 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
April 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
May 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
June 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
July 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
August 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,559,953.00
September 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,407,065.06
October 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,245,386.06
November 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,074,980.86
December 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,895,918.85
January 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,708,273.93
February 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,512,124.41
March 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,307,553.03
April 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,094,646.85
May 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,873,497.23
June 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,644,199.73
July 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,406,854.07
August 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,161,564.07
September 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,908,437.55
October 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,647,586.28
November 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,379,125.85
December 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,103,191.74
January 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,820,234.68
February 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,533,088.95
March 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,244,714.32
April 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,957,797.63
May 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,672,331.51
June 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,388,308.64
July 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,105,721.74
August 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,824,563.58
September 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,544,826.94
October 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,266,504.65
November 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,989,589.59
December 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,714,074.67
January 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,439,952.84
February 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,167,217.08
March 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,895,860.42
April 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,625,875.91
May 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,357,256.65
June 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,089,995.78
July 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,824,086.47
August 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,559,521.93
September 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296,295.40
October 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034,400.16
November 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773,829.54
December 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514,576.87
January 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,635.55
February 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00
</TABLE>
C-3
<PAGE> 118
APPENDIX D
TAC BALANCES TABLE
The TAC Balances set forth in the table below were calculated on the
basis of the Security Principal Balances of the TAC Securities set forth on the
cover hereof, a constant prepayment rate of 250% of the Basic Prepayment
Assumption and the Modeling Assumptions. If such Security Principal Balances
are increased or decreased in accordance with the variance permitted hereby, the
applicable balances set forth in the table below will be increased or decreased
substantially correspondingly. In such event, the final TAC Balances table will
be calculated on or about the Closing Date on the basis of such revised Security
Principal Balances and on the basis of (1) the actual characteristics of the
Mortgage Loans included in the Mortgage Pool, and (2) the assumptions set forth
in the Modeling Assumptions.
Class A-7 Securities
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
October 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,477,883.24
November 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,359,068.21
December 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,214,338.88
January 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,043,750.04
February 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,847,389.47
March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,625,378.02
April 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,377,869.65
May 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,105,051.39
June 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,807,143.20
July 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,484,397.83
August 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,137,100.53
September 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,939,706.79
October 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,728,440.73
November 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,503,609.03
December 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,265,543.99
January 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,014,603.01
February 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,751,167.88
March 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,475,644.21
April 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,188,460.61
May 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,890,067.88
June 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,580,938.21
July 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,261,564.22
August 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,932,457.98
September 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,594,150.02
October 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,247,188.24
November 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,892,136.77
December 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,529,601.01
January 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,160,705.55
February 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,790,428.93
March 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,423,789.34
April 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,065,188.82
May 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,714,503.75
June 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,371,612.27
July 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,036,394.22
August 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,708,731.18
September 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,388,506.36
October 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,075,604.66
November 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,769,912.59
</TABLE>
D-1
<PAGE> 119
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
December 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,471,318.29
January 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,179,711.45
February 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,894,983.36
March 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,617,026.84
April 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,345,736.23
May 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,081,007.37
June 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,822,737.59
July 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,570,825.66
August 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,325,171.82
September 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,085,677.71
October 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,852,246.36
November 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,624,782.22
December 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,403,191.05
January 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,187,380.00
February 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,977,256.75
March 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,481,904.48
April 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,993,532.86
May 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,512,046.85
June 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,037,352.71
July 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,569,357.95
August 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,107,971.35
September 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,653,102.96
October 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,278,465.81
November 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,909,871.17
December 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,547,233.71
January 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,190,469.29
February 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,839,494.91
March 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,494,228.71
April 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,154,589.97
May 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,820,499.04
June 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,491,877.42
July 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,168,647.63
August 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,850,733.29
September 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,538,059.06
October 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,249,821.58
November 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,966,449.71
December 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,687,872.65
January 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,414,020.61
February 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,144,824.73
March 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,880,217.14
April 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,620,130.89
May 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,364,499.97
June 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,113,259.30
July 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,866,344.69
August 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,623,692.85
September 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,385,241.37
October 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,186,521.61
November 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,991,309.16
December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,799,550.03
January 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,611,191.01
February 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,426,179.65
March 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,244,464.26
April 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,065,993.91
May 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,890,718.40
June 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,718,588.26
</TABLE>
D-2
<PAGE> 120
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
July 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,549,554.72
August 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,383,569.75
September 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,217,134.80
October 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,073,106.86
November 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,931,571.97
December 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792,490.64
January 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,655,823.98
February 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,521,533.71
March 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,389,582.11
April 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,259,932.00
May 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,132,546.81
June 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,007,390.49
July 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,884,427.52
August 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,763,622.95
September 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644,942.34
October 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,559,126.80
November 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,474,526.73
December 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,125.36
January 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,308,906.14
February 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,227,852.77
March 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,147,949.14
April 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,069,179.37
May 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991,527.80
June 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914,978.99
July 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839,517.69
August 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765,128.88
September 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691,797.74
October 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619,509.64
November 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,250.16
December 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,005.07
January 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,760.34
February 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,502.13
March 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,216.80
April 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,890.86
May 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,511.05
June 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,064.26
July 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,537.57
August 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00
</TABLE>
D-3
<PAGE> 121
Class A-8 Securities
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
October 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,157,129.61
November 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,059,055.52
December 25, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,939,590.85
January 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,798,780.84
February 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,636,697.93
March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,453,441.90
April 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,249,139.80
May 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,023,946.04
June 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,778,042.17
July 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,511,636.82
August 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,224,965.44
September 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,062,029.72
October 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,887,643.30
November 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,702,059.33
December 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,505,552.10
January 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,298,416.60
February 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,080,968.01
March 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,853,541.11
April 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,616,489.68
May 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,370,185.85
June 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,115,019.38
July 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,851,396.88
August 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,579,741.05
September 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,300,489.79
October 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,014,095.36
November 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,721,023.43
December 25, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,421,773.69
January 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,117,274.43
February 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,811,635.12
March 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,508,997.94
April 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,212,996.49
May 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,923,528.73
June 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,640,494.07
July 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,363,793.34
August 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,093,328.76
September 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,829,003.96
October 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,570,723.92
November 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,318,394.96
December 25, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,071,924.75
January 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,831,222.23
February 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,596,197.68
March 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,366,762.61
April 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,142,829.83
May 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,924,313.34
June 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,711,128.40
July 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,503,191.46
August 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,300,420.16
September 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,102,733.32
October 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,910,050.89
November 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,722,294.01
December 25, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,539,384.89
January 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,361,246.88
February 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,187,803.49
</TABLE>
D-4
<PAGE> 122
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
March 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,778,922.34
April 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,375,803.27
May 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,978,367.83
June 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,586,538.62
July 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,200,239.33
August 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,819,394.65
September 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,443,930.32
October 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,134,691.67
November 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,830,440.72
December 25, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,531,107.04
January 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,236,621.17
February 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,946,914.61
March 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,661,919.77
April 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,381,570.04
May 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,105,799.67
June 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,834,543.85
July 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,567,738.64
August 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,305,320.99
September 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,047,228.72
October 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,809,307.38
November 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,575,402.30
December 25, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,345,455.03
January 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,119,407.94
February 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,897,204.22
March 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,678,787.83
April 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,464,103.51
May 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,253,096.78
June 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,045,713.92
July 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,841,901.94
August 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,641,608.60
September 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,444,782.38
October 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,280,752.12
November 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,119,616.91
December 25, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961,332.20
January 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,805,854.05
February 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,653,139.19
March 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,503,144.93
April 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,355,829.24
May 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,211,150.69
June 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,069,068.43
July 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,929,542.22
August 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792,532.39
September 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,655,151.15
October 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,536,265.45
November 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,419,437.59
December 25, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,304,634.99
January 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,191,825.55
February 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,080,977.66
March 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,972,060.18
April 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,865,042.45
May 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,759,894.25
June 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,656,585.84
July 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555,087.90
August 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,455,371.58
September 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,357,408.45
</TABLE>
D-5
<PAGE> 123
<TABLE>
<CAPTION>
TAC
Distribution Date Principal Balances
- ----------------- ------------------
<S> <C>
October 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,286,573.29
November 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,216,741.43
December 25, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,147,899.02
January 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,032.40
February 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,013,128.11
March 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947,172.85
April 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 882,153.53
May 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818,057.21
June 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754,871.13
July 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692,582.74
August 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,179.61
September 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570,649.52
October 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,980.39
November 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,160.32
December 25, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,177.56
January 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,020.54
February 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,677.82
March 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,138.15
April 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,390.40
May 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,423.62
June 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,226.98
July 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,789.82
August 25, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00
</TABLE>
D-6
<PAGE> 124
PROSPECTUS
$1,226,108,553
CMC SECURITIES CORPORATION IV
COLLATERALIZED MORTGAGE OBLIGATIONS (ISSUABLE IN SERIES)
____________________________
This Prospectus relates to $1,226,108,553 aggregate principal amount
of Collateralized Mortgage Obligations (the "Bonds"), which may be sold from
time to time in one or more Series on terms determined at the time of sale and
described in the related Prospectus Supplement or Supplements. Each Series of
Bonds will consist of one or more Classes of Bonds, which may include one or
more Classes of Compound Interest Bonds. Interest on each Class of Bonds other
than a Class of Compound Interest Bonds will be payable on the dates specified
in the related Prospectus Supplement. Interest payments on each Class of
Compound Interest Bonds will commence only when all Bonds of the related Series
having a Stated Maturity prior to the Stated Maturity of such Class of Compound
Interest Bonds have been paid in full, unless the related Prospectus Supplement
provides otherwise. Prior to such time, interest on such Class of Compound
Interest Bonds will accrue and the amount of interest so accrued will be added
to the principal thereof on each Payment Date. The amount of principal required
to be paid on a Series of Bonds on each Payment Date will be applied to the
Classes of Bonds of such Series in the manner specified in the related
Prospectus Supplement. As more fully described herein, Bonds may constitute a
Series of Special Allocation Bonds. Principal payments on each Class of Bonds
of a Series will be made on a pro rata basis among all Bonds of such Class
unless otherwise provided in the related Prospectus Supplement.
The Bonds of each Series will be collateralized by Agency Certificates
or Non-Agency Certificates, or a combination of such Certificates. "Agency
Certificates" are either (i) "fully modified pass-through" mortgage-backed
certificates ("GNMA Certificates") guaranteed as to timely payment of principal
and interest by the Government National Mortgage Association, (ii) Guaranteed
Mortgage Pass-Through Certificates ("FNMA Certificates") issued and guaranteed
as to timely payment of principal and interest by the Federal National Mortgage
Association, or (iii) Mortgage Participation Certificates ("FHLMC
Certificates") issued and guaranteed as to timely payment of interest and
ultimate collection (and to the extent specified in the related Prospectus
Supplement, timely payment) of principal by the Federal Home Loan Mortgage
Corporation. "Non-Agency Certificates" are private pass-through certificates or
participation certificates which are neither issued nor guaranteed by any
agency or instrumentality of the United States and which evidence undivided
interests in Agency Certificates or pools of whole mortgage loans secured by
single family or multi-family residences. The Non-Agency Certificates pledged
to secure any Series of Bonds may be guaranteed as to payment of principal and
interest by a third party insurer or guarantor, to the extent provided in the
related Prospectus Supplement. The GNMA Certificates will be backed by the full
faith and credit of the United States. The FNMA Certificates, the FHLMC
Certificates and the Non-Agency Certificates will not be backed, directly or
indirectly, by the full faith and credit of the United States.
Scheduled distributions on the Certificates pledged as collateral for
a Series of Bonds, together with the reinvestment earnings thereon, if
applicable, at the assumed reinvestment rate for such Series specified in the
related Prospectus Supplement (the "Assumed Reinvestment Rate") and, if
applicable, the cash available to be withdrawn from any Reserve Fund
established for such Series, will be sufficient to make timely payments of
interest on the Bonds of such Series and to retire each such Class of Bonds not
later than its Stated Maturity. The Bonds may be guaranteed as to payment of
principal and interest by a third party insurer or guarantor, to the extent
provided in the related Prospectus Supplement. Each Series of Bonds may be
redeemable only under the limited circumstances described herein and in the
related Prospectus Supplement.
The Issuer with respect to a Series of Bonds (the "Issuer") will be
CMC Securities Corporation IV. The Bonds will be nonrecourse obligations of the
Issuer and the Issuer will have no significant assets other than those pledged
as collateral to secure separately each Series of the Issuer's Bonds. Unless
otherwise specified in the Prospectus Supplement, the Bonds are not guaranteed
or insured by GNMA, FNMA, FHLMC, or any other governmental organization or any
other person or entity.
The Issuer may elect to treat one or more segregated pools of assets
securing any Series of Bonds as a "real estate mortgage investment conduit"
("REMIC"). See "Certain Federal Income Tax Consequences" herein. The Bonds of
such Series ("REMIC Bonds") will include one or more Classes of regular
interests in such REMIC ("REMIC Regular Bonds") and may include one Class of
residual interests in such REMIC ("Residual Bonds").
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.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of the Bonds
unless accompanied by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 26, 1997.
<PAGE> 125
PROSPECTUS SUPPLEMENT
The Prospectus Supplement or Supplements relating to a Series of Bonds
to be offered hereunder will, among other things, set forth with respect to
such Series of Bonds:
(i) information regarding the issuance of such Series;
(ii) the aggregate principal amount, the interest rate or the method
by which such interest rate may be determined, and the authorized
denominations of each Class of such Bonds;
(iii) the identification and characteristics of the collateral
securing such Bonds, including, if applicable, the amount of the Reserve
Fund or Funds for such Series;
(iv) the order of the application of principal payments to the
Classes of such Bonds and the allocation of principal to be so applied;
(v) the circumstances, if any, under which the Bonds of such Series
are subject to special redemption or optional redemption;
(vi) any minimum principal payment requirements and the terms of any
related minimum principal payment agreement with respect to such Series;
(vii) the Stated Maturity of each Class of such Bonds and the method
used to determine such Stated Maturities;
(viii) the method used to calculate the aggregate amount of principal
required to be paid on the Bonds of such Series on each Payment Date;
(ix) the principal amount of each Class of such Bonds that would be
outstanding on specified Payment Dates if the mortgages underlying the
Certificates pledged as security for such Bonds were prepaid at various
assumed rates;
(x) the Payment Dates, record dates, redemption dates, if any, and
the Assumed Reinvestment Rate for such Series of Bonds;
(xi) whether such Series is participating in the Issuer's Special
Hazard and Bankruptcy Account and, if so, the Claim Ceiling for such Series
(as defined herein);
(xii) if applicable, the Issuer's ratio of earnings to fixed charges;
(xiii) whether such Series constitutes a Series of Special Allocation
Bonds;
(xiv) if all or part of the collateral for the Bonds of such Series
consists of Non-Agency Certificates, information concerning the Agency
Certificates or mortgages evidenced by such Certificates and related
servicing and, if applicable, insurance or guaranty arrangements;
(xv) whether ownership of Bonds of any Class of such Series will
initially be available only in book entry form through a clearing agency
and, if so, the duties to be performed by the clearing agency with respect
to principal payments and redemptions and the conditions, if any, under
which definitive Bonds will be available to beneficial owners;
(xvi) the investment rating agencies and ratings required with respect
to such Series;
(xvii) the extent, if any, to which deposits, withdrawals or
substitutions of Certificates securing the Bonds may be permitted;
2
<PAGE> 126
(xviii) whether an election will be made to treat one or more
segregated pools of assets securing such Series as a REMIC;
(xix) the identity of the Indenture Trustee for such Series; and
(xx) additional information with respect to the plan of distribution
of such Bonds.
AVAILABLE INFORMATION
The Issuer was incorporated in Delaware on May 6, 1992. The Issuer is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith is required
to file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Issuer with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549; and at the following regional
offices of the Commission: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates through its Public
Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements ad other information about registrants, including the Issuer, that
file electronically with the Commission. The address of such Web site is
http://www.sec.gov.
The Issuer has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Bonds offered by this Prospectus and the related Prospectus
Supplement. This Prospectus and Prospectus Supplement, which form a part of the
Registration Statement, do not contain all of the information set forth in the
Registration Statement, certain parts having been omitted pursuant to the rules
and regulations of the Commission. The Registration Statement will be available
for inspection and copying as set forth above.
The Issuer does not plan to send any financial reports to holders of
Bonds. The Indenture Trustee, however, will include with each payment on Bonds
of a Series a statement containing certain information concerning the Bonds.
The Issuer's principal executive offices are located at CityPlace
Center East, 2711 N. Haskell Avenue, Suite 1000, Dallas, Texas 75204. Its
telephone number is (214) 874-2500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Issuer with the
Commission are incorporated herein by reference:
1. The Issuer's Annual Report on Form 10-K for the year ended December
31, 1996.
2. The Issuer's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997.
All documents filed by the Issuer pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Bonds shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. 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 any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Issuer will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the request of such person, a copy
of any of or all the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits to such
documents, unless such exhibits are
3
<PAGE> 127
specifically incorporated by reference into any such document). Requests for
such copies should be directed to Andrew F. Jacobs, Senior Vice
President--Control and Treasurer, CMC Securities Corporation IV, CityPlace
Center East, 2711 N. Haskell Avenue, Suite 1000, Dallas, Texas 75204
(214/874-2500).
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<PAGE> 128
GLOSSARY OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Administrator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"Assumed Reinvestment Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Basic Principal Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 25
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 28
"Bond Value Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Bond Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 25
"Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"Book Entry Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 28
"Certificate Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Claim Ceiling" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Clearing Agency Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 28
"Clearing Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 28
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 44
"Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Committee Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
"Compound Interest Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Conventional Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 25
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"FHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"FHLMC Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"FHLMC Certificate Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"FHLMC Certificate Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"FHLMC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"FHLMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Final REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Floating Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"FmHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"FNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Garn-St Germain Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"GNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
"GNMA Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"GNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"GPM Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Guaranty Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Housing Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Indenture Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Interest Accrual Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Inverse Floating Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 10
</TABLE>
5
<PAGE> 129
<TABLE>
<S> <C>
"Maximum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 25
"Minimum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 50
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Non-Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Non-Priority Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Non-REMIC Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Optional Variable Interest Rate Bond Redemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 28
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Participating Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Pass-Through Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"Pooling and Administration Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Premium REMIC Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Principal Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Priority Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"PTCE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
"PTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 43
"Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
"REIT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"REMIC Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 43
"REMIC Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
"REMIC Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Requisite Amount of the Special Hazard and Bankruptcy Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Reserve Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Residual Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Residual Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Retail Class Bond" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Scheduled Amortization Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Scheduled Amortization Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 23
"Scheduled Principal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Series Supplement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Servicers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 60
"Special Allocation Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Special Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 27
"Spread" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Startup Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
"Tax-Exempt Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"TIA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Time-Out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 28
"TMP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
"Underlying Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Underwriters" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"VA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Variable Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Variable Interest Rate Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Variable Interest Rate Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 25
</TABLE>
6
<PAGE> 130
<TABLE>
<S> <C>
"Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 25
</TABLE>
7
<PAGE> 131
SUMMARY OF PROSPECTUS
The following is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Bonds contained in the
Prospectus Supplement or Supplements to be prepared and delivered in connection
with the offering of Bonds of such Series.
SECURITIES OFFERED . . . . . . . . Collateralized Mortgage Obligations (the
"Bonds") collateralized by certificates
("Certificates") evidencing undivided
interests in pools of residential mortgage
loans. The Certificates will consist of one
or more of the following:
(i) "fully modified pass-through"
mortgage-backed certificates ("GNMA
Certificates") guaranteed as to timely
payment of principal and interest by the
Government National Mortgage Association
("GNMA"),
(ii) Guaranteed Mortgage Pass-Through
Certificates ("FNMA Certificates") issued
and guaranteed as to timely payment of
principal and interest by the Federal
National Mortgage Association ("FNMA"),
(iii) Mortgage Participation Certificates
("FHLMC Certificates") issued and guaranteed
as to timely payment of interest and
ultimate collection (and to the extent
specified in the related Prospectus
Supplement, timely payment) of principal by
the Federal Home Loan Mortgage Corporation
("FHLMC"),
(iv) pass-through certificates or
participation certificates ("Non-Agency
Certificates") which are neither issued nor
guaranteed by an agency or instrumentality
of the United States and which evidence
undivided interests in Agency Certificates
(defined hereafter) or pools of mortgage
loans secured by single family (one- to
four-units) or multi-family residences, or
(v) a combination of such Certificates.
The Non-Agency Certificates pledged to
secure any Series of Bonds may be guaranteed
as to payment of principal and interest by a
third-party insurer or guarantor, to the
extent provided in the related Prospectus
Supplement. GNMA Certificates, FNMA
Certificates and FHLMC Certificates are
referred to collectively in this Prospectus
as "Agency Certificates".
The Bonds will be issued from time to time
in Series pursuant to an Indenture (an
"Indenture") between the Issuer (as defined
below) and the trustee for such Series (the
"Indenture Trustee"), as supplemented by one
or more supplemental indentures between the
Issuer and the Indenture Trustee authorizing
such Series (each a "Series Supplement").
Each Series will consist of one or more
Classes of Bonds, which may include one or
more Classes of Compound Interest Bonds
("Compound Interest Bonds").
The Bonds of a Class may differ from Bonds
of other Classes of the same Series in the
amounts allocated to and the priority of
principal
8
<PAGE> 132
payments, maturity date and interest rate or
in such other manner as specified in the
related Prospectus Supplement. The Bonds of
each Class of each Series will be issued
either in definitive, fully registered form
or book entry form in the authorized
denominations specified in the related
Prospectus Supplement. The Bonds may be
insured or guaranteed as to payment of
principal and interest by a third-party
insurer or guarantor, to the extent provided
in the related Prospectus Supplement. The
Bonds will represent nonrecourse obligations
solely of the Issuer and will not be insured
or guaranteed by any affiliate of the Issuer
or by any other person or entity.
ISSUER . . . . . . . . . . . . . . CMC Securities Corporation IV (the "Issuer")
is a limited purpose finance corporation
wholly owned by Capstead Mortgage
Corporation, a Maryland Corporation ("CMC").
The Bonds represent nonrecourse obligations
of the Issuer. Neither CMC nor any other
affiliate of the Issuer will guarantee, or
otherwise be obligated to pay, the Bonds of
any Series. Except to the extent specified
otherwise in the related Prospectus
Supplement, the assets pledged to
collateralize the Bonds of any Series will
be used only to collateralize the Bonds of
such Series.
The Issuer was incorporated in the State of
Delaware on May 6, 1992. The Issuer's
principal executive offices are located at
CityPlace Center East, 2711 Haskell Avenue,
Suite 900, Dallas, Texas 75204; telephone
number (214) 874-2323. See "The Issuer."
INTEREST PAYMENTS . . . . . . . . . Each Class of Bonds of a Series will bear
interest at the respective rate described
for such Class in the related Prospectus
Supplement. Interest on any Class of
Variable Interest Rate Bonds (See
"Description of the Bonds--Payments of
Interest") will be calculated and paid in
accordance with provisions set forth in the
related Prospectus Supplement, which
provisions will include, among other things:
(a) the interest rate ("Variable Interest
Rate") for the initial Interest Accrual
Period (as defined below) on the Variable
Interest Rate Bonds;
(b) the formula or index by which the
Variable Interest Rate will be determined
for subsequent Interest Accrual Periods;
(c) the intervals at which the Variable
Interest Rate will be recalculated and the
period over which the newly calculated
Variable Interest Rate will be applicable;
and
(d) any minimum or maximum Variable Interest
Rate or the method by which same may be
calculated.
Interest on each Class of Bonds will accrue
over the respective periods and be paid on
the respective dates for such Class as
specified in the related Prospectus
Supplement (each such period an "Interest
Accrual Period" and each such date a
"Payment Date"). Unless otherwise specified
in the Prospectus Supplement for a Series,
payments of interest on each Class of
Compound Interest Bonds will commence only
when all Bonds of such Series having a
Stated Maturity prior to the Stated Maturity
of such Class of Compound Interest Bonds
have
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<PAGE> 133
been paid in full. Unless otherwise
specified in the related Prospectus
Supplement, upon maturity or earlier
redemption of the Bonds of any Series,
interest will be paid to the date specified
in the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement for a Series of
Special Allocation Bonds, upon the
occurrence of certain specified events the
timing of interest payments in respect of a
Class of Special Allocation Bonds may be
modified. Unless interest is accrued to the
Payment Date or the maturity date, as the
case may be, for any Class of Bonds, the
effective yield to the holder of such Bonds
will be reduced to a level below the yield
that would apply if interest were paid to
the respective Payment Dates and maturity
date of such Class of Bonds. See
"Description of the Bonds--Payments of
Interest" herein.
Interest payments will be paid by check
(unless otherwise specified in the related
Prospectus Supplement) mailed by the
Indenture Trustee or paying agent, if any,
appointed by the Issuer for such purpose, to
holders of definitive Bonds at their
respective addresses appearing on the
register on the applicable record date
specified in the Prospectus Supplement.
Beneficial owners of Bonds held in book
entry form ("Book Entry Bonds") will receive
interest payments according to procedures
described under "Description of the
Bonds--Book Entry Registration" herein and
the related Prospectus Supplement for any
Series of Bonds having one or more Classes
of Book Entry Bonds.
PRINCIPAL PAYMENTS . . . . . . . . Unless the Prospectus Supplement relating to
a Series of Bonds provides otherwise,
principal payments on each Series of Bonds
will be made on each Payment Date (each
Payment Date on which principal is payable
being a "Principal Payment Date") in an
aggregate amount equal to the sum of (i) the
amount of interest, if any, accrued but not
then payable on any Compound Interest Bonds
of such Series in the prior Interest Accrual
Period; (ii) an amount (the "Basic Principal
Payment"), determined on the basis of the
Bond Values (as defined below) of the
Certificates securing such Series in a
specified period (a "Due Period") ending
subsequent to the previous Principal Payment
Date; and (iii) the percentage, if any, of
the Spread (as defined below) specified in
such Prospectus Supplement. The Prospectus
Supplement for each Series of Bonds will
specify the manner in which the amount of
such aggregate principal payment will be
determined. See "Description of the
Bonds--Payments of Principal."
The "Bond Value" for a Certificate
represents the principal amount of Bonds of
a Series that, based on certain assumptions,
can be supported by the distributions on
such Certificate, regardless of any
prepayments on such Certificate, together
with (depending on the type of Certificate
and the method used to determine its Bond
Value) the reinvestment income thereon at
the Assumed Reinvestment Rate and/or, if
applicable, the cash available to be
withdrawn from any related Reserve Fund (as
defined below). The Prospectus Supplement
for a Series of Bonds will specify the
method or methods (and related assumptions)
used to determine the Bond Values of the
Certificates pledged to secure such Series
of Bonds.
10
<PAGE> 134
Unless otherwise specified in the related
Prospectus Supplement, the "Spread" for a
Series of Bonds as of any Payment Date is
the excess, if any, of the sum of all
amounts available on such Payment Date from
certain items of collateral, as described in
the following sentence, over the sum of all
amounts due on such Payment Date for
payments of principal and interest on such
Bonds. Amounts available on any Payment Date
from certain items of collateral may
include, to the extent described in the
related Prospectus Supplement, (i) all
distributions received on the Certificates
securing such Series of Bonds in the Due
Period prior to such Payment Date for such
Series of Bonds, (ii) the reinvestment
income thereon, and (iii) if applicable, the
amount of cash, if any, initially deposited
to the Collection Account (as defined below)
or withdrawn from any related Reserve Fund
in the Due Period prior to such Payment Date
and reinvestment income thereon. Amounts due
for payment on such Series of Bonds on any
Payment Date may include, to the extent
described in the related Prospectus
Supplement, (i) all interest payable on the
Bonds of such Series on such Payment Date,
(ii) the Basic Principal Payment for such
Series of Bonds for such Principal Payment
Date, including, if applicable, the amount
(the "Scheduled Amortization Amount") to be
paid on any Class of Scheduled Amortization
Bonds (the "Scheduled Amortization Bonds"),
(iii) interest, if any, accrued but not then
payable on any Compound Interest Bonds of
such Series in the prior Interest Accrual
Period, (iv) the amounts, if any, paid with
respect to special redemption on the Bonds
of such Series, as described below, during
such Due Period and (v) if applicable, an
amount allocable to the payment of fees and
expenses of the Indenture Trustee,
independent accountants and/or other
administrative expenses related to the Bonds
of such Series. To the extent specified in
the related Prospectus Supplement, Spread
may be distributed to the Issuer following
required payments of principal and interest
on each Payment Date. Any Spread distributed
to the Issuer will not be available for
payment of principal and interest on the
Bonds, and such distributions will no longer
be subject to the lien of the Indenture.
Principal payments will be applied in the
order and amounts specified in the
Prospectus Supplement for each Class of a
Series of Bonds. Unless otherwise specified
in the related Prospectus Supplement for a
Series of Special Allocation Bonds, upon the
occurrence of certain specified events the
priority of principal payments may be
reordered. See "Description of the
Bonds--Payments of Principal."
The Stated Maturity for each Class of Bonds
comprising a Series of Bonds is the date on
which all the Bonds of such Class will be
fully paid, assuming (i) timely receipt of
scheduled payments (with no prepayments) on
the Certificates securing such Bonds, (ii)
all such scheduled payments are reinvested
on receipt at the Assumed Reinvestment Rate
specified in the related Prospectus
Supplement, and (iii) no portion of the
Spread is applied to the payment of
principal on the Bonds, unless the related
Prospectus Supplement provides otherwise, in
which event such Stated Maturities will be
based on the assumptions specified in such
Prospectus Supplement. The Assumed
Reinvestment Rate for a Series of Bonds will
be specified in the related Prospectus
Supplement, but in no event will it be more
than the highest rate permitted by the
nationally recognized statistical rating
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<PAGE> 135
agency or agencies requested to rate such
Series of Bonds or a rate insured by means
of a surety bond or similar arrangement
satisfactory to such rating agency or
agencies. If the Assumed Reinvestment Rate
is so insured, the related Prospectus
Supplement will set forth the terms of such
arrangement. The rate of prepayments on the
Certificates securing any Series of Bonds
will depend on the characteristics of the
underlying mortgage loans, as well as on the
prevailing level of interest rates and other
economic factors, and no assurance can be
given as to the actual prepayment experience
of the Certificates. See "Description of the
Bonds--Maturity of the Bonds."
REDEMPTION OF BONDS . . . . . . . . To the extent provided in the related
Prospectus Supplement, the Bonds of any
Class of each Series may be subject to
redemption as follows:
A. Redemption at Request of
Bondholders. . . . . . . . To the extent permitted by the related
Prospectus Supplement and Series Supplement
to the Indenture for a Series of Bonds,
redemptions of one or more Classes of Bonds
of such Series may be made pursuant to the
request of Bondholders. See "Description of
the Bonds--Redemption at Request of
Bondholders."
B. Special Redemption . . . . The Bonds of each Series may be subject to
special redemption under the circumstances
and in the manner described below and in the
related Prospectus Supplement. If
applicable, Bonds of a Series will be
subject to special redemption, in whole or
in part, on a specified date in each month
other than a month including a Principal
Payment Date (each a "Special Redemption
Date"), at 100% of the principal amount of
the Bonds so redeemed, plus accrued interest
to the date designated in the Prospectus
Supplement for a Series of Bonds, if, as a
result of substantial principal payments on
the underlying mortgages and/or low
reinvestment yields, the Indenture Trustee
determines, based on the assumptions
specified in the Indenture, that the future
debt service requirements on any portion of
the Bonds cannot be met. Any such redemption
will not exceed the principal amount of
Bonds of such Series that would otherwise be
required to be paid on the next Principal
Payment Date. Unless otherwise specified in
the related Prospectus Supplement, Bonds of
a Series subject to special redemption will
be redeemable in the same priority and
manner as payments of principal are made on
a Principal Payment Date. See "Description
of the Bonds--Special Redemption."
C. Redemption at the Option
of the Issuer . . . . . . . The Bonds of any Class or Classes of a
Series may be subject to redemption at the
option of the Issuer under the circumstances
provided in the related Prospectus
Supplement at the redemption price set forth
in such Prospectus Supplement. See
"Description of the Bonds--Optional
Redemption."
D. Optional Variable Interest
Rate Bond Redemption . . . Unless specified otherwise in the Prospectus
Supplement for a Series of Bonds, the
Issuer, at its option, may use all or a
portion of the Spread to redeem any Class of
Variable Interest Rate Bonds of such Series,
in whole or in part (an "Optional Variable
Interest Rate Bond Redemption"), on any
Payment Date on such Class of Variable
Interest Rate Bonds (a "Variable Interest
Rate Payment Date"), at 100% of the
principal amount thereof, together with
accrued and
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<PAGE> 136
unpaid interest thereon to the date
designated in the Prospectus Supplement for
a Series of Bonds, if the Variable Interest
Rate at which interest on such Variable
Interest Rate Bonds accrues during the
period specified in the related Prospectus
Supplement preceding such Variable Rate
Interest Payment Date (a "Variable Interest
Rate Period") is equal or, pursuant to the
related Prospectus Supplement, deemed to be
equal to the Maximum Variable Interest Rate
at which interest may accrue on such
Variable Interest Rate Bonds, as set forth
in the related Prospectus Supplement (the
"Maximum Variable Interest Rate"). If any
such Optional Variable Interest Rate Bond
Redemption occurs, the rate of principal
payments on the Bonds of Classes with later
Stated Maturities will not be affected
thereby, unless otherwise provided in the
related Prospectus Supplement. If so
provided in a Prospectus Supplement, after a
redemption in full of a Class of Variable
Interest Rate Bonds in which any Optional
Variable Interest Rate Bond Redemption has
occurred, there may be a period of time,
such period to include one or more Principal
Payment Dates, after the Class of Variable
Interest Rate Bonds has been fully redeemed
and before principal payments on the Bonds
of another Class are to commence (a
"Time-Out Period"). A Time-Out Period shall
extend for the length of time required such
that principal payments on the Bonds of
other Classes shall commence on that
Principal Payment Date on which they would
otherwise have commenced if there had been
no Optional Variable Interest Rate Bond
Redemption in that Series. See "Description
of the Bonds--Optional Variable Interest
Rate Bond Redemption."
SECURITY FOR THE BONDS . . . . . . Except to the extent specified otherwise in
the related Prospectus Supplement, each
Series of Bonds will be separately secured
by collateral ("Collateral") consisting of
the following:
A. Certificates . . . . . . . The Certificates securing a Series of Bonds
may consist of (i) GNMA Certificates, (ii)
FNMA Certificates, (iii) FHLMC Certificates,
(iv) Non-Agency Certificates, or (v) a
combination of such Certificates. Any GNMA
Certificates will be backed by the full
faith and credit of the United States. Any
FNMA and FHLMC Certificates will not be
backed, directly or indirectly, by the full
faith and credit of the United States.
Unless otherwise stated in the Prospectus
Supplement, Non-Agency Certificates will not
be backed, directly or indirectly, by any
agency or instrumentality of the United
States. However, Non-Agency Certificates
pledged to secure any Series of Bonds or the
Agency Certificates or mortgage loans
underlying any Non-Agency Certificate (the
"Mortgage Loans") may be insured, guaranteed
or otherwise backed in the manner described
in the related Prospectus Supplement. Any
Agency Certificate and any Non-Agency
Certificate securing the Bonds of any Series
will evidence an interest in a pool of
Mortgage Loans secured by single-family
(one- to four-units) or multi-family
residences. The Prospectus Supplement for
each Series will specify (i) the aggregate
approximate amount of the Collateral
securing such Series that consists of GNMA,
FNMA and FHLMC Certificates, of Certificates
backed by level payment and graduated
payment mortgages, and, if known to the
Issuer, of Certificates that are backed by
mortgages insured or guaranteed by a
governmental entity and (ii) the aggregate
approximate amount of the Collateral
securing such Series that consists of
Non-Agency Certificates, including the
principal
13
<PAGE> 137
characteristics of the underlying Mortgage
Loans and any insurance, guarantees or other
backing for such Mortgage Loans,
Certificates or both. The Certificates
securing each Series of Bonds will be
registered in the name of the Indenture
Trustee or its nominee or in the name of a
financial intermediary or its nominee acting
on behalf of the Indenture Trustee and will
be held by the Indenture Trustee as
Collateral only for the specified Series of
Bonds. If so provided in the Prospectus
Supplement or Series Supplement for a Series
of Bonds, the Issuer may deposit cash on the
closing date for such Series, to secure such
Series, in lieu of any Certificates which
are not delivered on such closing date. See
"Security for the Bonds--Certificates
Collateralizing the Bonds."
B. Collection Account . . . . Unless specified otherwise in the Prospectus
Supplement for a Series of Bonds, all
distributions on the Certificates pledged as
security for a Series of Bonds will be
remitted directly to a collection account
(the "Collection Account") to be established
with the Indenture Trustee on the closing
date for the sale of such Series of Bonds
and, together with the reinvestment earnings
thereon, the amount of cash, if any,
initially deposited therein by the Issuer,
and, if applicable, the cash withdrawn from
any related Reserve Fund, will be available
for application to the payment of principal
of, and interest on, such Series of Bonds on
the next Payment Date. Unless specified
otherwise in the Prospectus Supplement for a
Series of Bonds, any funds remaining in a
Collection Account immediately following a
Payment Date after deducting certain
Indenture Trustee fees and administrative
expenses will be either deposited in a
related Reserve Fund if the Prospectus
Supplement for such Series of Bonds so
provides or, if not so required, will be
promptly paid over to the Issuer upon
satisfaction of certain conditions contained
in the Indenture and will be free from the
lien of the Indenture. See "Security for the
Bonds--Collection Account."
C. Reserve Funds . . . . . . . Cash, a letter of credit, surety bonds,
Eligible Investments or a combination
thereof in the aggregate amount, if any,
specified in the Prospectus Supplement for
any Series of Bonds will be deposited in one
or more accounts to be established by the
Indenture Trustee (the "Reserve Funds") on
the closing date for the sale of such Series
of Bonds if such cash, letters of credit,
surety bonds or Eligible Investments are
required to make timely payments of
principal of, and interest on, such Series
of Bonds or are otherwise required to obtain
the rating specified in the Prospectus
Supplement by the nationally recognized
statistical rating agency or agencies
requested by the Issuer to rate such Series
of Bonds, or if the Issuer determines to so
minimize the likelihood of a special
redemption of such Bonds. Following each
Payment Date, amounts may be withdrawn from
any related Reserve Fund and remitted free
from the lien of the Indenture to the
persons, under the conditions and to the
extent specified in the related Prospectus
Supplement. Additional information
concerning any Reserve Fund securing a
Series of Bonds will be set forth in the
related Prospectus Supplement. See "Security
for the Bonds--Reserve Funds."
D. Minimum Principal Payment
Agreement . . . . . . . . . If provided in the Prospectus Supplement
with respect to a Series of Bonds, the
Issuer will enter into an agreement with an
institution pursuant to which such
institution will provide such funds as may
be
14
<PAGE> 138
necessary to enable the Issuer to make
principal payments on the Bonds of such
Series at a minimum rate set forth in the
Prospectus Supplement relating to such
Series. See "Security for the Bonds--Minimum
Principal Payment Agreement."
E. Deposits, Substitution and
Withdrawal . . . . . . . . If and to the extent provided in the related
Prospectus Supplement for a Series of Bonds,
the Issuer may deposit or withdraw
Certificates or substitute new Certificates
for Certificates previously pledged as
Collateral for a Series, in each case under
the conditions described in the Indenture.
See "Security for the Bonds--Deposits,
Substitution and Withdrawal of
Certificates."
BOOK ENTRY REGISTRATION . . . . . . If the Prospectus Supplement for a Series so
provides, Bonds of one or more Classes of
such Series may be issued in book entry form
in which case a single certificate will be
issued in the name of a clearing agency (a
"Clearing Agency") registered with the
Securities and Exchange Commission, or its
nominee. Transfers and pledges of Book Entry
Bonds may be made only through entries on
the books of the Clearing Agency in the name
of brokers, dealers, banks and other
organizations eligible to maintain accounts
with the Clearing Agency ("Clearing Agency
Participants") or their nominees. Transfers
and pledges by purchasers and beneficial
owners of Book Entry Bonds ("Beneficial
Owners") other than Clearing Agency
Participants may be effected only through
Clearing Agency Participants. Beneficial
Owners will receive payments of principal
and interest, and, if applicable, may tender
Bonds for redemption to the Indenture
Trustee, only through the Clearing Agency
and Clearing Agency Participants. Except as
otherwise specified in this Prospectus or a
related Prospectus Supplement, the terms
"Bondholders" and "holders" shall be deemed
to include Beneficial Owners. See "Risk
Factors -- Book Entry Registration" and
"Description of the Bonds--Book Entry
Registration."
FEDERAL INCOME TAX CONSIDERATIONS . The Bonds, other than Residual Bonds (if
any), of each Series ("Regular Bonds") will
be taxable obligations under the Internal
Revenue Code of 1986 (the "Code"), and
interest paid or accrued, including original
issue discount with respect to any Compound
Interest Bonds or Regular Bonds of any other
Class issued with original issue discount,
will be taxable to Bondholders. The Issuer
may elect to treat one or more segregated
pools of assets securing any Series of Bonds
as a REMIC. REMIC Bonds generally will be
treated as "qualifying real property loans"
for thrift institutions taxed as "mutual
savings banks" or "domestic building and
loan associations" and as "real estate
assets" for real estate investment trusts.
Bonds for which a REMIC election is not made
("Non-REMIC Bonds") will not be so
characterized. Payments on Regular Bonds
held by foreign persons will generally be
exempt from United States withholding tax,
provided that applicable procedures are
satisfied or as otherwise specified in the
related Prospectus Supplement. Special tax
considerations apply to an investment in
Residual Bonds. See "Certain Federal Income
Tax Consequences."
LEGAL INVESTMENT . . . . . . . . . Unless otherwise specified in the Prospectus
Supplement, Bonds of each Series offered by
this Prospectus and the related Prospectus
Supplement will constitute "mortgage related
securities" under the
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<PAGE> 139
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") and, as such, will be legal
investments for certain types of investors
to the extent provided in SMMEA, subject, in
any case, to any other regulations which may
govern investments by such investors. See
"Legal Investment."
ERISA MATTERS . . . . . . . . . . . An acquisition or holding of Bonds by an
employee benefit plan or an individual
retirement account with respect to which
certain affiliates of the Issuer, certain
affiliates of an underwriter or an
underwriter of the Bonds is a "party in
interest" or "disqualified person" may
constitute a "prohibited transaction" within
the meaning of the Employee Retirement
Income Security Act of 1974, as amended, and
the Code. See "ERISA Matters." Under certain
circumstances, the acquisition or holding by
an employee benefit plan or an individual
retirement account of a Bond which is a
Residual Bond or which is characterized as
an "equity interest" (as defined in
Department of Labor regulations) in the
Issuer of the related Series of Bonds, or in
the collateral securing such Series of
Bonds, could be deemed to give rise to one
or more "prohibited transactions." Any
employee benefit plan or an individual
retirement account proposing to invest in
the Bonds should consult with its counsel.
Under certain circumstances, certain
employee benefit plans and other persons may
be prohibited from investing in one or more
Classes, or in an entire Series, of Bonds.
USE OF PROCEEDS . . . . . . . . . . The Issuer will use substantially all of the
net proceeds from the issuance of each
Series of Bonds either to pay certain
indebtedness incurred in connection with the
acquisition of, or to acquire, the
Certificates or the underlying Mortgage
Loans, as applicable, which are pledged as
collateral for such Series of Bonds and,
subsequently, may distribute all or a
portion of any remaining net proceeds to its
stockholders. See "Use of Proceeds."
RATINGS . . . . . . . . . . . . . . The related Prospectus Supplement for each
Series of Bonds will specify the respective
ratings to be borne by each Class of such
Series of Bonds and the nationally
recognized statistical rating agency or
agencies issuing each such rating.
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<PAGE> 140
RISK FACTORS
Investors should consider, among other things, the following risk factors
in connection with the purchase of Bonds.
General. An investment in Bonds evidencing interests in a Mortgage Pool
may be affected, among other things, by a decline in real estate values or a
decline in mortgage interest rates. If the residential real estate market
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
related 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. To the extent that such losses
are not covered by applicable insurance policies, if any, or by any credit
enhancement as described herein, Holders of the Bonds of a series evidencing
interests in such Mortgage Pool will bear all risk of loss resulting from
default by mortgagors and will have to look primarily to the value of the
Mortgaged Properties for recovery of the outstanding principal and unpaid
interest of the defaulted Mortgage Loans.
The actual rates of delinquencies, foreclosures and losses on the Mortgage
Loans, particularly those secured by multifamily Mortgaged Properties, could be
affected by adverse changes in general economic conditions and by local
conditions including excessive building resulting in an oversupply of rental
housing stock or a decrease in employment reducing the demand for rental units
in the area, by federal, state or local regulations and controls affecting
rents, prices of goods, fuel and energy consumption and prices, water and
environmental restrictions affecting new construction, by increasing labor and
materials costs, and by the relative attractiveness to tenants of the
multifamily rental projects securing the Mortgage Loans and their
neighborhoods. Repayment of a Mortgage Loan secured by an apartment building
owned by a cooperative will depend primarily on the receipt of payments from
the tenant-stockholders of the cooperative and its ability to refinance the
loan at maturity. To the extent that such losses are not covered by applicable
insurance policies, if any, or by any other credit enhancement, Holders of the
Bonds of a series evidencing interests in the related Mortgage Pool will bear
all risk of loss resulting from default by mortgagors and will have to look
primarily to the value of the multifamily projects for recovery of the
outstanding principal and unpaid interest of the defaulted Mortgage Loans.
Limited Obligations. The Bonds will represent nonrecourse obligations of
the Issuer. The Bonds of each series will not be insured or guaranteed by any
government agency or instrumentality, the Issuer, any Servicer, the
Administrator or, unless otherwise specified in the related Prospectus
Supplement, by any other person.
Prepayment and Yield Considerations. The prepayment experience on the
Mortgage Loans and the mortgage loans underlying the Agency Securities (the
"Underlying Mortgage Loans") will affect the average life of each class of
Bonds secured by such Mortgage Loans or Underlying Mortgage Loans. Prepayments
on the Mortgage Loans and the Underlying Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors, including the
difference between the interest rates on the Mortgage Loans or the Underlying
Mortgage Loans (giving consideration to the cost of refinancing) and prevailing
mortgage rates. In general, if mortgage interest rates fall below the interest
rates on the Mortgage Loans or the Underlying Mortgage Loans, the rate of
prepayment would be expected to increase and Bondholders of such series may be
unable to reinvest such payments in securities of comparable quality having
interest rates similar to those borne by the Bonds of such series. Conversely,
if mortgage interest rates rise above the interest rates on the Mortgage Loans
or the Underlying Mortgage Loans, the rate of prepayment would be expected to
decrease. Prepayments on Mortgage Loans and Underlying Mortgage Loans secured
by multifamily properties may also be influenced by a variety of economic
factors affecting project sale or refinancing, including, without limitation,
the relative tax benefits of continued ownership of the property as a result of
changes in federal tax law, among other factors. Prepayments may be influenced
by a variety of economic, geographic, social and other factors, including
aging, seasonality and interest rate fluctuations. Other factors affecting
prepayment of mortgage loans include changes in housing needs, job transfers,
unemployment and servicing decisions. See "Certain Investment, Prepayment,
Yield and Weighted Average Life Considerations" in the related Prospectus
Supplement.
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Limited Liquidity. There will be no market for the Bonds 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 Bondholders
with liquidity of investment or will continue for the life of the Bonds of such
Series. The market value of the Bonds will fluctuate with changes in prevailing
rates of interest. Consequently, the sale of Bonds by a Bondholder in any
market that may develop may be at a discount from the Bonds' par value or such
Bondholder's purchase price. Unless otherwise specified in the Prospectus
Supplement for a Series of Bonds, Bondholders have no right to request
redemption of Bonds, and the Bonds are subject to redemption by the Issuer only
under the limited circumstances described in each such Prospectus Supplement.
Limited Assets. The Bonds represent nonrecourse obligations of the
Issuer. Consequently, Holders of Bonds of each Series must rely upon
distributions on the Certificates securing such Series of Bonds, together with
the reinvestment income thereon, except as otherwise specified in the related
Prospectus Supplement, and, if applicable the cash to be withdrawn from the
related Reserve Funds, for the payment of principal of, and interest on, that
Series of Bonds. In addition, immediately after each required payment of
principal of, and interest on, a Series of Bonds has been paid in full, any
balance remaining in the related Collection Account, if not required to be
deposited in a related Reserve Fund, will be promptly remitted to the Issuer or
to the Residual Bond, in the case of a REMIC, and will no longer be subject to
the lien of the Indenture. In addition, certain amounts remaining in related
Reserve Funds may likewise be remitted to the Issuer following a Payment Date.
If the Collateral securing a Series of Bonds is insufficient to make payments
on such Bonds, no other assets of the Issuer will be available for payment of
the deficiency. In the event of a sale of the Collateral securing any Series of
Bonds as provided in the Indenture following an Event of Default, the Bonds of
such Series will be payable pro rata, unless specified otherwise in the
Prospectus Supplement for any Series of Special Allocation Bonds. Because
payments of principal may, if so provided in the related Prospectus Supplement,
be applied to Classes of outstanding Bonds of a Series in the order of their
respective Stated Maturities(except in the case of Scheduled Amortization Bonds
as described herein), a deficiency that arises after Bonds of any such Series
having earlier Stated Maturities have been fully or partially repaid will have
a disproportionately greater effect on the Bonds of Classes having later Stated
Maturities. The disproportionate effect of any such deficiency is further
increased in the case of Classes of Compound Interest Bonds of any Series
because, prior to the retirement of all Classes of such Series having Stated
Maturities earlier than the Stated Maturity of the Compound Interest Bonds,
interest is not payable, unless otherwise provided in the Prospectus
Supplement, but is accrued and added to the principal of such Compound Interest
Bonds. In addition, due to the priority of payments and the allocation of
losses, defaults experienced on the Collateral securing a Series of Special
Allocation Bonds may have a disproportionate effect on a specified Class or
Classes within such Series.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each Series of Bonds secured by Non-Agency Certificates, credit
enhancement will be provided, to the extent required by the rating agencies
requested to rate such Series of Bonds, to cover certain types of losses on the
Mortgage Loans pooled to form such Non-Agency Certificates. Credit enhancement
will be provided in one or more of the forms described in the related
Prospectus Supplement, including, but not limited to, overcollateralization,
prioritization as to payments of one or more Classes of such Series, a letter
of credit, a mortgage pool insurance policy, a special hazard insurance policy,
a bankruptcy bond, a Reserve Fund, the participation of such Series in the
Issuer's Special Hazard and Bankruptcy Account, or any combination thereof.
Regardless of the form of credit enhancement provided, the amount of coverage
will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. Furthermore, such credit
enhancements 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
Indenture Trustee will generally be permitted to reduce, terminate or
substitute all or a portion of the credit enhancement for any Series of Bonds,
if the applicable rating agencies indicate that the then-current rating thereof
will not be adversely affected.
The Special Hazard and Bankruptcy Account. To the extent described in
the related Prospectus Supplement, a Series of Bonds may have the benefits of
the Issuer's Special Hazard and Bankruptcy Account. The Special Hazard and
Bankruptcy Account is a joint trust account available to the holders of each
Series of the Issuer's Bonds participating in such Account (each, a
"Participating Series"). The Special Hazard and Bankruptcy Account will not be
pledged, as a whole, to secure any Participating Series, but, rather, will be
pledged to the Indenture Trustee for the benefit of holders of all
Participating Series. The amount of cash or other assets on deposit in the
Special Hazard and Bankruptcy Account will be determined in accordance with the
requirements of the rating agencies requested to rate the Participating Series
(the "Requisite Amount of the Special Hazard and Bankruptcy Account"). Each
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Participating Series will have a limit on the aggregate claims which can be
made against the assets in the Special Hazard and Bankruptcy Account (each, a
"Claim Ceiling"). The Trustee will make draws from the Special Hazard and
Bankruptcy Account to pay special hazard and bankruptcy-related claims with
respect to each Participating Series, in the order in which such claims are
received by the Trustee from the Administrator. Should the aggregate draws made
by the Trustee against the Special Hazard and Bankruptcy Account for the
benefit of any Participating Series reach the then applicable Claim Ceiling for
such Series, the holders of such Participating Series may have to bear future
bankruptcy and special hazard-related losses, even though funds remain in the
Special Hazard and Bankruptcy Account for the benefit of holders of other
Participating Series. Conversely, there may be no funds available in the
Special Hazard and Bankruptcy Account even though the Claim Ceiling has not
been reached for any Participating Series, due to payments up to or approaching
the respective Claim Ceilings of other Participating Series. This is due to the
fact that the Requisite Amount of the Special Hazard and Bankruptcy Account is
expected to be less than the sum of the respective Claim Ceilings for all
Participating Series.
Any funds in excess of the Requisite Amount of the Bankruptcy and Special
Hazard Account, including reinvestment income, shall be remitted to the Issuer
on a monthly basis, free from the lien of the Indenture. The Requisite Amount
of the Bankruptcy and Special Hazard Account may be reduced, from time to time,
to the extent permitted by the rating agencies requested to rate the
Participating Series, as described in the Prospectus Supplement for each
Participating Series.
Special Allocation Bonds; Events of Default. To the extent described in
the related Prospectus Supplement, a Series of Bonds may be "Special Allocation
Bonds" in which, upon the occurrence of specified events, the timing and/or
priority of principal and/or interest may be modified or reordered to favor one
or more Classes of Bonds (the "Priority Bonds") over one or more other Classes
of Bonds (the "Non-Priority Bonds"). Under certain circumstances, payments of
available cash flow will be made to holders of Priority Bonds prior to the
payment to holders of Non-Priority Bonds. Unless specified otherwise in the
related Prospectus Supplement, prior to the declaration by the Bondholders that
the Bonds are due and payable, the Non-Priority Bonds will not accrue interest
on any payment shortfall of principal or interest experienced by such
Non-Priority Bonds.
The Non-Priority Bonds may have limited liquidity. There can be no
assurance that a secondary market will develop for the Non-Priority Bonds or,
if one does develop, that it will provide the holders of the Non-Priority Bonds
with liquidity of investment or that it will remain for the term of the Non-
Priority Bonds.
Sale of Collateral on Default; Interest Rate Considerations. Upon an
Event of Default with respect to a Series of Bonds, if the Collateral for such
Series of Bonds is sold by the Indenture Trustee there is no assurance that the
interest rates on the Collateral securing such Series of Bonds will be
sufficiently high so that the proceeds of any such sale will be sufficient to
pay in full the principal of, and interest on, such Series of Bonds. The rate
of prepayment on the Certificates securing a Series of Bonds will directly
affect the average life of such Series of Bonds. During periods of generally
declining interest rates such prepayments are likely to accelerate, thereby
increasing the rate of prepayment on the Bonds, and Bondholders may be unable
to reinvest such payments in securities of comparable quality having interest
rates similar to those borne by such Bonds.
Deposits, Substitutions and Withdrawals of Collateral. To the extent
provided in the Prospectus Supplement for a Series of Bonds, the Issuer of a
Series of Bonds may, subsequent to the closing date for such Series, deposit
additional Certificates and withdraw Certificates previously pledged to secure
such Series. The effect of deposit or substitution of other Certificates as
Collateral for a Series may be to alter the characteristics of the Mortgage
Loans underlying the Certificates, which may alter the timing of principal
payments on, and the maturity of, the Bonds of such Series. See "Security for
the Bonds--Deposits, Substitution and Withdrawal of Certificates."
Nature of Direct or Indirect Backing for Bonds. Only Agency Certificates
are guaranteed by any agency or instrumentality of the United States and only
the guarantee by GNMA of GNMA Certificates is entitled to the full faith and
credit of the United States. The guarantees by FNMA and FHLMC of FNMA
Certificates and FHLMC Certificates, respectively, are backed only by the
credit of FNMA, a federally chartered, privately owned corporation, or by the
credit of FHLMC, a federally chartered corporation controlled by the Federal
Home Loan Banks. See "Security for the Bonds--FNMA" and "Security for the
Bonds--FHLMC." Although payment of principal of, and interest on, any Agency
Certificate securing a Series of Bonds will be guaranteed by either GNMA, FNMA
or
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FHLMC, such guarantee will run only to such Agency Certificate and will not
guarantee the payment of principal or interest on the Bonds of such Series. The
Prospectus Supplement for a Series of Bonds which is secured in whole or in
part by Non-Agency Certificates may describe certain arrangements through which
such Bonds, such Certificates, and/or the Mortgage Loans underlying such
Certificates are insured, guaranteed or otherwise backed. Any such backing may
be subject to contingencies described in the applicable Prospectus Supplement
and will be limited to the credit and assets of the particular specified
insurer or guarantor and will not be entitled to the full faith and credit of
the United States or to any agency or instrumentality thereof.
Insurance Considerations for Non-Agency Certificates. Potential
investors should be aware that (a) any decline in the value of a property
securing a Mortgage Loan underlying a Non-Agency Certificate may result in a
loss on such Certificate if the mortgagor on such Mortgage Loan defaults and
the loss is not covered by any insurance policy or comparable instrument
provided for such Mortgage Loan underlying a Non-Agency Certificate, and (b)
any hazard loss not covered by a standard hazard insurance policy or any
applicable special hazard insurance policy or comparable instrument covering a
defaulted Mortgage Loan underlying a Non-Agency Certificate will result in a
loss on such Certificate. Any such loss on a Non-Agency Certificate, if not
covered by funds available in the Reserve Fund or Collection Account, also will
result in a loss to Bondholders.
Original Issue Discount; Residual Bonds. All of the Compound Interest
Bonds will be, and certain of the other Bonds may be, issued with original
issue discount for federal income tax purposes. A holder of a Bond issued with
original issue discount will be required to include original issue discount in
ordinary gross income for federal income tax purposes as it accrues, in advance
of receipt of the cash attributable to such income. Accrued but unpaid interest
on the Compound Interest Bonds generally will be treated as original issue
discount for this purpose. At certain fast Mortgage Loan or Underlying Mortgage
Loan prepayment rates, original issue discount may accrue on certain classes of
Bonds, including certain Variable Rate Regular Bonds, that may never be
received as cash, resulting in a subsequent loss on such Bonds. See "Certain
Federal Income Tax Consequences--Taxation of Regular Bonds--Original Issue
Discount."
An election may be made to treat one or more segregated pools of assets
securing any Series of Bonds as a REMIC for federal income tax purposes.
Holders of Residual Bonds ("Residual Bondholders") must report on their federal
income tax returns their pro rata share of REMIC taxable income or loss. All or
a portion of the REMIC taxable income reportable by Residual Bondholders may be
treated as such holders' "excess inclusion" subject to special rules for
federal income tax purposes. The REMIC taxable income and, possibly the tax
liabilities of the Residual Bondholders, may exceed the cash distributions on
the Residual Bonds during the corresponding period. Residual Bondholders who
are individuals may be subject to limitations on the deductibility of servicing
fees on the Collateral and other REMIC administrative expenses. Hence,
Residual Bondholders may experience an after-tax return that is significantly
lower than would be anticipated based upon the stated interest rate of their
Residual Bonds. See "Certain Federal Income Tax Considerations--Special Tax
Considerations Applicable to Residual Bonds."
Funds Available for Redemptions at the Request of Bondholders. With
respect to any Series of Bonds for which the related Prospectus Supplement
provides for redemptions at the request of Bondholders there can be no
assurance that amounts available for such redemption, if any, for such Series
of Bonds will be sufficient to permit Bonds to be redeemed within a reasonable
time after redemption is requested, for reasons including the following:
1. Scheduled principal payments on the Mortgage Loans underlying each
Certificate pledged with respect to each Series of Bonds will be minimal in
the early years and will increase in the later years of such Mortgage Loans.
As a result, the scheduled principal payments on the Certificates and the
amount thus available to be applied to payments of principal on the Bonds of
such Series, including redemptions at the request of Bondholders, will be
limited in the early years and will increase during the later years of each
such Series. Accordingly, the availability of funds for redemption of Bonds
of any Series at the request of Bondholders will depend largely upon the
rates of prepayment of the Certificates securing such Series. See "Security
for the Bonds."
2. Prepayments of principal on Certificates are least likely to occur
during periods of higher interest rates when it is expected the requests for
redemption by Bondholders will be greatest. During periods in which
prevailing interest rates are higher than the interest rate paid on a Series
of Bonds, greater numbers of Bonds are
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expected to be tendered for redemption in order to take advantage of the
higher interest rates payable on other investments then available. During
such periods, there will likely also be a reduction in the rate of
prepayments on the Certificates securing a Series of Bonds, thus limiting
the funds available to satisfy requested redemption by Bondholders.
3. Certain Bondholders, such as personal representatives of deceased
Bondholders, as specified in the related Prospectus Supplement may have
certain priorities as to redemption at the request of Bondholders.
Book Entry Registration. Because transfers and pledges of Book Entry
Bonds can be effected only through book entries at a Clearing Agency through
Clearing Agency Participants, the liquidity of the secondary market for Book
Entry Bonds may be reduced to the extent that some investors are unwilling to
hold Bonds in book entry form in the name of Clearing Agency Participants and
the ability to pledge Book Entry Bonds may be limited due to lack of a physical
certificate. Beneficial Owners of Book Entry Bonds may, in certain cases,
experience delay in the receipt of payments of principal and interest since
such payments will be forwarded by the Indenture Trustee to the Clearing Agency
who will then forward payment to the Clearing Agency Participants who will
thereafter forward payment to Beneficial Owners. In the event of the insolvency
of the Clearing Agency or of a Clearing Agency Participant in whose name Bonds
are recorded, the ability of Beneficial Owners to obtain timely payment and (if
the limits of applicable insurance coverage by the Securities Investor
Protection Corporation are exceeded, or if such coverage is otherwise
unavailable) ultimate payment of principal and interest on Book Entry Bonds may
be impaired.
FNMA Guaranty. Full and timely payment of interest and principal on any
FNMA Certificates relating to a series will be guaranteed by FNMA. This
guarantee will be backed by the credit of FNMA, a federally chartered,
privately owned corporation. The full faith and credit of the United States
will not, however, guarantee any payments on any such FNMA Certificates.
Neither the United States nor any agency thereof will be obligated to finance
FNMA's operations or to assist FNMA in any other manner.
FHLMC Guaranty. Payment of principal and interest on any FHLMC
Certificates relating to a series will be guaranteed by FHLMC as specified
herein. This guarantee will be backed by the credit of FHLMC, a federally
chartered corporation. The full faith and credit of the United States will not,
however, guarantee any payments on any such FHLMC Certificates. Neither the
United States nor any agency thereof is obligated to finance FHLMC's operations
or to assist FHLMC in any other manner.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the originators of the Mortgage Loans. In addition, other state
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and debt recollection practices
may apply to the origination, servicing and collection of the Mortgage Loans.
Depending on the provisions of the applicable law and the specified facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Indenture Trustee to collect all or part of the
principal of or interest on the related Mortgage Loans, and may entitle the
borrower to a refund of amounts previously paid. See "Certain Legal Aspects of
the Mortgage Loans."
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms thereof;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience.
Violations of certain provisions of these federal laws may limit the ability of
the Servicer or the Administrator to collect all or part of the principal of or
interest on the Mortgage Loans and in addition could subject the Servicer or
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the Administrator to damages and administrative enforcement. Unless otherwise
specified in the related Prospectus Supplement, the related Seller or the
Issuer will be required to repurchase any Mortgage Loan which, at the time of
origination, did not comply with such federal laws or regulations.
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
series of Bonds will be applied to the simultaneous purchase of the Mortgage
Loans to be pledged to secure such series or to reimburse the amounts
previously used to effect such a purchase, the costs of carrying such Mortgage
Loans until sale of the Bonds and other expenses connected with pooling the
Mortgage Loans to be pledged to secure the Bonds and issuing the Bonds.
Subsequently, the Issuer may distribute to its stockholders all or a portion of
any remaining net proceeds.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds of each Series will be issued pursuant to the Indenture and the
Series Supplement for such Series and will be secured by the Certificates
pledged by the Issuer as security for such Series of Bonds as specified in the
related Prospectus Supplement. The Indenture does not limit the amount of Bonds
that can be issued thereunder and provides that Bonds of any Series may be
issued thereunder up to the aggregate principal amount that may be authorized
from time to time by the Issuer.
The following summaries describe certain provisions common to each Series
of the Bonds, unless otherwise noted. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the Prospectus Supplement and the provisions of the Indenture and the
Series Supplement relating to each Series of Bonds. When particular provisions
or terms used in the Indenture are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summaries.
The Bonds are issuable in Series. Each Series will consist of one or more
Classes of Bonds, which may include one or more Classes of Compound Interest
Bonds. A Series of Bonds may constitute a Series of Special Allocation Bonds.
Interest will accrue on Compound Interest Bonds but will not be payable until
all Bonds having a Stated Maturity prior to the Stated Maturity of such Class
of Compound Interest Bonds have been paid in full, unless the related
Prospectus Supplement provides otherwise, in which event such interest payments
will commence at the time specified in such Prospectus Supplement. Prior to
such time, the amount of interest so accrued will be added to the principal of
such Class of Compound Interest Bonds on each Payment Date.
A Series of Bonds may include one or more Classes of "Scheduled
Amortization Bonds" and "Companion Bonds." Scheduled Amortization Bonds are
Bonds with respect to which payments of principal are to be made in specified
amounts on specified Payment Dates, to the extent of funds available on such
Payment Date. Companion Bonds are Bonds which receive payments of all or a
portion of any funds available on a given Payment Date which are in excess of
amounts required to be applied to payments on Scheduled Amortization Bonds on
such Payment Date. Because of the manner of application of payments of
principal to Companion Bonds, the weighted average lives of Companion Bonds of
a Series may be expected to be more sensitive to the actual rate of prepayments
on the Mortgage Loans underlying the Certificates securing such Series of Bonds
than will the Scheduled Amortization Bonds of such Series.
The Bonds of each Series will be issued as provided in the related
Prospectus Supplement either in definitive, fully-registered form or in book
entry form, in either case only in the minimum denominations and authorized
denominations in excess of such amount specified in the related Prospectus
Supplement. The Bonds may be transferred or exchanged without the payment of
any service charge other than any tax or governmental charge payable in
connection with such transfer or exchange except that, in the case of any
exchange of a mutilated, lost, destroyed or
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stolen Bond, the Issuer may charge such Bondholder an amount equal to the
reasonable expenses incurred in connection therewith. (Indenture, Sections 2.7
and 2.8)
Payments of principal of, and interest on, each Series of Bonds will be
made on the Payment Dates set forth in the Prospectus Supplement relating to
such Series. With respect to Bonds that are not Book Entry Bonds, such payments
shall be made by (i) check mailed to Bondholders of such Series registered as
such on the related record date preceding such Payment Date at the addresses
appearing on the Bond Register, or (ii) upon written request made at least five
business days prior to the applicable Record Date (as set forth in the related
Prospectus Supplement) by any Bondholder of a Bond or Bonds of a Class having
an initial outstanding principal balance that is in excess of the lesser of (x)
$5,000,000 and (y) two-thirds of the initial outstanding principal balance of
all Bonds of such Class, by wire to a US depository institution satisfactory to
the Indenture Trustee, or by such other means of payment as such Bondholder and
the Indenture Trustee may agree, except that final payments of principal in
retirement of each Bond (other than a Book Entry Bond) will be made only upon
presentation and surrender of such Bond at the New York office of the Paying
Agent for such Series of Bonds. (Indenture, Sections 2.9 and 3.2) With respect
to Book Entry Bonds, such payments will be made as described below under "Book
Entry Registration" and in the related Prospectus Supplement.
The Indenture Trustee will include with each payment on a Bond which
includes both interest and principal a statement showing the amount of such
payment that constitutes interest and principal, respectively, the remaining
actual unpaid principal amount of such Bond and, in the case of a Bond that is
a Senior Bond or a Junior Bond (in each case as set forth in the related
Prospectus Supplement), the Imputed Principal Balance (as set forth in the
related Prospectus Supplement) of such Bond. Payments on Bonds which include
only interest will be accompanied by a statement showing the aggregate actual
unpaid principal amount (if any) of the Bonds of each Class of the same Series
and, if such Series includes Classes of Senior Bonds and Junior Bonds, the
aggregate Imputed Principal Balance (if any) of the Bonds of each Class of such
Series. On each Payment Date before payments of principal are first made on a
particular Class of Compound Interest Bonds of such Series, the Indenture
Trustee will furnish to each holder of a Bond of such Class a statement showing
the aggregate unpaid principal amount of such Class of Bonds and the new
principal balance of such holder's Compound Interest Bond. (Indenture, Section
8.7)
Except to the extent specified otherwise in the related Prospectus
Supplement, the Bonds of each Series will be secured by separate Collateral.
Subject to certain assumptions explained more fully elsewhere in this
Prospectus and the related Prospectus Supplement, the Certificates deposited as
Collateral for each Series will have, on their date of issuance, an aggregate
Bond Value that (a) will at least equal the aggregate principal amount of the
Bonds of such Series and (b) will produce, together with other Collateral, if
any, a cash flow sufficient to amortize each Class of Bonds of the Series
through redemption and payment at their respective Stated Maturities and to
timely make the interest payments required to be made on the Bonds of the
Series while they are outstanding. See "Security for the Bonds."
One or more Series of Bonds may constitute Series of "Special Allocation
Bonds." Unless otherwise specified in the related Prospectus Supplement for a
Series of Special Allocation Bonds, upon the occurrence of specified events,
the timing and/or priority of payments of principal and/or interest may be
modified or reordered. Unless otherwise specified in the related Prospectus
Supplement for a Series of Special Allocation Bonds, losses on the Collateral
securing such Series may be disproportionately borne by one or more Classes of
such Series, and the proceeds of the sale of such Collateral may be applied to
the payment in full of one or more Classes within such Series before the
balance, if any, of such proceeds are applied to one or more other Classes
within such Series.
PAYMENTS OF INTEREST
The Bonds of each Class will bear interest, if any, on their unpaid
principal balances from the date and at the rate per annum (which may be zero)
specified or described in the related Prospectus Supplement. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months, except to
the extent specified otherwise in the related Prospectus Supplement. Interest
on Bonds other than Compound Interest Bonds will be payable on the Payment
Dates specified in the related Prospectus Supplement. Payments of interest on
each Class of Compound Interest Bonds will commence only when all Bonds of such
Series having a Stated Maturity prior to the Stated Maturity of such Class
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of Compound Interest Bonds have been paid in full, unless the related
Prospectus Supplement provides otherwise, in which event such interest payments
will commence at the time specified in such Prospectus Supplement. Prior to
such time, interest on such Class of Compound Interest Bonds will accrue and
the amount of interest so accrued will be added to the principal thereof on
each Payment Date. Such Class of Compound Interest Bonds will thereafter accrue
interest on the outstanding principal amount thereof as so adjusted.
One or more Classes of Bonds of a Series may bear interest at a variable
rate ("Variable Interest Rate Bonds"). The interest rate of a Class of Variable
Interest Rate Bonds is a variable rate which may have an interest rate maximum
(the "Maximum Variable Interest Rate") or an interest rate minimum (the
"Minimum Variable Interest Rate") or both, subject to general market
conditions. Certain Variable Interest Rate Bonds may accrue interest at a rate
that varies directly with a variable rate based on an objective index
("Floating Interest Rate Bonds"). Other Variable Interest Rate Bonds may accrue
interest at a rate that varies inversely with a variable rate based on an
objective index ("Inverse Floating Interest Rate Bonds"). For each Class of
Variable Interest Rate Bonds, the related Prospectus Supplement will set forth
the interest rate ("Variable Interest Rate") for the initial Interest Accrual
Period on the Variable Interest Rate Bonds, the intervals at which the Variable
Interest Rate will be recalculated, and the periods (each such period, a
"Variable Interest Rate Period") over which the initial Variable Interest Rate
and each successively calculated Variable Interest Rate shall apply and the
formula or index by which the Variable Interest Rate for each succeeding
Variable Interest Rate Period will be determined. The interest payment dates on
Variable Interest Rate Bonds will be set forth in the related Prospectus
Supplement and may not be the same date or frequency as the Payment Dates for
the other Bonds of such Series.
Unless otherwise specified in the related Prospectus Supplement for a
Series of Special Allocation Bonds, upon the occurrence of certain specified
events the timing of interest payments in respect of a Class of Special
Allocation Bonds may be modified.
PAYMENTS OF PRINCIPAL
On each Principal Payment Date for a Series of Bonds, the Issuer will be
obligated to make principal payments in the manner described below and in the
related Prospectus Supplement to the holders of the Bonds of such Series for
which principal is then due. The Prospectus Supplement will specify the manner
in which principal payments will be applied among the Classes of Bonds of that
Series. Principal payments on a Class of Bonds will be allocated pro rata among
the Bonds of that Class unless otherwise provided in its related Prospectus
Supplement. Except as otherwise provided in the related Prospectus Supplement,
each Class of Bonds will be fully paid no later than the Stated Maturity for
such Class of Bonds specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement for a Series of
Special Allocation Bonds, upon the occurrence of certain specified events the
priority of principal payments may be reordered.
Unless the related Prospectus Supplement provides otherwise, the total
amount of each principal payment required to be made on the Bonds of a Series
on a Principal Payment Date will be equal to the sum of (i) the amount of
interest, if any, accrued but not then payable on any Compound Interest Bonds
of such Series in the prior Interest Accrual Period; (ii) an amount determined
on the basis of the Bond Values (as defined below) of the Certificates securing
such Series in a specified period (a "Due Period") corresponding to such
Principal Payment Date (the "Basic Principal Payment"); and (iii) the
percentage, if any, of the Spread (as defined below) specified in such
Prospectus Supplement. The Prospectus Supplement for each Series of Bonds will
specify the manner in which the amount of such aggregate principal payment will
be determined. The aggregate amount of principal payments required to be made
on a Series of Bonds on any Principal Payment Date will be reduced by the
principal amount of such Bonds of such Series redeemed pursuant to any special
redemption occurring subsequent to the preceding Principal Payment Date. See
"Description of the Bonds--Special Redemption."
The "Bond Value" for a Certificate represents the principal amount of
Bonds of a Series that, based on certain assumptions and regardless of any
prepayments on such Certificate, can be supported by the distributions on such
Certificate, together with (depending on the type of Certificate and the method
used to determine its Bond Value) the reinvestment income thereon at the
Assumed Reinvestment Rate and/or, if applicable, the cash available to be
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withdrawn from any related Reserve Fund. For convenience of calculation,
Certificates that are backed by the same pool of mortgage loans may be
aggregated into one or more groups (a "Bond Value Group"), each of which will
be assigned an aggregate Bond Value. Unless the related Prospectus Supplement
provides otherwise, the aggregate Bond Value of such a Bond Value Group
consisting of Certificates will be calculated as if the underlying Mortgage
Loans constituted a single mortgage loan having such of the payment
characteristics of the Mortgage Loans underlying the Certificates included in
such Bond Value Group as would result in the lowest Bond Value being assigned
to the Certificates included in such Bond Value Group. There are a number of
alternative means of determining the Bond Value of a Certificate, including
determinations based on the discounted present value of the remaining scheduled
distributions on such Certificate and determinations based on the relationship
of the interest rate borne by such Certificate and by the related Bonds. The
Prospectus Supplement for a Series of Bonds will specify the method or methods
(and related assumptions) used to determine the Bond Values of the Bond Value
Groups securing such Series of Bonds. In any event, the aggregate of the Bond
Values of all the Bond Value Groups securing a Series of Bonds will always be
at least equal to the outstanding principal amount of the Bonds of such Series.
The Assumed Reinvestment Rate for a Series of Bonds will be specified in
the related Prospectus Supplement, but in no event will it be more than the
highest rate permitted by the nationally recognized statistical rating agency
or agencies rating such Series of Bonds or a rate insured by means of a surety
bond or similar arrangement satisfactory to such rating agency or agencies. If
the Assumed Reinvestment Rate is so insured, the related Prospectus Supplement
will set forth the terms of such arrangement.
Unless otherwise specified in the related Prospectus Supplement, the
Spread for each Series of Bonds as of any Principal Payment Date is the excess,
if any, of the sum of (i) the distributions received on the Certificates
securing such Series of Bonds in the Due Period prior to such Principal Payment
Date, (ii) the reinvestment income thereon, and (iii) if applicable, the amount
of cash initially deposited to the Collection Account or withdrawn from any
related Reserve Fund prior to such Principal Payment Date and reinvestment
income thereon, over the sum of (i) all interest payable on the Bonds of such
Series on such Principal Payment Date, (ii) the Basic Principal Payment
required to be made on such Series of Bonds for such Principal Payment Date,
(iii) interest, if any, accrued but not then payable on any Compound Interest
Bonds of such Series in the prior Interest Accrual Period, (iv) the amounts, if
any, paid with respect to special redemptions of the Bonds of such Series, as
described below, during such Due Period and (v) if applicable, an amount
allocable to the payment of fees and expenses of the Indenture Trustee,
independent accountants and/or other administrative expenses related to the
Bonds of such Series.
MATURITY OF THE BONDS
All of the Mortgage Loans underlying any GNMA Certificates securing a
Series of Bonds will consist of mortgage loans insured by the Federal Housing
Administration ("FHA Loans") or guaranteed by the Farmers Home Administration
("FmHA Loans") or partially insured or guaranteed by the Veterans'
Administration ("VA Loans"). The Mortgage Loans underlying any FNMA, FHLMC or
Non-Agency Certificates securing a Series of Bonds will consist of conventional
(that is, neither insured nor guaranteed by any government agency) mortgage
loans ("Conventional Loans") and may consist of FHA, FmHA or VA Loans. Each
Certificate will provide by its terms for monthly payments of principal and
interest in the amounts described in "Security for the Bonds" and in the
related Prospectus Supplement.
Since the aggregate amount of the principal payment required to be made on
a Series of Bonds on a Principal Payment Date will depend on the amount of the
principal receipts received on the related Certificates in the preceding Due
Period, the prepayment experience on the Mortgage Loans will affect the average
life of each Class of Bonds and the extent to which such Class is paid prior to
its Stated Maturity. The Stated Maturity for each Class of Bonds is the date on
which the principal thereof will be fully paid, assuming (i) timely receipt of
scheduled payments (with no prepayments) on the Certificates securing such
Bonds, (ii) all such scheduled payments are reinvested on receipt at the
Assumed Reinvestment Rate for such Series and (iii) no portion of the Spread is
applied to the payment of principal on the Bonds, unless the related Prospectus
Supplement provides otherwise, in which event such Stated Maturities will be
based on the assumptions specified in such Prospectus Supplement.
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The Prospectus Supplement for each Series of Bonds may contain a table
setting forth the projected weighted average life of each Class of Bonds of
such Series offered in such Prospectus Supplement, other than those Class or
Classes of Bonds of such Series (if any) on which no principal is payable, and
the percentage of the original principal amount of each Class of such Bonds of
such Series that would be outstanding on specified Principal Payment Dates for
such Series based on the assumption that prepayments on the Mortgage Loans
underlying the related Certificates are made at rates corresponding to various
percentages of the prepayment model, and on such other assumptions, as may be
specified in such Prospectus Supplement.
REDEMPTION AT THE REQUEST OF BONDHOLDERS
To the extent permitted by the Prospectus Supplement and Series Supplement
for a Series of Bonds, one or more Classes of Bonds of such Series may be
subject to redemption at the request of Bondholders. Any such requested
redemptions with respect to a Series will be conducted on the terms and
conditions in the related Prospectus Supplement.
SPECIAL REDEMPTION
The Bonds of each Series may be subject to special redemption under the
circumstances and in the manner described below. The Prospectus Supplement for
each Series of Bonds will specify the circumstances under which the Bonds of
such Series are so redeemable or if the Bonds of such Series are not subject to
special redemption. Unless otherwise specified in the related Prospectus
Supplement, the Issuer will be required to redeem, on a specified day of any
month other than a month including a Principal Payment Date (each, a "Special
Redemption Date"), outstanding Bonds of a Series in the amount described below
if, as a result of principal payments on the Mortgage Loans underlying the
Certificates pledged as security for such Series of Bonds and/or low yields
then available for reinvestment of distributions on such Certificates, the
Indenture Trustee determines, based on the assumptions specified in the
Indenture for such Series, that the future debt service on any portion of the
Bonds cannot be met. The amount of Bonds required to be so redeemed will not
exceed the principal amount of Bonds of such Series that would otherwise be
required to be paid on the next Principal Payment Date.
Unless otherwise specified in the related Prospectus Supplement or the
related Prospectus Supplement states that the Bonds offered thereby are not
subject to special redemption, all payments of principal pursuant to any
special redemption will be made in the same priority and manner as payments of
principal on Principal Payment Dates. Unless otherwise provided in the related
Prospectus Supplement, Bonds of the same Class will be redeemed pro rata.
Notice of any special redemption will be given by the Issuer or the Indenture
Trustee prior to the Special Redemption Date. (Indenture, Section 10.2) The
redemption price for any Bond so redeemed will be equal to 100% of the
principal amount of such Bond so redeemed, together with accrued interest
thereon to the date specified in the related Prospectus Supplement. (Indenture,
Sections 10.1 and 10.2)
OPTIONAL REDEMPTION
The Issuer may, at its option, redeem all, or a portion, of any Class or
Classes of Bonds of any Series pursuant to conditions specified in the related
Prospectus Supplement, which conditions may include that any such Class or
Classes may be redeemed in whole, but not in part, on any Payment Date for such
Bonds after a date specified in the related Prospectus Supplement and that any
such Class or Classes may be redeemed in whole, but not in part, on any Payment
Date after the aggregate principal amount of any such Class has declined below
a specified percentage of the original aggregate principal amount of such
Class. Notice of such redemption will be given by the Issuer or the Indenture
Trustee prior to the redemption date. The redemption price, including accrued
interest, for any Bond so redeemed will be specified in the related Prospectus
Supplement. (Indenture, Sections 10.1 and 10.2)
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OPTIONAL VARIABLE INTEREST RATE BOND REDEMPTION
Unless specified otherwise in the related Prospectus Supplement, the
Issuer, at its option, may use all or a portion of the Spread to redeem any
Class of Variable Interest Rate Bonds, in whole or in part (an "Optional
Variable Interest Rate Bond Redemption"), on any Variable Interest Rate Payment
Date, at 100% of the principal amount thereof, together with accrued interest
and unpaid thereon to the date specified in the related Prospectus Supplement,
if the Variable Interest Rate at which interest on such Class of Variable
Interest Rate Bonds accrues during the Variable Interest Rate Period applicable
to such Variable Interest Rate Payment Date is equal or, pursuant to the
related Prospectus Supplement, deemed to be equal to the Maximum Variable
Interest Rate set forth in the related Prospectus Supplement. If any such
Optional Variable Interest Rate Bond Redemption occurs, the rate of principal
payments on the Bonds of Classes with later Stated Maturities will not be
thereby affected, unless otherwise provided in the related Prospectus
Supplement. If so provided in the related Prospectus Supplement, after a
redemption in full of a Class of Variable Interest Rate Bonds in which any
Optional Variable Interest Rate Bond Redemption has occurred, there may be a
period of time, such period to include one or more Principal Payment Dates,
after the Class of Variable Interest Rate Bonds has been fully redeemed and
before principal payments on the Bonds of another Class are to commence (a
"Time-Out Period"). A Time-Out Period shall extend for the length of time
required such that principal payments on the Bonds of other Classes shall
commence on that Principal Payment Date on which they would otherwise have
commenced if there had been no Optional Variable Interest Rate Bond Redemptions
in that Series.
PROCEDURES AND REDEMPTION NOTICES
With respect to any special or optional redemption of the Bonds, unless a
Prospectus Supplement provides otherwise, the Indenture Trustee will mail to
the holders of the Bonds to be redeemed a notice setting forth: (a) the Special
Redemption Date on which a special redemption is to take place or the Payment
Date on which an optional redemption is to take place, (b) the redemption
price, (c) if the Bonds of a Class are not to be redeemed in full, the amount
of principal to be paid, that no interest will accrue on such principal amount
thereafter and, except as otherwise provided herein and in the Prospectus
Supplement with respect to Book Entry Bonds, that payment of the redemption
price will be made by check mailed to the registered holders of the Bonds on
the relevant record date and (d) in the case of Bonds other than Book Entry
Bonds, if the Bonds are to be redeemed in full then the place where such Bonds
should be surrendered for payment.
BOOK ENTRY REGISTRATION
If the Prospectus Supplement for a Series so provides, Bonds of any Class
of such Series may be issued in book entry form ("Book Entry Bonds") and held
in the form of a single certificate issued in the name of a Clearing Agency
("Clearing Agency") registered with the Securities and Exchange Commission or
its nominee. Transfers and pledges of Book Entry Bonds may be made only through
entries on the books of the Clearing Agency in the name of brokers, dealers,
banks and other organizations eligible to maintain accounts with the Clearing
Agency ("Clearing Agency Participants") or their nominees. Clearing Agency
Participants may also be Beneficial Owners (as defined below) of Book Entry
Bonds.
Purchasers and other beneficial owners of Book Entry Bonds ("Beneficial
Owners") may not hold Book Entry Bonds directly, but may hold, transfer or
pledge their ownership interest in the Bonds only through Clearing Agency
Participants. Additionally, Beneficial Owners will receive all payments of
principal and interest with respect to the Bonds, and, if applicable, may
request redemption of Bonds, only through the Clearing Agency and the Clearing
Agency Participants. Beneficial Owners will not be registered holders of Bonds
or be entitled to receive definitive certificates representing their ownership
interest in the Bonds except under the limited circumstances, if any, described
in the related Prospectus Supplement. See "Risk Factors -- Book Entry
Registration."
If Bonds of a Series are issued as Book Entry Bonds, the Clearing Agency
will be required to make book entry transfers among Clearing Agency
Participants, to receive and transmit payments of principal and interest with
respect to the Bonds of such Series, and to receive and transmit requests for
redemption with respect to such Bonds. Clearing
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Agency Participants with whom Beneficial Owners have accounts with respect to
such Book Entry Bonds will be similarly required to make book entry transfers
and receive and transmit payments and redemption requests on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
be registered holders of Bonds and will not possess physical certificates, a
method will be provided whereby Beneficial Owners may receive payments,
transfer their interests, and submit redemption requests.
SECURITY FOR THE BONDS
GENERAL
Each Series of Bonds will be secured by assignments to the Indenture
Trustee of Collateral consisting of (i) Certificates, (ii) the distributions
thereon, (iii) cash, letters of credit, surety bonds, Eligible Investments or a
combination thereof in the aggregate amount, if any, required by the related
Prospectus Supplement to be deposited by the Issuer in a related Reserve Fund,
(iv) the amount of cash, if any, specified in such Prospectus Supplement to be
initially deposited by the Issuer in the related Collection Account, and (v)
the reinvestment income on such distributions and cash. The Prospectus
Supplement for a Series may specify that the Bonds of such Series are secured
by collateral in addition to the Collateral referred to above. Scheduled
distributions on the Certificates securing each Series of Bonds, together with
the earnings on the reinvestment of such distributions at the Assumed
Reinvestment Rate specified in the related Prospectus Supplement and, if
applicable, amounts available to be withdrawn from any related Reserve Fund,
will be sufficient to make timely payments of interest on the Bonds of such
Series and to retire each Class of Bonds comprising such Series not later than
the Stated Maturity of such Class of Bonds specified in the related Prospectus
Supplement. See "Description of the Bonds--Payments of Principal." Unless
otherwise specified in the related Prospectus Supplement, the Collateral
securing each Series of Bonds will equally and ratably secure the Bonds of each
Class of such Series, and the Collateral securing such Series will secure only
that Series of Bonds.
GNMA
The Government National Mortgage Association is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. Section 306(g) of Title III 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, GNMA Certificates which are based on and
backed by a pool of mortgage loans (i) insured by the FHA under the Housing
Act, (ii) guaranteed by the FmHA under Title V of the Housing Act of 1949, or
(iii) partially insured or guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or Chapter 37 of Title 38, United States
Code and other mortgage loans eligible for inclusion in mortgage pools
underlying GNMA Certificates.
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 guaranty under this subsection." In order to meet
its obligations under such guarantees, GNMA is authorized, under Section 306(d)
of the Housing Act, to borrow from the United States Treasury with no
limitations as to amount.
GNMA CERTIFICATES
Each GNMA Certificate (which may be a GNMA I Certificate or a GNMA II
Certificate as referred to by GNMA) will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by a mortgage banking company
or other financial concern (the "GNMA Servicer") approved by GNMA or approved
by FNMA as a seller-servicer of FHA Loans and/or VA Loans. Each GNMA
Certificate will represent a fractional undivided interest in a pool of
mortgage loans which may include FHA Loans, FmHA Loans and/or VA Loans, and
will provide for the payment by or on behalf of the GNMA Servicer to the
registered holder of such GNMA Certificate of monthly payments of principal and
interest equal to the registered holder's proportionate interest in the
aggregate amount of the scheduled monthly principal and interest payments on
each such mortgage loan, less amounts to cover servicing and guarantee fees
aggregating the excess of the interest on the mortgage loans over the GNMA
Certificate's pass-through rate. In addition, each payment to a GNMA
certificate holder will include proportionate pass-through
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payments of any unscheduled recoveries of principal of the mortgage loans
underlying the GNMA Certificate including any prepayments of principal and
proceeds in the event of a foreclosure or other disposition of any such
mortgage loan.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation will be 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.
In general, GNMA requires that at least 90% of the original principal amount of
the mortgage pool underlying a GNMA Certificate must consist of mortgage loans
with maturities of twenty years or more. However, in certain circumstances,
GNMA Certificates may be backed by pools of mortgage loans at least 90% of the
original principal amount of which have original maturities of at least 15
years. Each mortgage loan underlying a GNMA Certificate, at the time GNMA
issues its guarantee commitment, must be originated no more than 12 months
prior to such commitment date.
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 of each GNMA Certificate will be
comprised of interest due as specified on such GNMA Certificate plus the
scheduled principal payments on the mortgage loans underlying such GNMA
Certificate due on the first day of the month in which the scheduled monthly
installment on such GNMA Certificate is due. Such regular monthly installments
on each such GNMA Certificate will be paid to the registered holder by the 15th
day of each month in the case of a GNMA I Certificate and will be mailed by the
20th day of each month in the case of a GNMA II Certificate. Any principal
prepayments on any mortgage loans underlying a GNMA Certificate or any other
unscheduled recovery of principal on such mortgage loans will be passed through
to the registered holder of such GNMA Certificate and, in turn, a portion of
such prepayments or other unscheduled recoveries will be paid to holders of the
Bonds, secured thereby, as additional principal payments.
GNMA will approve the issuance of each GNMA Certificate in accordance with
a guaranty agreement (the "Guaranty Agreement") between GNMA and the GNMA
Servicer of such GNMA Certificate. Pursuant to the Guaranty Agreement, the GNMA
Servicer will service the underlying mortgage loans and be required to advance
its own funds in order to make timely payments of all amounts due on the GNMA
Certificate, even if the payments received by the GNMA Servicer on the mortgage
loans underlying the GNMA Certificate are less than the amounts due on such
GNMA Certificate.
If a GNMA Servicer is unable to make payments on a GNMA Certificate as
such payments become due, it is required promptly to notify GNMA and request
GNMA to make such payments. Upon such notification and request, GNMA will make
such payments directly to the registered holder of the GNMA Certificate. In the
event no payment is made by a GNMA Servicer and the GNMA Servicer fails to
notify and request GNMA to make such payment, the holder of the GNMA
Certificate will have recourse only against GNMA to obtain such payment. In the
case of GNMA Certificates issued in definitive form, the Indenture Trustee, as
registered holder of the GNMA Certificates pledged to secure a Series of Bonds,
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. In the case of GNMA Certificates issued in book-entry form,
The Participants Trust Corporation ("PTC"), or its nominee, will have the right
to proceed against GNMA in such event.
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If specified in the related Prospectus Supplement, GNMA Certificates
securing a Series of Bonds may be held on deposit at PTC, a newly established,
limited purpose trust company organized under the banking law of the State of
New York. PTC operates a private sector, industry-owned depository and
settlement facility for the book-entry transfer of interests in GNMA
Certificates. Distributions of principal of and interest on each GNMA
Certificate held through PTC will be credited by PTC to the PTC participant to
whose account the GNMA Certificate is credited.
FNMA
FNMA is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act. FNMA
was originally established in 1938 as a United States government agency to
provide supplemental liquidity to the mortgage market and was transformed into
a stockholder owned and privately managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas. In addition, FNMA issues mortgage-backed securities,
primarily in exchange for pools of mortgage loans from lenders.
FNMA CERTIFICATES
FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
representing fractional undivided interests in a pool of mortgage loans formed
by FNMA. Each mortgage loan must meet the applicable standards of the FNMA
purchase program. Mortgage loans comprising a pool are either provided by FNMA
from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates relating to a series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate
of interest payable on a FNMA Certificate is equal to the lowest interest rate
of any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Thus,
the annual interest rates on the mortgage loans underlying a FNMA Certificate
will generally be between 50 basis points and 250 points greater than the
annual FNMA Certificate pass-through rate. If specified in the Prospectus
Supplement, FNMA Certificates may be backed by adjustable rate mortgages.
Regular monthly installment payments on each FNMA Certificate will be
comprised of interest due as specified by such FNMA Certificate plus the
scheduled principal payments on the mortgage loans underlying such FNMA
Certificate due during the period beginning on the second day of the month
prior to the month in which the scheduled monthly installment on such FNMA
Certificate is due and ending on the first day of such month in which the
scheduled monthly installment on such FNMA Certificate is due. Such regular
monthly installments on each such FNMA Certificate will be distributed to the
holder of record on the 25th day of each month. Any principal prepayments on
the mortgage loans underlying any FNMA Certificate securing a Series of Bonds
or any other early recovery of principal on such mortgage loans will be passed
through to the holder of record of such FNMA Certificate on the 25th day of the
month next following such prepayment or recovery and, in turn, a portion of
such amounts will be paid to holders of Bonds, secured thereby, as additional
principal payments.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's
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proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are
obligations solely of FNMA and are not backed by, nor entitled to, the full
faith and credit of the United States. Although the Secretary of the Treasury
of the United States has discretionary authority to lend FNMA up to $2.25
billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any
other manner. If FNMA were unable to satisfy its obligations, distributions to
holders of FNMA Certificates would consist solely of payments and other
recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
FHLMC
FHLMC is a corporate instrumentality of the United States created pursuant
to Title III of the Emergency Home Finance Act of 1970, as amended, (the "FHLMC
Act"). The common stock of FHLMC is owned by the Federal Home Loan Banks.
FHLMC was established primarily for the purpose of increasing the availability
of mortgage credit for the financing of needed housing. It seeks to provide an
enhanced degree of liquidity for residential mortgage investments primarily by
assisting in the development of secondary markets for conventional mortgages.
The principal activity of FHLMC currently consists of the purchase of first
lien conventional mortgage loans or participation interests in such mortgage
loans and the sale of the mortgage loans or participations so purchased in the
form of mortgage securities, primarily FHLMC Certificates. FHLMC is confined to
purchasing, so far as practicable, mortgage loans which it deems to be of such
quality, type and class as to meet generally the purchase standards imposed by
private institutional mortgage investors.
FHLMC CERTIFICATES
Each FHLMC Certificate represents an undivided interest in a pool of
mortgage loans that may consist of first lien conventional loans, FHA Loans or
VA Loans (a "FHLMC Certificate Pool"). FHLMC Certificates are sold under the
terms of a mortgage participation certificate agreement. A FHLMC Certificate
may be issued under either FHLMC's Cash Program or Guarantor Program.
Each FHLMC Certificate represents an undivided interest in a pool of
mortgage loans that may consist of first lien conventional loans, FHA Loans or
VA Loans (a "FHLMC Certificate Group"). FHLMC Certificates are sold under the
terms of a Mortgage Participation Certificate Agreement. A FHLMC Certificate
may be issued under either FHLMC's Cash Program or Guarantor Program.
Unless otherwise described in the related Prospectus Supplement, mortgage
loans underlying the FHLMC Certificates relating to a series will consist of
mortgage loans with original terms to maturity of between 10 and 30 years. Each
such mortgage loan must meet the applicable standards set forth in FHLMC Act. A
FHLMC Certificate group may include whole loans, participation interest in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate group. Under the Guarantor Program any
such FHLMC Certificate group may include only whole loans or participation
interest in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest at the applicable certificate rate on the registered
holder's pro rata share of the unpaid principal balance outstanding on the
mortgage loans in the related FHLMC Certificate Pool, whether or not received.
FHLMC also guarantees to each registered holder of a FHLMC Certificate ultimate
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 guarantee the timely payment of scheduled principal.
Under FHLMC's Gold PC Program, FHLMC guarantees the timely payment of principal
based on the difference between the pool factor published in the month
preceding the month of distribution and the pool factor published in such month
of distribution. Pursuant to its guarantees, FHLMC indemnifies holders of FHLMC
Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. FHLMC may remit the amount due
on account of its guarantee of collection of principal at any time after
default on an underlying mortgage loan, but not later than (i) 30 days
following foreclosure sale, (ii) 30 days following payment of the claim by any
mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than the earlier
of one year
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after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after
default on the mortgage loans underlying FHLMC Certificates, including the
timing of demand for acceleration, FHLMC reserves the right to exercise its
judgment with respect to the mortgage loans in the same manner as for mortgage
loans which it has purchased but not sold. The length of time necessary for
FHLMC to determine that a mortgage loan should be accelerated varies with the
particular circumstances of each mortgagor, and FHLMC has not adopted standards
which require that the demand be made within any specified period.
In addition to FHLMC's guarantees of timely payment of interest and
ultimate collection of principal, FHLMC guarantees with respect to FHLMC
Certificates representing certain qualifying mortgage loans the timely payment
by each mortgagor of the monthly principal scheduled to be paid under the
amortization schedule applicable to each such mortgage loan ("Scheduled
Principal"). Servicers of the mortgage loans comprising these FHLMC
Certificates are required to pay Scheduled Principal to FHLMC whether or not
received from the mortgagors. FHLMC, in turn, guarantees to pay Scheduled
Principal to each registered holder of such FHLMC Certificates whether or not
received from the servicers. FHLMC monthly payments of Scheduled Principal are
computed based upon the servicer's monthly report to FHLMC of the amount of
Scheduled Principal due to be paid on the related mortgage loans. The
Prospectus Supplement for each Series of Bonds collateralized by FHLMC
Certificates will set forth the nature of FHLMC's guarantee with respect to
scheduled principal payments on the mortgage loans in the pools represented by
such FHLMC Certificates.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage
loans and, accordingly, monthly distributions to holders of FHLMC Certificates
would be affected by delinquent payments and defaults on such mortgage loans.
Requests for registration of ownership of FHLMC Certificates made on or
before the last business day of a month are made effective as of the first day
of that month. With respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, a Federal Reserve Bank which maintains book-entry accounts
with respect thereto will make payments of interest and principal each month to
holders in accordance with the holders' instructions. The first payment to a
holder of a FHLMC Certificate will normally be received by the 15th day of the
second month following the month in which the purchaser became recognized as
the holder of such FHLMC Certificate. Thereafter, payments will normally be
received by the 15th day of each month.
A FHLMC Certificate may be issued under programs created by FHLMC,
including its Cash Program or Guarantor Program. Under FHLMC's Cash Program,
the pooled mortgage loans underlying a FHLMC Certificate are purchased for cash
from a number of sellers. With respect to FHLMC Certificate Pools formed prior
to June 1, 1987, under the Cash Program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a FHLMC Certificate
may exceed the interest rate on the FHLMC Certificate. Under such program,
FHLMC purchases groups of whole mortgage loans 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 purchased,
results in the yield (expressed as a percentage) required by FHLMC. The
required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance of the mortgage
loans, an assumed term and a prepayment period as determined by FHLMC. No
mortgage loan is purchased by FHLMC at greater than 100% of its outstanding
principal balance. Thus, the range of interest rates on the mortgage loans in a
FHLMC Certificate Pool formed prior to June 1987 under the Cash Program will
vary since mortgage loans are purchased and identified to a FHLMC Certificate
Pool based upon their yield to FHLMC rather than on the interest rates on the
mortgage loans. With respect to FHLMC Certificate Pools formed on or after June
1, 1987, the range of interest rates on the mortgage loans and participations
in a FHLMC Certificate Pool which is comprised of 15- or 30-year fixed-rate
single family mortgage loans bought by FHLMC under the Cash Program will be
restricted to one percentage point. In addition, the minimum interest rate on
any mortgage loan in a FHLMC Certificate Pool will be greater than or equal to
the annual pass-through rate on the related FHLMC Certificate, and the maximum
interest rate will not be more than two percentage points above such
pass-through rate.
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Under FHLMC's Guarantor Program, the mortgage loans underlying a FHLMC
Certificate are purchased from a single seller in exchange for such FHLMC
Certificate. The interest rate on a FHLMC Certificate under such program is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC. Under the
Guarantor Program, the range between the lowest and highest annual interest
rates on the mortgage loans in a FHLMC Certificate Pool may not exceed two
percentage points. For some FHLMC Certificates issued pursuant to purchase
contracts under the Guarantor Program on or after September 1, 1987, the range
of the interest rates on the mortgage loans in a FHLMC Certificate Pool will
not exceed one percentage point.
If specified in a Prospectus Supplement, FHLMC Certificates may be backed
by multifamily mortgage loans having the characteristics specified in such
Prospectus Supplement.
NON-AGENCY CERTIFICATES
Each Non-Agency Certificate will evidence an undivided interest in Agency
Certificates or a pool of Mortgage Loans secured by first liens on
single-family (one- to four-unit) or multi-family (five or more units)
residential properties. Unless otherwise specified in the Prospectus
Supplement, the Non-Agency Certificates will have the characteristics described
herein. Non-Agency Certificates will be issued pursuant to a Pooling and
Administration Agreement (the "Pooling and Administration Agreement") among the
entity delivering the Mortgage Loans to form such Non-Agency Certificates (the
"Owner"), an administrator which will perform the functions of a master
servicer (the "Administrator") and a trustee acting under such Pooling and
Administration Agreement for the benefit of the holder or holders of the
Non-Agency Certificates (the "Certificate Trustee"). The Mortgage Loans backing
the Non-Agency Certificates will be serviced by one or more loan servicing
institutions (the "Servicers") pursuant to servicing agreements between each
Servicer and the Owner (each, a "Servicing Agreement"). All of the Owner's
rights, title and interest in the Servicing Agreements with respect to the
Mortgage Loans will be assigned to the Certificate Trustee. Pursuant to the
Pooling and Administration Agreement, the Owner will be required to instruct
the Servicers of the Mortgage Loans covered thereby to deposit with the
Certificate Trustee all collections received by such Servicers on the Mortgage
Loans (net of a servicing fee to be retained by the Servicers). Monthly
distributions of the principal and interest (adjusted to the pass-through rate
borne by such Non- Agency Certificate) components of such collections will be
made to the Indenture Trustee for the Bonds for deposit into the Collection
Account. The Mortgage Loans underlying any such Non-Agency Certificates may be
covered by (i) individual policies of primary mortgage insurance insuring
against all or a portion of any foreclosure losses on the particular Mortgage
Loans covered thereby, (ii) a pool insurance policy insuring against
foreclosure losses on all of the Mortgage Loans in the underlying pool up to a
specified limit of liability, (iii) a policy of special hazard insurance
insuring against losses from causes not covered by standard fire and extended
coverage policies of insurance and/or (iv) such other policies of insurance or
other forms of support (including, without limitation, obligations to advance
delinquent payments and overcollateralization) as shall be specified in the
Prospectus Supplement for the Bonds of a Series which are secured by Non-Agency
Certificates.
Any default by any insurer under a policy of insurance covering a Mortgage
Loan, any loss or losses in excess of policy limits, any failure by a Servicer
or other obligor to make advances in respect of delinquent payments or any loss
occasioned by an uninsured cause will adversely affect distributions to the
Indenture Trustee for the related Series of Bonds and, as a consequence, may
result in there being insufficient funds in the related Collection Account with
which to make required payments of principal and interest on the Bonds of such
Series.
CERTIFICATES COLLATERALIZING THE BONDS
All of the Certificates securing a Series of Bonds will be registered in
the name of the Indenture Trustee or its nominee or in the name of a financial
intermediary or its nominee acting on behalf of the Indenture Trustee and will
be backed by Mortgage Loans secured by single-family (one- to four-unit) or
multi-family residential properties. Certificates backed by graduated payment
Mortgage Loans ("GPM Certificates"), "buydown" Mortgage Loans and adjustable
rate Mortgage Loans may be included in the Collateral, as discussed below. If
so provided in the Prospectus
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Supplement for a Series of Bonds, and in accordance with the terms of the
related Series Supplement, the Issuer may deposit cash on an interim basis on
the closing date for such Series in lieu of Certificates not delivered by such
date.
All of the Mortgage Loans underlying a Certificate will provide for
monthly payments of principal and interest on a level debt service basis (that
is, equal monthly payments consisting, over the term of such loans, of
decreasing amounts of interest and increasing amounts of principal), except for
(i) the Mortgage Loans backing any GPM Certificates, (ii) the "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 borrower's
monthly payments during the early years of such Mortgage Loan, or (iii)
adjustable rate Mortgage Loans backing any Certificates. Payments due the
registered holders of Certificates backed by pools containing "buydown"
Mortgage Loans will be computed in the same manner as payments derived from
non- "buydown" Certificates and will include amounts to be collected from both
the borrower and the related escrow account. The graduated payment Mortgage
Loans underlying a GPM Certificate will provide for graduated interest payments
which, 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. Interest on
the adjustable rate Mortgage Loans underlying any Certificate will be subject
to adjustment as described in the related Prospectus Supplement. The
obligations of GNMA and the GNMA Servicers and of FNMA and FHLMC will be the
same irrespective of whether any Agency Certificates securing a Series of Bonds
include GPM, "buydown" or adjustable rate Mortgage Loans.
Each Prospectus Supplement relating to a Series of Bonds may include
information, as of the date of such Prospectus Supplement and to the extent
then known to the Issuer as to (i) the approximate aggregate principal amount
of any Agency Certificates securing such Series, including a breakdown as
between GNMA, FNMA and FHLMC, (ii) the approximate aggregate principal amount
of the Agency Certificates or of the Mortgage Loans, as the case may be, by
type of loan, of the Mortgage Loans evidenced by any Non-Agency Certificates
securing such Series, and (iii) the approximate weighted average remaining term
to maturity of such Certificates.
RESERVE FUNDS
Cash, a letter of credit, surety bonds, Eligible Investments or a
combination thereof in the aggregate amount, if any, specified in the related
Prospectus Supplement will be deposited by the Issuer in one or more Reserve
Funds established by the Indenture Trustee on the closing date for such Series
of Bonds if such cash, letters of credit, surety bonds or Eligible Investments
are required to assure timely payment of principal of, and interest on, such
Series of Bonds or are otherwise required as a condition to the rating of such
Bonds in the category required by the Indenture for such Series by the
nationally recognized statistical rating agency or agencies requested to rate
the Bonds, or for any other purpose described in the related Prospectus
Supplement. After the closing date of a Series, one or more related Reserve
Funds may be funded over time through application of all or a portion of the
Spread for such Series, to the extent described in the related Prospectus
Supplement. The Indenture Trustee will invest any cash in any Reserve Fund in
Eligible Investments maturing no later than the dates specified in the related
Prospectus Supplement or Indenture. "Eligible Investments" include, among other
investments, obligations of the United States and certain agencies thereof,
federal funds, certificates of deposit, commercial paper carrying the highest
rating of the agency or agencies requested to rate the Bonds, time deposits and
bankers acceptances sold by eligible commercial banks, certain repurchase
agreements of United States government securities and guaranteed investment
contracts acceptable to each rating agency rating such Series of Bonds. If a
letter of credit is deposited with the Indenture Trustee, such letter of credit
will be irrevocable, will name the Indenture Trustee, in its capacity as
trustee for the Bondholders, as the sole beneficiary and will be issued by a
financial institution acceptable to the rating agency or agencies requested to
rate such Series of Bonds. Following each Payment Date for such Series of
Bonds, amounts may be withdrawn from the related Reserve Fund and remitted free
from the lien of the Indenture to the persons, under the conditions and to the
extent specified in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, any such payment to the Issuer
or other persons will be made pursuant to a statement prepared by the Indenture
Trustee. Additional information concerning any Reserve Fund securing a Series
of Bonds will be set forth in the related Series Supplement.
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OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the Prospectus Supplement, the assets securing the Bonds
may also include insurance, guarantees, surety bonds, letters of credit,
guaranteed investment contracts, swap agreements, option agreements or similar
arrangements for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the assets securing the Bonds, (ii)
paying administrative expenses, (iii) establishing a minimum reinvestment rate
on the payments made in respect of such assets or principal payment rate on
such assets, (iv) guaranteeing timely payment of principal and interest under
the Bonds, or (v) for such other purpose as is specified in such Prospectus
Supplement. Such arrangements may include agreements under which Bondholders
are entitled to receive amounts deposited in various accounts held by the
Indenture Trustee upon the terms specified in the Prospectus Supplement.
MINIMUM PRINCIPAL PAYMENT AGREEMENT
If provided in the Prospectus Supplement with respect to a Series of
Bonds, the Issuer will enter into an agreement with an institution pursuant to
which such institution will provide such funds as may be necessary to enable
the Issuer to make principal payments on the Bonds of such Series at a minimum
rate set forth in the Prospectus Supplement relating to such Series.
COLLECTION ACCOUNT
A separate Collection Account will be established by the Indenture Trustee
for each Series of Bonds for receipt of (i) all monthly interest and principal
distributions on the Certificates securing such Series, (ii) the amount of
cash, if any, to be initially deposited therein by the Issuer, (iii) the amount
of cash, if any, withdrawn from any related Reserve Fund, and (iv) the
reinvestment income thereon. The Indenture Trustee will invest the funds in the
Collection Account in Eligible Investments maturing no later than the business
day immediately preceding the next Payment Date for the related Series of
Bonds. (Indenture, Section 8.2) Unless a Default or Event of Default with
respect to a Series of Bonds has occurred and is continuing and unless
specified otherwise in the Prospectus Supplement for a Series of Bonds, amounts
remaining in the related Collection Account following a Payment Date for such
Bonds will be either deposited in a related Reserve Fund if the Prospectus
Supplement for such Series of Bonds so provides, or if not so required, will be
promptly paid to the Issuer upon satisfaction of certain conditions contained
in the Indenture and, upon such payment, will be free from the lien of the
Indenture. Unless otherwise provided in the related Prospectus Supplement, any
such payment to the Issuer will be made pursuant to a statement approved by the
Indenture Trustee. The funds so paid to the Issuer of such Series may be used
to pay such Issuer's general operating expenses and to make distributions to
the beneficial owners of such Issuer and will not be an asset available to
holders of the Bonds in the event of a default on the Bonds.
DEPOSITS, SUBSTITUTION AND WITHDRAWAL OF CERTIFICATES
Subject to the limitations set forth in the Indenture and to the extent
permitted under the related Series Supplement and Prospectus Supplement for a
Series of Bonds, the Issuer may deposit or withdraw Certificates or substitute
new Certificates for Certificates previously pledged as Collateral for such
Series. Following any such deposit, substitution or withdrawal of Certificates,
the Collateral securing such Series will have an aggregate Bond Value that is
at least equal to the aggregate principal amount of the Bonds of such Series
outstanding at the time of substitution.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
GENERAL
The following discussion contains summaries of certain legal aspects of
Mortgage Loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws
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of all states in which the real property securing the Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal laws governing the Mortgage Loans. The discussion under
this heading applies only to Mortgage Loans underlying Non-Agency Certificates.
The Mortgages will be either deeds of trust or mortgages, depending upon
the prevailing practice in the state in which the property subject to a
Mortgage Loan is located. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to the lien for real estate taxes
and assessments. Priority between mortgages depends on their terms and
generally on the order of filing with a state or county office. There are two
parties to a mortgage, the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. Under the mortgage instrument, 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-homeowner 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 if
permitted under local law, to the trustee to secure payment of the obligation.
The trustee's authority under a deed of trust and the mortgagee's authority
under a mortgage are governed by law, the express provisions of the deed of
trust or mortgage, and, in some cases, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property to a third party 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
and to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, the trustee must provide notice in some states
to any other individual having an interest in the real property, including any
junior lienholders. In some states, 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. Generally, state laws require that a copy
of the notice of sale be posted at designated locations and sent to certain
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Consequently, delays in completion of
the foreclosure may occasionally result from difficulties in locating parties
necessary to the proceeding. Judicial foreclosure proceedings may be contested
by any of the parties defendant, and substantial delays in the foreclosure
proceedings may result from any contest. At the completion of a judicial
foreclosure action, the court issues a judgment of foreclosure and generally
appoints a sheriff or other court officer to conduct the sale of the property
to obtain proceeds with which to pay the holders of liens on the property.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the sheriff or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, among other reasons, the property usually is not purchased by a
third party at the foreclosure sale. Rather, the lender usually purchases the
property from the trustee or sheriff. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty 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 subsequent resale of the
property. The lender may also have to make improvements to the property.
Depending upon market conditions, the ultimate proceeds of the property may not
equal the lender's investment in the property, which includes the unpaid
principal balance of the mortgage loan, accrued and unpaid interest and the
expenses incurred in connection with the foreclosure and subsequent ownership
of the property. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
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RIGHTS OF REINSTATEMENT AND REDEMPTION
In some states, the borrower, or any other person having a junior lien on
the real property, may, during a reinstatement or redemption period, cure the
default by paying the entire amount in arrears plus certain of the costs and
expenses incurred in enforcing the obligation. Certain state laws control the
amount of foreclosure expenses and costs, including attorneys' fees, which may
be recovered by a lender. In some states, the borrower has the right to
reinstate the loan at any time following default until shortly before the
foreclosure sale.
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 mortgaged property from the foreclosure sale.
Depending upon state law, the right of redemption may apply to sale following
judicial foreclosure or to sale pursuant to a non-judicial power of sale. In
some states, redemption may occur only upon a payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The rights of
redemption would defeat the title of any purchaser at a foreclosure sale, or 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 expired.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, statutes limit or prohibit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment
would be a personal judgment against the former borrower equal in most cases to
the difference between the net amount realized upon the foreclosure sale of the
real property and the amount due to the lender under the deed of trust
mortgage. Statutory provisions in some states may limit any deficiency
judgment against the former borrower following a foreclosure sale to the excess
of the outstanding debt over the fair market value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the foreclosure sale.
Some state statutes 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 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.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other 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 collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, the
filing of a petition acts as a stay against the enforcement of remedies for the
collection of a debt. A court with federal bankruptcy jurisdiction may permit
a debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to
cure a monetary default in respect of a mortgage loan on a debtor's residence
by paying arrearages within a reasonable time period and reinstating the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state court
(provided no sale of the residence had yet occurred) prior to the filing of a
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying arrearages over a
number of years.
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Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modification may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of
the loan.
Federal tax law provides priority to certain tax liens over the lien of
the mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. 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. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans. Under the laws of many states and under federal statutes and
regulations, an assignee of contracts arising out of consumer transactions
takes such liens subject to claims or defense which would be available to the
consumer in any proceeding between the consumer and contractor or broker who
originated the contract.
ENFORCEABILITY OF CERTAIN PROVISIONS
Certain of the Mortgage Loans contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers, or conveys the property. The enforceability of these clauses has
been the subject of legislation and litigation in many states, and in some
cases the clauses have been upheld, while in other cases their enforceability
has been limited or denied. The ability of mortgage lenders and their assignees
and transferees to enforce due-on-sale clauses was addressed by the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act") which
was enacted on October 15, 1982. The legislation, subject to certain
exceptions, preempts state constitutional, statutory and case law that
prohibits the enforcement of due-on-sale clauses. Exempted from its preemption
are mortgage loans (originated other than by federal savings and loan
associations and federal savings banks) that were originated or assumed during
the period beginning on the date a state, by statute or final appellate court
decision having statewide effect, prohibited the exercise of due-on-sale
clauses and ending on October 15, 1982 ("Window Period Loans"). Due-on-sale
clauses contained in Mortgage Loans originated by federal savings and loan
associations or federal savings banks are fully enforceable pursuant to
regulations of the Federal Home Loan Bank Board which preempt state law
restrictions on the enforcement of due-on-sale clauses. Mortgage loans
originated by such institutions are therefore not deemed to be Window Period
Loans. Under the Garn-St Germain Act, the exemption for Window Period Loans
ended on October 15, 1985, although the Comptroller of the Currency, the
National Credit Union Administration and state legislatures were given the
authority to regulate enforcement of due-on-sale clauses in Window Period Loans
originated by national banks, federal credit unions and all other types of
lenders, respectively.
With the expiration of the exemption for Window Period Loans, on October
15, 1985, due-on-sale clauses have become generally enforceable except in those
states whose legislatures exercised their authority to regulate the
enforceability of such clauses with respect to mortgage loans that were (i)
originated or assumed during the "Window Period", which ended in all cases not
later than October 15, 1982, and (ii) originated by lenders other than national
banks, federal savings institutions and federal credit unions. FHLMC has taken
the position in its published mortgage servicing standard that, out of a total
of eleven "window period states", five states (Arizona, Michigan, Minnesota,
New Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses with
respect to certain categories of Window Period Loans. The Garn-St Germain Act
also sets forth nine specific instances in which no mortgage lender covered by
the Act (including federal savings and loan associations and federal savings
banks) may exercise a due-on-sale clause, notwithstanding the fact that a
transfer of the property may have occurred. Certain of these instances include
intra-family transfers, certain transfers by operation of law, leases of fewer
than three years and the creation of a junior encumbrance. Regulations
promulgated under the Garn-St Germain Act by the Federal Home Loan Bank Board
also prohibit the imposition of a prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause. The inability to enforce a due-on-sale
clause may result in a mortgage loan bearing an interest rate below the current
market rate being assumed by a new home buyer rather than being paid off, which
may have an impact upon the average life of the Mortgage Loans
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and the number of Mortgage Loans which may be outstanding until their maturity,
the extent of which cannot be predicted.
The standard form of note, mortgage and deed of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if
the loan is prepaid. The enforceability, under the laws of a number of states
of provisions provided for prepayment fees or penalties upon an involuntary
prepayment is unclear, and no assurance can be given that, at the time a
prepayment fee or penalty is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such payment
will be enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans. Unless otherwise provided in the related Prospectus
Supplement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) will be retained by the Servicers as
additional servicing compensation.
Upon foreclosure, some courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages
receive notices in addition to the statutorily-prescribed minimum. For the
most part, these cases have upheld the notice provision as being reasonable or
have found that the sale by a trustee under a deed of trust, or under a
mortgage having a power of sale, does not involve sufficient state action to
afford constitutional protections to the borrowers.
The Mortgage Loans may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the borrower,
after the applicable cure period. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default.
However, courts of any state, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Certain of the Mortgage Loans may not restrict secondary financing,
thereby permitting the borrower to use the property securing such Mortgage
Loans as security for one or more additional loans. Certain of the Mortgage
Loans may preclude secondary financing (by permitting the first lender to
accelerate the maturity of its loan if the borrower further encumbers the
property or in some other fashion) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances.
Where the borrower encumbers the Mortgage Premises with one or more junior
liens, the senior lender is subjected to additional risk. For example, the
borrower may have difficulty servicing and repaying multiple loans or acts of
the senior lender which prejudice the junior lender or impair the junior
lender's security may create a superior equity in favor of the junior lender.
For example, if the borrower and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent any existing junior lender is harmed
or the borrower is additionally burdened. In addition, if the borrower
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior and can interfere with, delay and in certain
circumstances even prevent the taking of action by the senior lender. In
addition, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
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ADJUSTABLE RATE LOANS
The laws of certain states may provide that mortgage notes relating to
adjustable rate Mortgage Loans are not negotiable instruments under the Uniform
Commercial Code. In such event, the Certificate Trustee will not be deemed to
be a "holder in due course" within the meaning of the Uniform Commercial Code
and may take such a Mortgage Note subject to certain restrictions on its
ability to foreclose and to certain contractual defenses available to a
mortgagor.
ENVIRONMENTAL LEGISLATION
The federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, ("CERCLA") imposes strict liability on present and
past "owners" and "operator" of a contaminated mortgaged property if agents or
employees of the lender have become sufficiently involved in the management of
such mortgaged property or the operations of the borrower. Such liability may
exist event if the lender did not cause or contribute to the contamination and
regardless of whether the lender has actually taken possession of a mortgaged
property through foreclosure, deed in lieu of foreclosure or otherwise. The
magnitude of the CERCLA liability at any given contaminated site is a function
of the actions required to address adequately the risks to human health and the
environment posed by the particular conditions at the site. As a result, such
liability is not constrained by the value of the property or the amount of the
original or unamortized principal balance of any loans secured by the property.
Moreover, under certain circumstances, liability under CERCLA may be joint and
several -- i.e.,any liable party may be obligated to pay the entire cleanup
costs regardless of its relative contribution to the contamination. If a
lender is found to be liable, it is entitled to bring an action for
contribution against other liable parties, such as the present or past owners
and operators of the property. The lender nonetheless may have to bear a
disproportionate share of the liability if such other parties are defunct or
without substantial assets.
Until recent legislation was adopted, it was uncertain what actions could
be taken by a secured lender in the event of a loan default without incurring
exposure under CERCLA in the event the property was environmentally
contaminated. The Asset Conservation, Lender Liability and Deposit Insurance
Act of 1996 (the "1996 Lender Liability Act") provides for a safe harbor for
secured lenders from CERCLA liability even though the lender forecloses and
sells the real estate securing the loan, provided the secured lender sells "at
the earliest practicable, commercially reasonable time, at commercially
reasonable terms, taking into account market conditions and legal and
regulatory requirements." Although the 1996 Lender Liability Act provides
significant protection to secured lenders, it has not been construed by the
courts, and there are circumstances in which actions taken could expose a
secured lender to CERCLA liability. The transferee from the secured lender is
not entitled to the protections enjoyed by a secured lender. Thus,
contamination may decrease the amount that prospective buyers are willing to
pay for a Property and thus, decrease the likelihood that the Certificate
Trustee will recover fully on the Mortgage Loan through foreclosure.
Many states have environmental clean-up statutes similar to CERCLA, and
not all of those statutes provide for a secured creditor exemption. In
addition, underground storage tanks are commonly found on a wide variety of
commercial and industrial properties. Federal and state laws impose liability
on the owners and operators of underground storage tanks for any cleanup that
may be required as a result of releases from such tanks. These laws also
impose certain compliance obligations on the tank owners and operators, such as
regular monitoring for leaks and upgrading of older tanks. A lender may become
a tank owner or operator, and subject to compliance obligations and potential
cleanup liabilities, either as a result of becoming involved in the management
of a site at which a tank is located or, more commonly, by taking title to such
a property. Federal and state laws also obligate property owners and
operators to maintain and, under some circumstances, remove asbestos-containing
building materials and lead based paint. As a result, the presence of these
materials can increase the cost of operating a property and thus diminish its
value. In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise may be required to clean up the contamination before
selling or otherwise transferring the property.
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Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Under the laws of many states, contamination of a property may give rise
to a lien on the property for clean-up costs. In several states, such a lien
has priority over all existing liens, including those of existing security
instruments. In these states, the lien of a security instrument may lose its
priority to such a "superlien."
In the event that title to a mortgaged property securing a Mortgage Loan
in a Certificate were acquired by the Certificate Trustee and cleanup costs
were incurred in respect of the mortgaged property, the holders of the related
Series of Bonds might realize a loss if such costs were required to be paid by
the Certificate Trustee on behalf of the Indenture Trustee as holder of the
Certificates securing such Bonds. The Issuer, CMC, the Underwriters, the
Servicers, and any of their respective affiliates (i) have not caused any
environmental site assessments or evaluations to be conducted with respect to
any mortgaged properties securing the Mortgage Loans, (ii) are not required to
make any such assessments or evaluations and (iii) make no representations or
warranties and assume no liability with respect to the absence or effect of
hazardous wastes or hazardous substances on any mortgaged property or any
casualty resulting from the presence or effect of hazardous wastes or hazardous
substances.
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. A similar federal
statute was in effect with respect to mortgage loans made during the first
three months of 1980. The Office of Thrift Supervision is authorized to issue
rules and regulations and to publish interpretations governing implementation
of Title V. The statute authorizes any state to reimpose interest rate limits
by adopting a law or constitutional provision which expressly rejects
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. As of
the date hereof, certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges has been adopted, no
Mortgage Loan originated after the effective date of such state action will be
eligible for inclusion in a mortgage pool underlying a Non-Agency Certificate
if such Mortgage Loan will bear interest or provide for discount points or
charges in excess of permitted levels.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Relief Act, a borrower who enters active
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 or similar limitations under state statutes could have an
effect, for an indeterminate period of time, on the ability of the
Administrator or other Servicers to collect full amounts of interest on certain
of the Mortgage Loans. Further, such borrowers may have the maturity of their
Mortgage Loans extended, the payments lowered and the payment schedule
readjusted after the completion of military service. Unless otherwise provided
in the Prospectus Supplement for a Series of Bonds, no person will be required
to purchase any Mortgage Loan on which the mortgage coupon rate is reduced by
the Relief Act or similar state legislation. Any shortfall in interest
collections resulting from the application of the Relief Act or similar state
legislation could result in losses to the holders of the Bonds. In addition,
the Relief Act imposes limitations which would impair the ability of the
Administrator or other Servicers to enforce the lien with respect to an
affected Mortgage Loan during the borrower's period of active duty status.
Thus, in the event that such a Mortgage Loan goes
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into default, there may be delays and losses occasioned by the inability to
enforce the lien with respect to the Mortgaged Property in a timely fashion.
THE ISSUER
GENERAL
The Issuer was incorporated in the State of Delaware on May 6, 1992. The
Issuer is a limited purpose finance subsidiary of CMC. The Issuer's and CMC's
principal executive offices are located at CityPlace Center East, 2711 N.
Haskell Avenue, Suite 900, Dallas, Texas 75204. The Issuer's telephone number
is (214) 874-2323.
The Issuer has not and will not engage in any business or investment
activities other than (i) issuing and selling Bonds under the Indenture and
purchasing, receiving, owning, holding and pledging as collateral therefor the
related Certificates, Mortgage Loans or other mortgage-related securities, (ii)
issuing and selling bonds under any other indenture, and receiving, owning,
holding and pledging as collateral therefor any of the mortgage-related assets
specified in its Certificate of Incorporation, (iii) investing cash balances on
an interim basis in high quality short- term securities and (iv) engaging in
other activities which are necessary or convenient to accomplish the foregoing
and are incidental thereto. Article III of the Issuer's Certificate of
Incorporation limits the Issuer's purposes to the foregoing. Article VIII of
the Issuer's Certificate of Incorporation prohibits the Issuer, without
obtaining the prior written consent of the Indenture Trustee, from amending
Articles III or VIII of its Certificate of Incorporation, from dissolving or
liquidating or from merging or consolidating with any corporation other than a
corporation that has a certificate of incorporation containing provisions
substantially identical to the provisions of Articles III and VIII of the
Issuer's Certificate of Incorporation.
The Issuer has no intent to file, and CMC has no intent to cause the
filing of, a voluntary application under insolvency laws with respect to the
Issuer so long as the Issuer is solvent and does not foresee becoming
insolvent.
CMC may contribute or sell to the Issuer all or a portion of the
Certificates used to secure any Series of Bonds offered hereby and by the
related Prospectus Supplement and may contribute or sell to the Issuer
additional certificates evidencing Mortgage Loans and other mortgage-related
collateral which will be used to secure other Series of Bonds which may be
issued by the Issuer.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated
federal income tax consequences of the purchase, ownership, and disposition of
Bonds. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could apply
retroactively. The discussion reflects the enactment of the Tax Reform Act of
1986 (the "1986 Act"), the Technical and Miscellaneous Revenue Act of 1988
("TAMRA"), and the Small Business Job Protection Act of 1996 ("SBJPA") and the
Revenue Reconciliation Act of 1993, as well as final Treasury regulations
concerning REMICs ("Final REMIC Regulations") promulgated by the U.S.
Department of the Treasury on December 23, 1992. The discussion below does not
purport to address federal tax consequences applicable to all categories of
investors, some of which may be subject to special rules. Investors should
consult their own tax advisors in determining the federal, state, local, and
other tax consequences to them of the purchase, ownership, and disposition of
Bonds. The Prospectus Supplement for each Series of Bonds will discuss any
special tax consideration applicable to any Class or Classes of Bonds of such
Series, and the discussion below is qualified by any such discussion in the
related Prospectus Supplement.
For purposes of this discussion, (i) the term "Regular Bonds" includes
Non-REMIC Bonds and REMIC Regular Bonds and (ii) the term "REMIC Bonds"
includes REMIC Regular Bonds and Residual Bonds.
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REMIC BONDS
General
With respect to each Series of Bonds, the Issuer may elect to treat one or
more segregated pools of assets securing such Series of Bonds (each a "REMIC
Pool") as a REMIC within the meaning of Code Section 860D. The tax consequences
of purchase, ownership and disposition of the Bonds will depend in large part
on whether such an election has been made. Qualification as a REMIC requires
ongoing compliance with certain conditions. With respect to each Series of
Bonds for which the Issuer intends to make a REMIC election, Andrews & Kurth
L.L.P., counsel to the Issuer, will deliver its opinion generally to the effect
that, assuming (i) the proper making of such an election, (ii) compliance with
the Indenture and certain other documents, and (iii) continuing compliance with
the applicable provisions of the Internal Revenue Code of 1986 (the "Code"), as
it may be amended from time to time, and any applicable Treasury regulations
adopted thereunder, each REMIC Pool, will qualify to be a REMIC in which the
REMIC Regular Bonds and the Residual Bonds (if any) comprise the "regular
interests" and "residual interests," respectively. Except as indicated below,
for federal income tax purposes, REMIC Regular Bonds are treated as new
originated debt instruments issued by the REMIC on the day of their creation
and not as ownership interests in the REMIC or the REMIC's assets. Residual
Bonds are not treated as debt instruments for federal income tax purposes. See
"Special Tax Considerations Applicable to Residual Bonds" below. The
Prospectus Supplement for each such Series of Bonds will indicate whether the
Issuer intends to make a REMIC election for that Series.
In general (i) REMIC Bonds held by a thrift institution taxed as a
"domestic building and loan association" will be treated as assets described in
Code Section 7701(a)(19)(C); (ii) REMIC Bonds held by a real estate investment
trust will be treated as "real estate assets" within the meaning of Code
Section 856(c)(5)(A) and (iii) any amount includible in gross income with
respect to REMIC Bonds will be interest described in Code Section 856(c)(3)(B)
to the extent that the REMIC Bonds are treated as "real estate assets" within
the meaning of the Code Section 856(c)(5)(A), in each case, in the same
proportion that the assets of the REMIC Pool would be so treated. However, if
at all times 95% or more of the assets held by the REMIC Pool are assets
qualifying under any of the foregoing Code sections, the REMIC Bonds will be
treated entirely as qualifying assets (and the income will be treated entirely
as qualifying income). The Agency Certificates will be considered qualifying
assets under the foregoing Code sections. The Final REMIC Regulations provide
that, for purposes of Code Sections 593(d)(1) and 856(c)(5)(A), payments of
principal and interest on the Mortgage Loans that are reinvested pending
distribution to holders of REMIC Bonds constitute qualifying assets for such
entities. Where two REMIC Pools are part of a tiered structure they will be
treated as one REMIC for purposes of the tests described above respecting asset
ownership of more or less than 95%. Reserve assets will not be considered to be
qualifying assets. REMIC Bondholders should be aware that (i) REMIC Bonds held
by a real estate investment trust will not constitute "Government securities"
within the meaning of Code Section 856(c)(5)(A), and (ii) REMIC Bonds held by a
regulated investment company will not constitute "Government securities" within
the meaning of Code Section 851(b)(4)(A)(i). However, REMIC Bonds acquired by
another REMIC on its Startup Day (as defined below) in exchange for regular or
residual interests in the REMIC will constitute "qualified mortgages" within
the meaning of Code Section 860G(a)(3). Notwithstanding the foregoing, however,
REMIC income received by a REIT owning a residual interest in a REMIC Pool
could be treated in part as non-qualifying REIT income if the REMIC Pool holds
Mortgage Loans with respect to which income is contingent on mortgagor profits
on property appreciation. In addition, if the assets of the REMIC include
buy-down Mortgage Loans, it is possible that the percentage of such assets
constituting "loans . . . secured by an interest in real property" for purposes
of Code Section 7701(a)(19)(C)(v) may be required to be reduced by the amount
of the related buy-down funds. REMIC Bonds held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning
of Code Section 582(c)(1).
Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis amount of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Bonds)
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and at all times thereafter, may consist of assets other than "qualified
mortgages" and "permitted investments." The Final REMIC Regulations provide a
"safe harbor" pursuant to which the de minimis requirement will be met if at
all times the aggregate adjusted basis of any nonqualified assets (i.e., assets
other than qualified mortgages and permitted investments) is less than 1% of
the aggregate adjusted basis of all the REMIC Pool's assets.
If a REMIC Pool fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, the REMIC
Pool will not be treated as a REMIC for such year and thereafter. In this
event, the classification of the REMIC Pool for federal income tax purposes is
uncertain. The REMIC Regular Bonds may continue to be treated as debt
instruments for federal income tax purposes, but the REMIC Pool could be
treated as a taxable mortgage pool (a "TMP"). If the REMIC Pool is treated as a
TMP, any residual income of the REMIC Pool (i.e., income from the mortgage
loans less interest and original issue discount expense allocable to the REMIC
Regular Bonds and any administrative expenses of the REMIC Pool) would be
subject to corporate income tax at the REMIC Pool level. On the other hand, the
arrangement may be treated as a separate association taxable as a corporation
under Treasury regulations and the REMIC Regular Bonds may be treated as stock
interests therein, rather than debt instruments. The Code, however, authorizes
the Treasury Department to issue regulations that address situations where
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of the REMIC would occur
absent regulatory relief. However, the Conference Committee Report to the 1986
Act (the "Committee Report") indicates that the relief may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
REMIC Pool's income for the period of time in which the requirements for REMIC
status are not satisfied.
NON-REMIC BONDS
With respect to each Series of Bonds for which the Issuer does not make a
REMIC election, no regulations, published rulings, or judicial decisions exist
that discuss the characterization for federal income tax purposes of securities
with terms substantially the same as the Non-REMIC Bonds. Andrews & Kurth
L.L.P., as counsel to the Issuer, however, will deliver their opinion that the
Non-REMIC Bonds will be treated for federal income tax purposes as
indebtedness, and not as an ownership interest in the Collateral, or as an
equity interest in the Issuer or in a separate association taxable as a
corporation.
For federal income tax purposes, (i) Non-REMIC Bonds 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 Code Section 7701(a)(19)(C)(v); (ii) interest on Non-REMIC Bonds 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) Non-REMIC Bonds held by a real
estate investment trust will not constitute "real estate assets" or "Government
securities" within the meaning of Code Section 856(c)(5)(A); and (iv) Non-REMIC
Bonds held by a regulated investment company will not constitute "Government
securities" within the meaning of Code Section 851(b)(4)(A)(i).
TAXATION OF REGULAR BONDS
General
The discussion under this caption, "Taxation of Regular Bonds," applies
only to Regular Bonds and not to Residual Bonds. In general, interest paid or
accrued, original issue discount, and market discount on a Bond will be treated
as ordinary income to the Bondholder, and principal payments on a Bond will be
treated as a return of capital to the extent of the Bondholder's basis in the
Bond allocable thereto. A Bondholder must use the accrual method of accounting
with regard to REMIC Bonds, regardless of the method of accounting otherwise
used by such Bondholder.
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Original Issue Discount
All Compound Interest Bonds will, and certain of the other Bonds may, be
issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of any Class of Bonds issued with original issue discount
generally must include original issue discount in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest
method based on a compounding of interest, in advance of receipt of the cash or
a portion of the cash attributable to such income. Based in part on Treasury
regulations issued on January 27, 1994, as amended on June 14, 1996, under Code
Sections 1271 through 1273 and 1275 (the "OID Regulations"), and in part on the
provisions of the 1986 Act, the Issuer anticipates that the amount of original
issue discount required to be included in a Bondholder's income in any taxable
year will be computed in a manner substantially as described below. Bondholders
should be aware, however, that the OID Regulations either do not address, or
are subject to varying interpretations with regard to, several issues relevant
to obligations, such as the Bonds, that are subject to prepayment. The 1986 Act
requires that the amount and rate of accrual of original issue discount be
calculated based on a reasonable assumed prepayment rate for the mortgages
backing the Certificates securing the Bonds in a manner prescribed by
regulations not yet issued ("Prepayment Assumption") and provides for adjusting
the amount and rate of accrual of such discount where the actual prepayment
rate differs from the Prepayment Assumption. The Committee Report indicates
that the regulations will require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering price of
such Bonds. The Prospectus Supplement for each Series of such Bonds will
specify the Prepayment Assumption determined by the Issuer for the purposes of
determining the amount and rate of accrual of original issue discount. No
representation is made that the Certificates will prepay at the Prepayment
Assumption or at any other rate. Moreover, the OID Regulations include an
anti-abuse rule allowing the Internal Revenue Service to apply or depart from
the OID Regulations where necessary or appropriate to ensure a reasonable tax
result in light of the applicable statutory provisions. A tax result will not
be considered unreasonable under the anti-abuse rule in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
Investors are advised to consult their own tax advisors as to the discussion
herein and the appropriate method for reporting interest and original issue
discount with respect to the Regular Bonds.
Under the OID Regulations, each Bond (except to the extent described below
with respect to a Regular Bond on which distributions of principal are made in
a single installment or upon an earlier distribution by lot of a specified
principal amount upon the request of a Bondholder or by random lot (a "Retail
Class Bond")) will be treated as a single installment obligation issued with an
amount of original issue discount equal to the excess of its stated redemption
price at maturity over its issue price. The issue price of a Bond is the price
at which a substantial amount of Bonds of that Class are first sold (other than
to bond houses, brokers, underwriters or wholesalers). Unless specified
otherwise in the Prospectus Supplement, the Issuer will determine original
issue discount by including the amount paid by an initial Bondholder for
accrued interest that relates to a period prior to the issue date of the Bond
in the issue price of a Bond and will include in the stated redemption price at
maturity any interest paid on the first Payment Date to the extent such
interest is attributable to a period in excess of the number of days between
the issue date and such first Payment Date. The stated redemption price at
maturity of a Bond always includes the original principal amount of the Bond,
but generally will not include payments of stated interest if such interest
payments constitute "qualified stated interest." Under the OID Regulations,
qualified stated interest generally means stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer), or that will be constructively received, at least annually at a
single fixed rate. Special rules apply for variable rate Bonds as described
below. Any stated interest in excess of the qualified stated interest is
included in the stated redemption price at maturity. If the amount of original
issue discount is "de minimis" as described below, the amount of original issue
discount is treated as zero, and all stated interest is treated as qualified
stated interest. Payments of interest on Bonds with respect to which deferred
interest will accrue may not constitute qualified stated interest, in which
case the stated redemption price at maturity of such Bonds includes all
payments of interest as well as principal thereon. Moreover, if the interval
between the issue date and the first Payment Date on a Bond is longer than the
interval between subsequent Payment Dates (and interest paid on the first
Payment Date is less than would have been earned if the stated interest rate
were applied to outstanding principal during each day in such interval), the
stated interest distributions on such Bond technically do not constitute
qualified stated interest. The OID Regulations provide that in such case a
special rule, applying solely for the purpose of determining whether original
issue discount is de minimis, provides that the interest shortfall for the long
first period (i.e., the interest that would have been earned if interest had
been paid on the first Payment Date for each day the Bond was outstanding) is
treated as original issue
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discount assuming the stated interest would otherwise be qualified stated
interest. Also in such case the stated redemption price at maturity is treated
as equal to the issue price plus the greater of the amount of foregone interest
or the excess, if any, of the Bond's stated principal amount over its issue
price. The OID Regulations indicate that all interest on a long first period
Bond that is issued with non-de minimis original issue discount will be
included in the Bond's stated redemption price at maturity. Bondholders should
consult their own tax advisors to determine the issue price and the stated
redemption price at maturity of a Bond.
Under a "de minimis" rule, original issue discount will be considered to
be zero, however, if it equals less than 0.25% of the stated redemption price
at maturity of the Bond multiplied by its weighted average maturity, computed,
for this purpose, as the sum of the amounts determined by multiplying (i) the
number of full years (rounding down for partial years) from the issue date
until each payment (included in the stated redemption price at maturity) is
scheduled to be made by (ii) a fraction, the numerator of which is the amount
of each payment included in the stated redemption price at maturity of the Bond
and the denominator of which is the Bond's stated redemption price at maturity.
Although presently unclear, it appears that the schedule of such payments
should be determined in accordance with the Prepayment Assumption. In addition,
if the original issue discount is de minimis all stated interest (including
stated interest that would otherwise be treated as original issue discount) is
treated as qualified stated interest. Unless the holder of a Bond elects to
accrue all discount under a constant yield to maturity method, as described
below, the holder includes any de minimis original issue discount in income as
capital gain recognized on retirement of the Bond pro rata as stated principal
payments are received. If a subsequent holder of a Bond issued with de minimis
original issue discount purchases the Bond at a premium, the subsequent holder
does not include any original issue discount in income. If a subsequent holder
purchases such Bond at a discount all discount is reported as market discount,
as described below.
Generally, a Bondholder must include in gross income the sum of the "daily
portions," as defined below, of the original issue discount that accrues on the
Bond for each day the Bondholder holds the Bond, including the purchase date
but excluding the disposition date. In the case of an original Bondholder, the
daily portions of original issue discount will be determined for each Bond by
calculating the portion of original issue discount that accrues during each
successive "accrual period" (or shorter period from the date of original
issue). The Issuer will treat an "accrual period" as the interval that ends on
the day before a Payment Date and begins on the day after the end of the
immediately preceding accrual period (or on the issue date in the case of the
first accrual period). The original issue discount accruing in a full accrual
period would be the excess, if any, of (i) the sum of (a) the present value of
all of the remaining payments to be made on the Bond as of the end of that
accrual period and (b) the payments made on the Bond during the accrual period
that are included in the Bond's stated redemption price at maturity, over (ii)
the adjusted issue price of the Bond at the beginning of the accrual period.
The present value of the remaining payments referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Bonds as of
the issue date giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the Prepayment Assumption. The effect of these rules
is to adjust the rate of original issue discount accrual to correspond to the
actual prepayment experience. For these purposes, the adjusted issue price of a
Bond at the beginning of any accrual period equals the issue price of the Bond,
increased by the aggregate amount of original issue discount with respect to
the Bond that accrued in all prior such periods and reduced by the amount of
payments included in the Bond's stated redemption price at maturity made on the
Bond in such prior periods. The original issue discount accruing during an
accrual period will be divided by the number of days in the period to determine
the daily portion of original issue discount for each day in the period. With
respect to an initial accrual period shorter than a full accrual period, the
daily portions of original issue discount must be determined using a reasonable
method. Under the method described above, the daily portions of original issue
discount required to be included in income by a holder of Regular Bonds
generally will increase to take into account prepayments on the Regular Bonds
as a result of prepayments on Mortgage Loans or that exceed the Prepayment
Assumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. To the extent
specified in the applicable Prospectus Supplement, an increase in prepayments
on the Mortgage Loans with respect to a series of Regular Bonds can result in
both a change in the priority of principal payments with respect to certain
classes of Regular Bonds and either an increase or decrease in the daily
portions of original issue discount with respect to such Regular Bonds.
In the case of a Retail Class Bond, the yield to maturity of such Bond
will be determined based upon the anticipated payment characteristics of the
Class as a whole under the Prepayment Assumption. In general, the original
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issue discount accruing on each Retail Class Bond in a full accrual period
would be its allocable share of the original issue discount with respect to the
entire Class, as determined in accordance with the preceding paragraph.
However, in the case of a payment of the entire principal amount of any Retail
Class Bond (or portion thereof), (a) the remaining unaccrued original issue
discount allocable to such Bond (or to such portion) will accrue at the time of
such payment, and (b) the accrual of original issue discount allocable to each
remaining Bond of such Class (or the remaining principal amount of a Retail
Class Bond after a payment in reduction of a portion of its principal amount
has been received) will be adjusted by reducing the present value of the
remaining payments on such Class and the adjusted issue price of such Class to
the extent attributable to the portion of the principal amount thereof that was
paid.
A subsequent holder of a Compound Interest Bond or any other Bond issued
with original issue discount who purchases the Bond at a cost less than the
remaining stated redemption price at maturity will also be required to include
in gross income the sum of the daily portions of original issue discount on the
Bond. In computing the daily portions of original issue discount for a
subsequent purchaser (as well as an initial purchaser who purchases a Bond at a
price higher than the issue price but less than the stated redemption price at
maturity), however, the daily portion is reduced by the amount that would be
the daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such holder for the Bond exceeds the excess of (i)
the sum of its issue price and the aggregate amount of original issue discount
that would have been includible in the gross income of an original Bondholder
who purchased the Bond at its issue price (computed under the preceding
paragraphs and without regard to any adjustment under this paragraph) over (ii)
the amount of prior payments included in the stated redemption price at
maturity of the Bond, and the denominator of which is the sum of the daily
portions for the Bond for all days beginning on the date after the purchase
date and ending on the date on which such Bond is expected to mature under the
Prepayment Assumption. Alternatively, such a subsequent holder may accrue
original issue discount by treating the purchase as a purchase at original
issuance and applying the constant yield to maturity method.
The OID Regulations provide that a holder that acquires a Bond on or after
April 4, 1994 may elect to include in gross income all stated interest,
original issue discount, de minimis original issue discount, market discount
(as described below under "Market Discount"), de minimis market discount and
unstated interest (as adjusted for any amortizable bond premium or acquisition
premium), currently as it accrues using the constant yield to maturity method.
If such an election were made with respect to a Bond with market discount, the
Bondholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Bondholder acquires during the year of the election
or thereafter. Similarly, a Bondholder that makes this election for a Bond that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Bondholder owns or acquires. The election to accrue interest,
discount and premium on a constant yield method with respect to a Bond can not
be revoked without the consent of the Internal Revenue Service (the "IRS").
One or more classes of Bonds may provide for interest based on a variable
rate. The OID Regulations provide special rules for variable rate instruments
that meet four requirements. First, the issue price must not exceed the
noncontingent principal payments by more than the lesser of (i) 1.5% of the
product of the noncontingent principal payments and the weight average maturity
or (ii) 15% of the noncontingent principal payments. Second, the instrument
must provide for stated interest (compounded or paid at least annually) at (i)
one or more qualified floating rates, (ii) a single fixed rate and a single
objective rate that is a qualified inverse floating rate, (iii) a single fixed
rate and one or more qualified floating rates; or (iv) a single objective rate.
Third, the instrument must provide that each qualified floating rate or
objective rate in effect during the term of the Bond is set at a current value
of that rate (one occurring in the interval beginning three months before and
ending one year after the rate is first in effect on the Bond). Fourth, the
debt instrument must not provide for contingent principal payments. If
interest on a Bond is stated at a fixed rate for an initial period of less than
1 year followed by a variable rate that is either a qualified floating rate or
an objective rate and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute single qualified floating rate or objective rate. A rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds in
the Bond's currency denomination. A multiple of a qualified floating rate is
not a qualified floating rate unless it is a rate equal to (i) the product of a
qualified floating rate as described in the previous sentence and a positive
number not greater than 1.35 but greater than 0.65 for instruments issued on or
after August 13, 1996, or (ii) a product described in (i) increased or
decreased by a fixed rate. A variable rate is not a qualified floating rate
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if it is subject to a cap, floor or a restriction on the amount of increase or
decrease in stated interest rate (governor) unless: (i) the cap, floor or
governor is fixed throughout the Bond's term, (ii) the cap or floor is not
reasonably expected to cause the yield on the Bond to be significantly less or
more, respectively, that the expected yield without the cap or floor, or (iii)
the governor is not reasonably expected to cause the yield to be significantly
more or less than the expected yield without the governor. For instruments
issued on or after August 13, 1996, an objective rate is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information. An objective
rate is a qualified inverse floating rate if the rate is equal to a fixed rate
minus a qualified floating rate in which the variations of such rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. However, a variable rate is not an objective rate if
it is reasonably expected that the average value of the rate during the first
half of the Bond's term will be significantly less or greater than the average
value of the rate during the final half of the Bond's term.
If a variable rate Bond provides for stated interest at a single qualified
floating rate or objective rate that is unconditionally payable in cash or
property at least annually (i) all stated interest is qualified stated
interest, (ii) the amount of qualified stated interest and original issue
discount, if any, that accrues is determined as if the Bond had a fixed rate
equal to (A) in the case of a qualified floating rate or qualified inverse
floating rate, the value on the issue date of the qualified floating rate or
qualified inverse floating rate or (B) in the case of any other objective rate,
a fixed rate that reflects the yield that is reasonably expected for the Bond,
and (iii) the qualified stated interest that accrues is adjusted for the
interest actually paid. If a variable rate Bond is not described in the
previous sentence, the Bond is treated as a fixed rate Bond with a fixed rate
substitute or substitutes equal to the value of qualified floating rates or
qualified inverse floating rate at the date of issue or, in the case of a Bond
having an objective rate at a fixed rate that reflects the yield reasonably
expected for the Bond. Qualified stated interest or original issue discount
allocable to an accrual period is adjusted to reflect differences in the
interest actually accrued or paid compared to the interest accrued or paid at
the fixed rate substitute. If a variable rate Bond provides for stated interest
either at one or more qualified floating rates or at a qualified inverse
floating rate and also provides for interest at an initial fixed rate that is
not intended to approximate the related floating rate or is fixed for a period
of one year or more, original issue discount is determined as described in the
previous two sentences except that the Bond is treated as if it provided for a
qualified floating rate or qualified inverse floating rate, as applicable,
rather than a fixed rate. The substitute rate must be one such that the fair
market value of the Bond would be approximately the same as the fair market
value of the hypothetical bond.
Under the OID Regulations a variable rate Bond not qualifying for
treatment under the variable rate rules described above is subject to the
contingent payment rules. Regulations dealing with contingent payment debt
obligations were issued on June 11, 1996 (the "Contingent Debt Regulations"),
and are generally effective as of August 13, 1996. The Contingent Debt
Regulations by their terms do not apply to REMIC regular interests. However,
the following paragraph describes the applicable Contingent Debt Regulations as
a method that may be considered reasonable.
The Contingent Debt Regulations apply a "noncontingent bond method" to a
debt instrument that is publicly traded or that is issued for cash or publicly
traded property. Under the noncontingent bond method, the issuer is required
to determine the comparable yield for the instrument and to construct a
projected payment schedule for the Regular Bond consisting of all noncontingent
payments and a projected amount for each contingent payment. The issuer is
required to determine interest expense, and a holder is required to determine
interest income, according to the projected payment schedule formulated by the
issuer. Interest generally is accrued under the noncontingent bond method
according to generally applicable rules of the OID Regulations as described
above. Adjustments in the instrument's issue price and the holder's basis are
determined as if the projected payment schedule were the actual payment
schedule for the instrument. If the actual amount of a contingent payment
differs from the projected amount of the payment, adjustments to interest
accrual are generally taken into account at the time the payment is made in
order to reflect this difference. Gain or loss recognized by a holder on the
sale, exchange, or retirement of the instrument generally will be treated as
interest income or ordinary loss to the holder. A loss will be treated as
ordinary, however, only up to the amount of the holder's total interest
inclusions with respect to the Regular Bond that were not offset by previous
adjustments. Any additional loss generally will be a capital loss. Investors
are urged to consult their tax advisors as to the proper accrual of original
issue discount (including stated interest) on the Bonds, including Bonds which
may be subject to the contingent payment rules.
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Although unclear at present, the Issuer intends to treat Bonds bearing an
interest rate that is a weighted average of the net interest rates on the
Certificates as having qualified stated interest if the underlying mortgage
loans underlying the Certificates (the "Mortgage Loans") are adjustable rate
mortgage loans. In such case, the applicable index used to compute interest on
the Mortgage Loans in effect on the issue date (or possibly the pricing date)
will be deemed to be in effect beginning with the period in which the first
weighted average adjustment date occurring after the issue date occurs. If the
Bond interest rate for one or more periods is less than it would be based upon
the fully indexed rate, the excess of the interest payments projected at the
assumed index over interest projected at such initial rate will be tested under
the de minimis rules as described above. Adjustments will be made in each
accrual period increasing or decreasing the amount of ordinary income
reportable to reflect the actual Bond interest rate on the Bonds. It is
possible, however, that the IRS may treat some or all of the interest on Bonds
with a weighted average rate as taxable under the rules relating to obligations
providing for contingent payments. Such treatment may effect the timing of
income accruals on such Bonds.
It is not clear how income should be accrued with respect to Regular Bonds
issued at a significant premium and with respect to REMIC Regular Bonds the
payments on which consist primarily of a specified portion of the interest
payments on qualified mortgages held by the REMIC ("Premium REMIC Regular
Bonds"). One method of income accrual would be to treat the Premium REMIC
Regular Bond as a Bond having qualified stated interest purchased at a premium
equal to the excess of the price paid by such holder for the Premium REMIC
Regular Bond over its stated principal amount. Under this approach, a holder
would be entitled to amortize such premium only if it has in effect an election
under Section 171 of the Code with respect to all bonds held by such holder, as
described below. Alternatively, all of the income derived from a Premium REMIC
Regular Bond could be reported as original issue discount by treating all
future payments under the Prepayment Assumption as fixed payments, in which
case the amount and rate of accrual of original issue discount would be
computed by treating the Premium REMIC Regular Bond as a Bond which has no
qualified stated interest, as described above. Finally, the IRS could assert
that the Premium REMIC Regular Bonds should be taxable under the contingent
payment rules governing bonds issued with contingent payments.
Premium
A Bond purchased at a cost greater than its remaining stated redemption
price at maturity is generally considered to be purchased at a premium. Under
the 1986 Act, if the Bondholder holds such Bond as a "capital asset" within the
meaning of Code Section 1221, the Bondholder may elect to amortize such premium
under the constant interest method. The Committee Report indicates a
Congressional intent that the same rules that will apply to the accrual of
market discount on installment obligations will also apply in amortizing bond
premium on installment obligations such as the Bonds, although it is unclear
whether the alternatives to the constant interest method described under
"Market Discount" are available. Except as provided in Treasury regulations yet
to be issued, such amortizable bond premium is to be applied against (and
operate to reduce) the amount of interest payments on the Bonds. This election,
once made, applies to all taxable obligations held by the taxpayer at the
beginning of the first taxable year to which such election applies and to all
taxable debt obligations thereafter acquired and is irrevocable except with the
approval of the IRS. Purchasers who pay a premium for their Regular Bonds
should consult their tax advisors regarding the election to amortize premium
and the method to be employed.
Sale or Redemption
If a Bondholder sells or exchanges a Bond, the Bondholder will recognize
gain or loss equal to the difference, if any, between the amount received and
his adjusted basis in the Bond. The adjusted basis of a Bond generally will
equal the cost of the Bond to the seller, increased by any original issue
discount and market discount included in the seller's gross income with respect
to the Bond and reduced by the portion of the basis in the Bond allocable to
payments on the Bond previously received by the seller and by any amortized
premium.
Except as provided in this paragraph, under "Original Issue Discount"
above and under "Market Discount" below, any such gain or loss will be capital
gain or loss provided the Bond is held as a "capital asset" within the meaning
of Code Section 1221. If the holder of a REMIC Bond or Regular Bond is a bank,
thrift, or similar institution
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described in Section 582 of the Code, any gain or loss on the sale or exchange
of such REMIC Bond or Regular Bond will be treated as ordinary income or loss.
In the case of other types of holders, gain from the disposition of a Regular
Bond that otherwise would be capital gain will be treated as ordinary income
(i) if a Regular Bond is held as part of a "conversion transaction" as defined
in Code Section 1258(c), up to the amount of interest that would have accrued
on the Regular Bondholder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate under Code Section 1274(d) in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, (ii) in the case of a
noncorporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates, or (iii) in the case of a REMIC Regular Bond, to the
extent that the amount actually includible in income with respect to the REMIC
Regular Bond by the Bondholder during his holding period is less than the
amount that would have been includible in income if the yield on that Bond
during the holding period had been 110% of a specified U.S. Treasury borrowing
rate as of the date that the Bondholder acquired the REMIC Regular Bond.
Although the legislative history to the 1986 Act indicates that the portion of
the gain from disposition of a REMIC Regular Bond that will be recharacterized
as ordinary income is limited to the amount of original issue discount (if any)
on the REMIC Regular Bond that was not previously includible in income, the
applicable Code provision contains no such limitation. In the case of a Regular
Bond subject to the new contingent payment rules issued on January 19, 1993 as
described above under "Original Issue Discount," any gain on the sale or
exchange of such Bond is treated as interest income.
Market Discount
A purchaser of a Bond also may be subject to the market discount
provisions of Code Sections 1276 through 1278. Under these provisions and the
rules set forth in the OID Regulations with respect to original issue discount,
"market discount" equals the amount by which the purchaser's basis in the Bond
(i) is exceeded by the stated redemption price at maturity of the Bond, or (ii)
in the case of a Bond having original issue discount, is exceeded by the sum of
the issue price of such Bond plus any original issue discount that would have
previously accrued thereon if held by an original Bondholder who purchased the
Bond at its issue price, in either case less any prior payment that was
included in the stated redemption price at maturity of the Bond. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as payments includible in the stated redemption price at maturity of
such Bond are received, in an amount not exceeding any such payment. The
computation of the accrual of market discount on debt instruments the principal
of which is payable in more than one installment is to be provided by Treasury
regulations and should take into account the Prepayment Assumption. Until such
time that the regulations are issued, the Committee Report provides holders may
elect to accrue market discount for a Bond either (i) on the basis of a
constant interest rate or, (ii) for those Bonds that have original issue
discount, in the proportion that the original issue discount accrued for the
relevant period bears to the sum of the original issue discount for such period
plus the remaining original issue discount as of the end of such period, and,
for those Bonds that have no original issue discount, in the proportion that
the amount of the stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the Bond as of the beginning
of the accrual period. Such purchaser also generally will be required to treat
a portion of any gain on a sale or exchange of the Bond as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income as partial payments in reduction of the stated redemption
price at maturity of such Bond were received. Such purchaser also will be
required to defer the interest deductions (to the extent they exceed the sum of
the interest income (including original issue discount) on the Bond for such
year) attributable to any indebtedness incurred or continued to purchase or
carry the Bond. However, the amount of the net interest expense that must be
deferred in a taxable year may not exceed the amount of market discount accrued
on the Bond for the days in such year that such purchaser held such Bond. Any
such deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized or the
Regular Bond is disposed of. As an alternative to the inclusion of market
discount in income on the foregoing basis, the holder may elect to include such
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, in
which case the interest deferral rule will not apply. In Revenue Procedure
92-67, the IRS set forth procedures for taxpayers (1) electing under Section
1278(b) of the Code to include market discount in income currently, (2)
electing under rules of Section 1276(b) of the Code to use a constant interest
rate to determine accrued market discount on a bond where the holder of the
bond is required to
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determine the amount of accrued market discount at a time prior to the holder's
disposition of the bond, and (3) requesting consent to revoke an election under
Section 1278(b) of the Code. Market discount with respect to a Bond will be
considered to be zero if the amount allocable to the Bond is less than 0.25% of
the remaining stated redemption price at maturity of such Bond times the
weighted average maturity of the Bond (determined as described above under
"Original Issue Discount") remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules, as well as the advisability of making any of the
elections discussed above.
Taxation of Certain Foreign Investors
Generally, payments of interest (including any payment with respect to
accrued original issue discount) on the Bonds to a Bondholder who is a
nonresident alien individual, foreign corporation or other non-United States
person ("foreign person") not engaged in a trade or business within the United
States, will not be subject to federal income or withholding tax if (i) such
Bondholder does not actually or constructively own 10 percent or more of the
combined voting power of all classes of equity in the Issuer (which may include
the beneficial owners of the Issuer), (ii) such Bondholder is not a controlled
foreign corporation (within the meaning of Code Section 957) related to the
Issuer, and (iii) such Bondholder complies with applicable identification and
certification requirements. If such identification and certification
requirements are not satisfied and the interest on the Bonds is not effectively
connected with the conduct of a trade or business within the United States by
such foreign person, a 30 percent withholding tax will apply, unless reduced or
eliminated pursuant to an applicable tax treaty. Payments on REMIC Regular
Bonds may subject a foreign person to U.S. federal income and withholding tax
where such foreign person also owns, actually or constructively, Residual Bonds
which are residual interests in the same REMIC, notwithstanding compliance with
the certification requirements discussed above.
If a tax is withheld by the withholding agent, the Bondholder would be
entitled to a refund of such tax if such Bondholder can prove it is a foreign
person and it is not a 10 percent shareholder of the Issuer or a controlled
foreign corporation related to the Issuer. A Bondholder may be required to file
a U.S. federal income tax return to obtain a refund. Foreign investors should
consult their tax advisors regarding the potential imposition of the 30 percent
withholding tax.
BACK-UP WITHHOLDING AND INFORMATION REPORTING
Payments of interest, original issue discount, or other reportable
payments (including, under certain circumstances, principal payments) made on
the Bonds, and proceeds from the sale, including redemption, of the Bonds to or
through certain brokers, including the Indenture Trustee, may be subject to a
"back-up" withholding tax of 31% of reportable payments unless a Bondholder
complies with certain reporting and/or certification procedures. Any amount so
withheld from payments on the Bonds would be refunded or allowed as a credit
against a Bondholder's federal income tax.
To the extent required by law, reports of accrued interest, in the case of
each Series of Bonds for which a REMIC election is made, and interest paid for
each other Series of Bonds and original issue discount will be made annually to
the Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
Bonds or beneficial owners who own Bonds through a broker or middleman as
nominee. All brokers, nominees and all other non-exempt holders of record of
Bonds (including corporations, non-calendar year taxpayers, securities or
commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request such
information for any calendar quarter by telephone or in writing by contacting
the person designated in Internal Revenue Service Publication 938 with respect
to a particular Series of Bonds. Holders through nominees must request such
information from the nominee. Treasury regulations provide that information
necessary to compute the accrual of any market discount on the Bonds must also
be furnished.
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SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL BONDS
Allocation of the Income of the REMIC
Generally, the REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and with respect to certain
contributions to the REMIC after the Startup Day (see "Taxes on Prohibited
Transactions, Foreclosure Income and Certain Contributions" below). Instead,
each original Residual Bondholder will report on its federal income tax return,
as ordinary income, its share of the REMIC's taxable income for each day during
the taxable year on which such Residual Bondholder owns any Residual Bonds. The
REMIC's taxable income for each day will be determined by allocating the
REMIC's taxable income for each calendar quarter ratably to each day in the
quarter. Such a Residual Bondholder's share of the REMIC's taxable income for
each day will be based on the portion of the outstanding Residual Bonds that
such Residual Bondholder owns on that day. The REMIC's taxable income will be
determined under an accrual method and will be taxable to the Residual
Bondholders without regard to the timing or amounts of cash distributions by
the REMIC. As residual interests, the Residual Bonds will be subject to tax
rules, described below, that differ from those that would apply if the Residual
Bonds were treated for federal income tax purposes as direct ownership
interests in the Certificates, or as debt instruments issued by the REMIC.
Under certain REMIC structures, a Residual Bondholder may be required to
include taxable income from the Residual Bond in excess of the cash distributed
with respect to one or more taxable years. For example, a structure where
principal distributions are made serially on regular interests (that is, a
fast-pay, slow-pay structure) may generate such a mismatching of income and
cash distributions (that is, "phantom income"). This mismatching may be caused
by the use of certain tax accounting methods by the REMIC, variations in the
prepayment rate of the Mortgage Loans underlying the Certificates and certain
other factors. Consequently, Residual Bondholders must have sufficient other
sources of cash to pay any federal, state or local income taxes due as a result
of such mismatching or have unrelated deductions against which to offset such
income. Additionally, as noted in the subsequent paragraph, a purchaser of a
Residual Bond may not be entitled to an adjustment in the amount of income
allocable to the Residual Bond for the difference between the adjusted basis
that the Residual Bond would have had in the hands of an original Residual
Bondholder and the purchase price unless Treasury regulations are issued that
permit such an adjustment. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a Residual Bond to a Residual Bondholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a
Residual Bond and the impact of such tax treatment on the after-tax yield of a
Residual Bond.
A subsequent Residual Bondholder also will report on its federal income
tax return amounts representing a daily share of the REMIC's taxable income for
each day that such Residual Bondholder owns such Residual Bond. Those daily
amounts generally would equal the amounts that would have been reported for the
same days by an original Residual Bondholder, as described above. The initial
adjusted basis of a subsequent Residual Bondholder or a Residual Bondholder who
purchases a Residual Bond at other than the issue price (defined below under
"Excess Inclusions") may be greater than such Residual Bondholder's allocable
share of the REMIC's basis in its assets, calculated as described below under
"Taxable Income of the REMIC Attributable to Residual Bonds." Consequently such
Residual Bondholder's basis may not be fully recovered by amortization of
premium or reduction of market discount income with respect to the Mortgage
Loans underlying the Certificates, and such Residual Bondholder may, therefore,
have unrecovered basis on the termination of the REMIC. Such loss may be
ordinary loss or capital loss. See "Sales of Residual Bonds," below. The
legislative history of the 1986 Act indicates that certain adjustments may be
appropriate to reduce (or increase) the income of a subsequent holder of a
Residual Bond that purchased such Residual Bond at a price greater than (or
less than) the adjusted basis (as defined below in "Sales of Residual Bonds")
such Residual Bond would have in the hands of an original Residual Bondholder.
It is not clear, however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The Final REMIC Regulations do not
provide for an adjustment.
Taxable Income of the REMIC Attributable to Residual Bonds
REMIC taxable income generally means the REMIC's gross income, including
interest, original issue discount income, and market discount income, if any,
on the Mortgage Loans, plus income on reinvestment of cash flows and reserve
assets, minus deductions, including interest and original issue discount
expense on the REMIC Regular Bonds,
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servicing fees and other administrative expenses of the REMIC and amortization
or deduction of any premium with respect to the Mortgage Loans. Special rules
apply in certain cases for non-interest expenses as described below in "Non-
Interest Expenses of the REMIC."
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Bonds and the Residual Bonds. Such aggregate basis will be
allocated among the portion of the Mortgage Loans underlying the Certificates
deemed to be owned by the REMIC and other assets of the REMIC in proportion to
their respective fair market values. The issue price of the Residual Bonds and
the REMIC Regular Bonds, in each case, will be the initial offering price to
the public (excluding bond houses and brokers) at which a substantial amount of
such Residual Bonds or REMIC Regular Bonds are sold. A Mortgage Loan will be
deemed to have been acquired with discount or premium to the extent that the
REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or original issue
discount) will be includible in the income of the REMIC as it accrues, in
advance of the receipt of cash attributable to such income, under a method
similar to the method described above for accruing original issue discount on
the Regular Bonds. The REMIC expects to elect under Code Section 171 to
amortize any premium on the Mortgage Loans. Premium on any Mortgage Loan to
which such election applies would be amortized under a constant yield method.
It is not clear whether the yield of a Mortgage Loan would be calculated for
this purpose based on scheduled payments or taking account of the Prepayment
Assumption. Such an election would not apply to any Mortgage Loan originated on
or before September 27, 1985. Instead, premium on such a Mortgage Loan may be
allocated among the principal payments thereon and should be deductible by the
REMIC as those payments become due.
The REMIC will be allowed a deduction for accrued interest including
original issue discount on the REMIC Regular Bonds, regardless of whether the
original issue discount on the REMIC Regular Bonds is considered to be de
minimis. The amount and method of accrual of original issue discount will be
calculated for this purpose in the same manner as described above (see "Certain
Federal Income Tax Consequences--Taxation of Regular Bonds--Original Issue
Discount") for inclusion of original issue discount on the REMIC Regular Bonds
(except that the adjustments for a subsequent holder of the REMIC Regular Bonds
will not apply).
A Residual Bondholder will not be permitted to amortize the cost of its
Residual Bonds as an offset to its share of the REMIC's taxable income.
However, that taxable income will not include cash received by the REMIC that
represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the Residual Bonds will be added to the issue price
of the REMIC Regular Bonds in determining the REMIC's initial basis in its
assets. Such recovery of basis by the REMIC will have the effect of
amortization of the issue price of the Residual Bonds over their life. Possible
adjustments to income of a subsequent holder of a Residual Bond to reflect any
difference between the actual cost of such Residual Bond to such holder and the
adjusted basis such Residual Bond would have in the hands of an original
Residual Bondholder are further discussed in "Allocation of the Income of the
REMIC" above.
Net Losses of the REMIC
The REMIC will have a net loss for any calendar quarter in which its
deductions exceed its gross income. Such net loss would be allocated among the
Residual Bondholders in the same manner as taxable income of the REMIC. The net
loss allocable to any Residual Bond will not be deductible by the holder to the
extent that such net loss exceeds such holder's adjusted basis in such Residual
Bond. Any net loss that is not currently deductible by reason of this
limitation may be used by such Residual Bondholder to offset its share of the
REMIC's taxable income in future periods (but not otherwise). The ability of
Residual Bondholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Non-Interest Expenses of the REMIC
All or a portion of the REMIC's servicing, administrative and other
non-interest expenses will be allocated as a separate item to Residual
Bondholders that are "pass-through interest holders". Such a holder would be
required to add its allocable share, if any, of such expenses to its gross
income and to treat the same amount as an item of
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investment expense. An individual, a trust or an estate would generally be
allowed a deduction for such an expense item only as a miscellaneous itemized
deduction subject to the limitations under Code section 67. That section allows
such deductions only to the extent that in the aggregate all such expenses
exceed two percent of an individual's adjusted gross income. In addition, in
the case of Residual Bondholders who are individuals, certain otherwise
allowable itemized deductions will be reduced, but not by more than 80%, by an
amount equal to 3% of the Residual Bondholder's adjusted gross income in excess
of a statutorily defined threshold. The REMIC is required to report to each
pass-through interest holder and to the IRS such holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Residual Bondholders that are "pass-through interest holders" should
consult their own tax advisors about the impact of these rules on an investment
in the Residual Bonds. Finally, non-interest expenses of a REMIC are not
deductible by noncorporate taxpayers for alternative minimum tax purposes.
Excess Inclusions
A portion of the income allocable to a Residual Bond (referred to in the
Code as an "excess inclusion") for any calendar quarter will be subject to
federal income tax in all events. Thus, for example, an excess inclusion (i)
cannot be offset by any unrelated losses or loss carryovers of a Residual
Bondholder, (ii) will, as described under "Tax-Exempt Investors" below, be
treated as "unrelated business taxable income" within the meaning of Code
Section 512 if the Residual Bondholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income and (iii) is not eligible for any reduction in the rate of withholding
tax in the case of a Residual Bondholder that is a foreign investor, as further
discussed in "Foreign Investors" below. Members of an affiliated group are
treated as one corporation for purposes of applying the limitations on offset
of excess inclusion income.
Except as discussed in the following paragraph with respect to excess
inclusions from Residual Bonds without "significant value," for any Residual
Bondholder, the excess inclusion for any calendar quarter is the excess, if
any, of (i) the income of such Residual Bondholder for that calendar quarter
from its Residual Bond, over (ii) the sum of the "daily accruals" (as defined
below) for all days during the calendar quarter on which the Residual
Bondholder holds such Residual Bond. For this purpose, the daily accruals with
respect to a Residual Bond are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the Residual Bond at the beginning of the calendar
quarter and 120 percent of the "Federal long-term rate" in effect at the time
the Residual Bond is issued. For this purpose, the "adjusted issue price" of a
Residual Bond at the beginning of any calendar quarter equals the issue price
of the Residual Bond (adjusted for contributions), increased by the amount of
daily accruals for all prior quarters, and decreased (but not below zero) by
the aggregate amount of payments made on the Residual Bond before the beginning
of such quarter. The Federal long-term rate is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the IRS.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Bond will be treated as an excess inclusion if the
Residual Bonds in the aggregate are considered not to have "significant value."
The Treasury Department has not yet provided regulations in this respect and
the Final REMIC Regulations have not adopted this rule. The SBJPA has
eliminated the special rule permitting Section 593 institutions ("thrift
institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from Residual Bonds that have significant
value within the meaning of the Final REMIC Regulations effective for taxable
years beginning after December 31, 1995, except with respect to Residual Bonds
continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA provides three rules for determining the effect of
excess inclusions on the alternative minimum taxable income of a Residual
Bondholder. First, alternative minimum taxable income for a Residual
Bondholder is determined without regard to the special rule, discussed above,
that taxable income cannot be less than excess inclusions. Second, a Residual
Bondholder's alternative minimum taxable income for a taxable year cannot be
less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss
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deduction must be computed without regard to any excess inclusions. These
rules are effective for taxable years beginning after December 31, 1986, unless
a Residual Bondholder elects to have such rules apply only to taxable years
beginning after August 20, 1996.
Under Treasury regulations to be promulgated, a portion of the dividends
paid by a real estate investment trust (a "REIT") which owns a Residual Bond
are to be designated as excess inclusions in an amount corresponding to the
Residual Bond's allocable share of the excess inclusions. Similar rules apply
in the case of regulated investment companies, common trust funds and
cooperatives. Thus, investors in such entities which own a Residual Bond will
be subject to the limitations on excess inclusions described above. The Final
REMIC Regulations do not provide guidance on this issue.
There is imposed a tax at the highest corporate rate with respect to the
present value of the total anticipated excess inclusion income on the transfer
of any residual interest, such as a Residual Bond, to a Disqualified
Organization (as defined below). Such tax is generally imposed on the
transferor of the residual interest, except that where such transfer is through
an agent for a Disqualified Organization, the tax is instead imposed on such
agent. However, a transferor of a residual interest is in no event liable for
such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a Disqualified Organization,
and as of the time of the transfer, the transferor does not have actual
knowledge that such affidavit is false. Furthermore, the Treasury Department
may waive the tax on transfers if the Disqualified Organization promptly
disposes of the residual interest and the transferor (or agent) pays the tax on
the excess inclusion income for the period during which the Disqualified
Organization held the residual interest. A Disqualified Organization means (i)
the United States, any State or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, (ii) any organization (other than a farmer's cooperative
described in Section 521 of the Code) that is exempt from the tax imposed by
Chapter 1 of the Code and not subject to the tax imposed by Section 511 of the
Code; (iii) any rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code; or (iv) any other person whose holding of the
residual interests of the REMIC may cause the REMIC to incur a liability for
any tax imposed under the Code that would not otherwise be imposed but for the
purchase or transfer of the residual interests to such person. For purposes of
clause (i) of the previous sentence, a corporation shall not be treated as an
instrumentality of the United States or of any State or political subdivision
thereof, if (i) all of the activities of such corporation are subject to the
tax imposed by Chapter 1 of the Code, and (ii) a majority of the board of
directors of such corporation is not selected by the United States or any State
or political subdivision thereof (except that this clause (ii) shall not apply
to the Federal Home Loan Mortgage Corporation).
In addition to the tax on transfers, a partnership, trust, estate,
regulated investment company, real estate investment trust, common trust fund,
or cooperative (a "Pass-Through Entity") that holds a residual interest is
subject to tax at the highest corporate rate on the allocable portion of excess
inclusion income of a Disqualified Organization that owns an equity interest in
such an entity. The Pass-Through Entity would not be liable for such tax if it
has received an affidavit from such record holder that (i) states under penalty
of perjury that it is not a Disqualified Organization or (ii) furnishes a
social security number and states under penalties of perjury that the social
security number is that of the transferee, provided that during the period such
person is the record holder of the Residual Bond, the Pass-Through Entity does
not have actual knowledge that such affidavit is false. The Indenture and/or
the agreements governing the Trusts with respect to a Series will provide for
reasonable arrangements designed to ensure that Residual Bonds are not held by
Disqualified Organizations and for the furnishing of information to residual
holders to compute the foregoing taxes.
Mark to Market Rules
A REMIC residual interest acquired after January 3, 1995 cannot be
marked-to-market.
Payments
Any payment made on a Residual Bond to a Residual Bondholder will be
treated as a non-taxable return of capital to the extent it does not exceed the
Residual Bondholder's adjusted basis in such Residual Bond. To the extent a
distribution exceeds such adjusted basis, it will be treated as gain from the
sale of the Residual Bond.
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Sales of Residual Bonds
If a Residual Bond is sold, the seller will recognize gain or loss equal
to the difference between the amount realized in the sale and its adjusted
basis in the Residual Bond (except that the recognition of loss may be limited
under the "wash sale" rules described below). A holder's adjusted basis in a
Residual Bond generally equals the cost of such Residual Bond to such Residual
Bondholder, increased by the taxable income of the REMIC that was included in
the income of such Residual Bondholder with respect to such Residual Bond, and
decreased (but not below zero) first by the distributions received thereon by
such Residual Bondholder, and second by the net losses that have been allowed
as deductions to such Residual Bondholder with respect to such Residual Bond.
In general, any such gain or loss will be capital gain or loss provided the
Residual Bond is held as a capital asset. However, Residual Bonds will be
"evidences of indebtedness" within the meaning of Code Section 582(c)(1), so
that gain or loss recognized from sale of a Residual Bond by a bank or thrift
institution to which such section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the seller
of a Residual Bond reacquires such Residual Bond, or acquires any other
Residual Bond, any residual interest in another REMIC or comparable interest in
a "taxable mortgage pool" (as defined in Code Section 7701(i)) 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 Code Section
1091. In that event, any loss realized by the Residual Bondholder on the sale
will not be deductible, but, instead, will increase such Residual Bondholder's
adjusted basis in the newly acquired asset.
Taxes on Prohibited Transactions, Foreclosure Income and Certain Contributions
The REMIC is subject to a tax at a rate equal to 100 percent of the net
income derived from "prohibited transactions." Prohibited transactions
generally include (i) the disposition of a qualified mortgage other than for
(a) substitution within two years of the Startup Day for a defective (including
a defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC or
(d) a qualified (complete) liquidation, (ii) the receipt of income from assets
that are not the type of mortgages or investments that the REMIC is permitted
to hold, (iii) the receipt of compensation for services or (iv) the receipt of
gain from disposition of cash flow investments other than pursuant to a
qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC property to prevent a default on Regular Bonds as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Bonds is outstanding). The Final REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a due-
on-sale or encumbrance clause or the conversion of an interest rate by a
mortgagor pursuant to the terms of a convertible adjustable rate Mortgage Loan.
Final REMIC Regulations also provide that the modification of mortgage loans
underlying Certificates will not be treated as a modification of the
Certificates, provided that the trust including the Certificates was not
created to avoid prohibited transaction rules.
The REMIC must pay a tax at the highest corporate rate on its net income
from foreclosure property. In general, net income from foreclosure property
means gain from the disposition of foreclosure property that is considered held
for sale to customers in the ordinary course of a trade or business (i.e.,
"dealer property") and other income from foreclosure property that is not real
property rents, interest from mortgages, gains from non-dealer property or real
property tax refunds, less the related expenses. In the usual circumstances it
is not expected that the REMIC will have significant net income from
foreclosure property.
The REMIC will also be subject to a tax equal to 100 percent of any amount
contributed to the REMIC after the Startup Day, except for cash contributions
made (i) to facilitate a clean-up call or qualified liquidation, (ii) in the
nature of a guarantee, (iii) within 3 months after the Startup Day, or (iv) by
a holder of a residual interest in the REMIC to a qualified reserve fund.
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In the event that the REMIC is subject to the tax on prohibited
transactions, foreclosure income or non-exempt contributions, such tax would be
borne by the Residual Bondholders to the extent of distributions remaining on
the Residual Bonds.
Termination
The REMIC will terminate shortly following the retirement of the
Certificates. If a Residual Bondholder's adjusted basis in its Residual Bond
exceeds the amount of cash distributed to such Residual Bondholder in final
liquidation of its interest, then, although the matter is not entirely free
from doubt, it would appear that the Residual Bondholder is entitled to a loss
equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
Administrative Matters
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and the Residual Bondholders will be
treated as the partners thereof. The REMIC will file an annual federal income
tax return on Form 1066 and must maintain its books on a calendar year basis.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. The Final REMIC Regulations generally require that Schedule Q
be furnished by the REMIC to each Residual Bondholder within one month of the
close of each calendar quarter in which the REMIC is in existence. Under
proposed REMIC regulations this date generally would be extended to the
forty-first day after the close of each calendar quarter. If a Residual Bond is
held by a nominee, the nominee must furnish Schedule Q to the person for whom
it is nominee within 30 days after receiving the information.
Treasury regulations provide that a holder of a Residual Bond is not
required to treat items on its return consistently with their treatment on the
REMIC's return if a holder owns 100% of the Residual Bonds for the entire
calendar year. Otherwise each holder of a Residual Bond is required to treat
items on its return consistently with their treatment on the REMIC's return,
unless the holder of a Residual Bond either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. Any person that holds a
Residual Bond as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
Foreign Investors
Payments to Residual Bondholders who are foreign persons will generally be
treated as interest for purposes of the 30% (or lower treaty rate) United
States withholding tax. Under temporary Treasury Regulations, such income (to
the extent that it is not excess inclusion income) may qualify for exemption
from United States withholding tax as "portfolio interest" provided that (i)
the Certificates which constitute the assets of the REMIC would be eligible for
such exemption and (ii) the conditions described under "Taxation of Regular
Bonds--Taxation of Certain Foreign Investors" are met, but only to the extent
that the Mortgage Loans underlying the Certificates, that are "pass-through
certificates," were issued after July 18, 1984. Generally, uncertificated
regular interests in another REMIC will not constitute assets eligible for such
exemption. To the extent that a payment represents a portion of REMIC taxable
income that constitutes excess inclusion income, a Residual Bondholder will not
be entitled to an exemption from or reduction of the 30% (or lower treaty rate)
withholding tax rule. If the payments are subject to United States withholding
tax, they generally will be taken into account for withholding tax purposes
only when paid or distributed (or when the REMIC Residual Bond is disposed of).
The Treasury has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in order
to prevent the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case
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of Residual Interest Bonds that do not have significant value. See "Excess
Inclusions" above and "Restrictions on Transfer of a Residual Bond" below.
Restrictions on Transfer of a Residual Bond
The Residual Bonds will be subject to certain restrictions on transfer for
federal income tax purposes. First, Residual Bonds may not be transferred to a
Disqualified Organization, as described in "Excess Inclusions." The Indenture
with respect to a series of REMIC Bonds will provide that neither legal title
nor beneficial interest in a Residual Bond may be transferred or registered
unless (i) the proposed transferee provides to the Issuer and the Indenture
Trustee an affidavit to the effect that such transferee is not a Disqualified
Organization, is not purchasing such Residual Bonds on behalf of a Disqualified
Organization (i.e., as a broker, nominee or middleman thereof) and is not an
entity that holds REMIC residual securities as nominee to facilitate the
clearance and settlement of such securities through electronic book-entry
changes in accounts of participating organizations and (ii) the transferor
provides a statement in writing to the Issuer and the Indenture Trustee that it
has no actual knowledge that such affidavit is false. Moreover, the Indenture
will provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Bond with respect to a series will bear a
legend referring to such restrictions on transfer, and each Residual Bondholder
will be deemed to have agreed, as a condition of ownership thereof, to any
amendments to the Indenture required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions.
Second, the Final REMIC Regulations provide that the transfer of a
residual interest that has tax avoidance potential is disregarded for all
federal income tax purposes if the transferee is a foreign person. This rule
does not apply to income from a residual interest that is effectively connected
to the residual holder's United States trade or business (in which case the
residual holder is treated like a U.S. person). A proposed transfer has tax
avoidance potential unless at the time the residual interest is transferred the
transferor reasonably expects that, for each excess inclusion, (i) the REMIC
will distribute to the transferee residual interest holder an amount that will
equal at least 30% of the excess inclusions and (ii) that each such amount will
be distributed at or after the time at which the excess inclusion accrues and
not later than the close of the calendar year following the calendar year of
accrual. In order to prevent a foreign person from transferring a residual
interest of the type described in this paragraph to a U.S. person shortly
before any tax is due, the Final REMIC Regulations provide that if the transfer
has the effect of allowing the foreign person to avoid tax on accrued excess
inclusions, the transfer is disregarded. The foreign person continues to be
treated as owner of the residual interest for withholding tax purposes. To the
extent provided in the Prospectus Supplement, the Issuer may restrict the
transfer of a Residual Bond to a foreign person.
The Final REMIC Regulations would also disregard certain transfers of
residual interests, such that the transferor would continue to be treated as
the owner of the residual interest and thus would continue to be subject to tax
on its allocable portion of the net income of the REMIC. Under the Final REMIC
Regulations, a transfer of a "noneconomic residual interest" (as defined below)
is disregarded for all federal income tax purposes unless no significant
purpose of the transfer is to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with positive value
at issuance) is a "noneconomic residual interest" unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess inclusions must be determined based on (i) events that have
occurred up to the time of the transfer and (ii) the prepayment and
reinvestment assumptions adopted under Section 1272(a)(6) of the Code, or that
would have been adopted under the section had the regular interests of the
REMIC been issued with original issue discount. 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. Under the Final REMIC Regulations, a
transferor is presumed not to have improper knowledge if (i) the transferor
conducted, 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 found that the transferee had historically paid its debts as
they came due and found 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
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transferee represents to the transferor that it understands that, as the holder
of the noneconomic residual interest, the transferee may incur tax liabilities
in excess of any cash flows generated by the residual interest and that the
transferee intends to pay taxes associated with holding of the residual
interest as they become due. The Indenture will require the transferee of a
Residual Bond to state as part of the affidavit described above with respect to
Disqualified Organizations that such transferee (i) has historically paid its
debts as they come due, (ii) intends to continue to pay its debts as they come
due in the future, (iii) understands that, as the holder of a noneconomic
Residual Bond, it may incur tax liabilities in excess of any cash flows
generated by the Residual Bond, and (iv) intends to pay any and all taxes
associated with holding the Residual Bond as they become due. The transferor
must have no reason to believe that such statement is untrue.
If a Residual Bond has a negative value, it is not clear whether its issue
price would be considered to be zero or such negative amount for purposes of
determining the REMIC's basis in its assets. The Final REMIC Regulations do not
address whether residual interests could have a negative basis and a negative
issue price. The Issuer does not intend to treat a class of Residual Bonds as
having a value of less than zero for purposes of determining the bases of the
assets in the related REMIC Pool. The federal income tax consequences of any
consideration paid to a transferee on a transfer of a Residual Bond are
unclear; any transferee receiving such consideration should consult its tax
advisors.
Tax-Exempt Investors
A qualified pension fund or other entity that is exempt from federal
income taxation (a "Tax-Exempt Investor") under Code Section 501 nonetheless
will be subject to tax on its income that is "unrelated business taxable
income" ("UBTI") within the meaning of Code Section 512. Net income
attributable to a Residual Bond beneficially owned by a Tax-Exempt Investor
will be considered UBTI and thus will be subject to federal income tax, to the
extent that any such income is considered an excess inclusion. See "Excess
Inclusions" above.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the Bonds
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as they are rated in one of
the two highest rating categories by at least one nationally recognized
statistical rating organization. As "mortgage related securities," such Bonds
will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
but not limited to state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or 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.
Pursuant to SMMEA, Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida,
Georgia, Illinois, Kansas, Louisiana, Maryland, Michigan, Missouri, Nebraska,
New Hampshire, New York, North Carolina, Ohio, South Dakota, Utah, Virginia and
West Virginia each enacted legislation prior to the October 4, 1991 deadline
for such enactment, limiting to varying extent the ability of certain entities
(in particular, insurance companies) to invest in "mortgage related
securities," in most cases by requiring the affected investors to rely upon
existing state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in the Bonds only to the extent
provided in such legislation.
Institutions whose investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain Classes of the Bonds. Any financial
institution which is subject to the jurisdiction of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS"), the National Credit Union Administration ("NCUA") or other federal or
state agencies with similar authority should review any applicable rules,
guidelines and regulations prior to purchasing the Bonds. The Federal Financial
Institutions Examination Council, for example, has issued a Supervisory Policy
Statement on Securities
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Activities effective February 10, 1992 (the "Policy Statement"). The Policy
Statement has been adopted by the Comptroller of the Currency, the Federal
Reserve Board, the FDIC, the OTS and the NCUA (with certain modifications),
with respect to the depository institutions that they regulate. The Policy
Statement prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Classes
of Bonds), except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions. The
NCUA issued final regulations effective December 2, 1991 that restrict and in
some instances prohibit the investment by federal credit unions in certain
types of mortgage related securities.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase Bonds
or to purchase Bonds representing more than a specified percentage of the
investors' assets.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying" or in securities that are issued in book entry
form.
If specified in the related Prospectus Supplement, other Classes of Bonds
offered pursuant to this Prospectus will not constitute "mortgage related
securities" under SMMEA. The appropriate characterization of those Bonds under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Bonds, may be subject to
significant interpretive uncertainties. No representation is made as to the
proper characterization of Bonds not qualifying as "mortgage related
securities" for legal investment or financial institution regulatory purposes,
or as to the ability of particular investors to purchase such Bonds under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determination concerning legal investment or
financial institution regulatory characteristics of such Bonds) may adversely
affect the liquidity of such Bonds.
Investors should consult their own legal advisors in determining whether
and to what extent the Bonds constitute legal investments for such investors.
ERISA MATTERS
Title I of ERISA and section 4975 of the Code impose certain restrictions
on employee benefit plans and other retirement plans or arrangements subject
thereto ("Plans") and on persons who are parties in interest or disqualified
persons ("Parties in Interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under section 410(d) of the Code) are not subject to the restrictions
of ERISA, and assets of such plans may be invested in the Bonds without regard
to the ERISA considerations described below, subject to other applicable
Federal and state law. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules set
forth in section 503 of the Code. Any Plan fiduciary which proposes to cause a
Plan to acquire any of the Bonds should consult with its counsel with respect
to the potential consequences under ERISA and the Code of the Plan's
acquisition and ownership of the Bonds. Investments by Plans are also subject
to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA prohibits Parties in Interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of
ERISA) on Parties in Interest which engage in non-exempt prohibited
transactions.
Under certain circumstances, certain affiliates of the Issuer, certain
affiliates of any underwriter or any underwriter of the Bonds may be or may
become a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or a "disqualified person"
within the meaning of the Code with respect to an individual retirement account
or an employee benefit plan subject to such statutes (a "Plan"). In that case
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the acquisition or holding of Bonds by or on behalf of such a Plan may
constitute a "prohibited transaction" within the meaning of ERISA and the Code.
However, certain administrative exemptions from the prohibited transaction
rules could be applicable depending in part on the type and circumstances of
the Plan fiduciary making the decision to acquire a Bond. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38,
regarding investments by bank collective investment funds; or PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager",
PTCE 95-60, which exempts certain transactions involving insurance company
general accounts, or PTCE 96-23, which exempts certain transactions effected on
behalf of a Plan by certain "in-house asset managers".
Under regulations of the U.S. Department of Labor concerning the
definition of the term "plan assets" for purposes of ERISA (the "Regulations"),
the purchase by a Plan of certain types of Bonds, such as a Bond which is or is
intended to be a Residual Bond or a Bond which might be characterized as an
"equity interest" (as defined in the Regulations) in the Issuer of the related
Series of Bonds, or in the collateral securing such Series of Bonds, could
result in findings of ERISA prohibited transactions in the operation of the
Issuer, other direct or indirect prohibited transactions or improper delegation
of investment management responsibility by the Plan fiduciary choosing to
invest in such Bond. Statutory exemptions, or the ERISA prohibited transaction
exemptions referred to in the prior paragraph, or other such administrative
exemptions, might or might not be applicable in such circumstances. For these
reasons as described in the related Prospectus Supplement, certain Plans and
other persons may be prohibited from investing in one or more Classes, or in an
entire Series, of Bonds.
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important that
potential Plan investors consult with their counsel regarding the consequences
under ERISA of their acquisition and ownership of Bonds.
THE INDENTURE
The following summaries describe certain provisions of the Indenture not
described elsewhere in this Prospectus. The summaries do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the Indenture. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. The description set forth
below is subject to modification in the Prospectus Supplement for a Series of
Bonds to describe the terms and provisions of the particular Indenture relating
to such Series of Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than two-thirds of the then
aggregate principal amount of outstanding Bonds of each Series issued under an
Indenture to be affected, the Indenture Trustee and the Issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such Series or
modify (except as provided below) in any manner the rights of the holders of
the Bonds of such Series. In the case of a Series comprising Classes of Senior
Bonds and Junior Bonds, as long as the Imputed Principal Balance (as defined
below) of any Class of Senior Bonds is greater than zero, no amendment,
variation or modification may be made to Article V of the Indenture, concerning
defaults and remedies, without consent of the holders of 100% in the principal
amount of the outstanding Senior Bonds.
Without the consent of the holder of each outstanding Bond of such Series
affected thereby, however, no supplemental indenture shall (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Bond of such Series or reduce the principal amount thereof, the interest rate
specified thereon (except as provided in the related Series Supplement with
respect to any Class of Variable Interest Rate Bonds), the redemption price
with respect thereto or the earliest date on which any Bonds of such Series may
be redeemed at the option of the Issuer, or change any place of payment where,
or the coin or currency in which, any Bond of such Series or any interest
thereon is payable, or impair the right to institute suit for the enforcement
of certain provisions of the Indenture regarding payment, (b) reduce the
percentage of the aggregate principal amount of the outstanding Bonds of such
Series, the consent of the holders of which is required for any such
supplemental indenture, or the consent of the
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holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture, (c) modify the provisions of the
Indenture specifying the circumstances under which such a supplemental
indenture may not change the provisions of the Indenture without the consent of
the holders of each outstanding Bond of such Series affected thereby, or the
provisions of the Indenture with respect to certain remedies available in an
Event of Default (as described below), except to increase any percentage
specified therein or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each
outstanding Bond affected thereby, (d) modify or alter the provisions of the
Indenture regarding the voting of Bonds held by the Issuer or an affiliate of
the Issuer, (e) permit the creation of any lien ranking prior to or on a parity
with the lien of the Indenture with respect to any part of the property subject
to a lien under the Indenture or terminate the lien of the Indenture on any
property at any time subject thereto or deprive the holder of any Bond of such
Series of the security afforded by the lien of the Indenture, or (f) modify any
of the provisions of the Indenture in such manner as to affect the calculation
of the debt service requirement for any Bond or the rights of the holders of
Bonds of such Series to the benefits of any provisions for the redemption at
the request of Bondholders of Bonds of such Series contained therein.
(Indenture, Section 9.2)
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of Bondholders of such Series, to
cure ambiguities or make minor corrections, to provide for the issuance of
Bonds in bearer or registered form or for the conversion of any outstanding
Bonds to or from bearer form and to do such other things as would not adversely
affect the interests of the Bondholders of such Series. (Indenture, Section
9.1)
EVENTS OF DEFAULT
An Event of Default with respect to any Series of the Bonds is defined in
the respective Indenture and Series Supplement under which such Bonds are
issued as being: (a) a default in the payment of principal of any Bond of any
Series or a default for five days or more in the payment of any interest on any
Bond of such Series; (b) a default in the observance of certain negative
covenants in the Indenture or in the observance of certain covenants relating
to redemptions of bonds of such Series; or (c) certain events of bankruptcy,
insolvency, receivership or reorganization of the Issuer. (Indenture, Section
5.1)
RIGHTS UPON EVENT OF DEFAULT
Unless specified otherwise in the related Prospectus Supplement and Series
Supplement, in case an Event of Default should occur and be continuing with
respect to a Series of Bonds, the holders of 100% (or such other percentage
specified in the related Prospectus Supplement) in principal amount of the
outstanding Bonds (or such Classes of Bonds as are specified in the related
Prospectus Supplement) of such Series or in certain cases, the holders of the
Junior Class of such Series having the highest priority of payment (the
"Highest Priority Junior Class") representing not less than 66 2/3% (or such
other percentage specified in the related Prospectus Supplement) in principal
amount of such Class may declare the principal of such Series of Bonds to be
due and payable. Such declaration may under certain circumstances be rescinded
by the holders of a majority in principal amount of the Bonds of such Series
then outstanding (or, in the case of a Series comprising Classes of Senior
Bonds and Junior Bonds, the holders of 100% in principal amount of the
outstanding Senior Bonds of such Series or if the principal amount (less
certain losses of the Trust Estate allocated thereto (as so reduced, the
"Imputed Principal Balance")) of the Senior Bonds has been reduced to zero, by
the holders of the Highest Priority Junior Class of such Series representing
not less than 66 2/3% of the principal amount of such Class). (Indenture,
Section 5.2)
An Event of Default with respect to one Series of Bonds will not
necessarily be an Event of Default with respect to any other Series of Bonds.
Unless specified otherwise in the related Series Supplement, if, following
an Event of Default, a Series of Bonds has been declared to be due and payable,
the Indenture Trustee may, in its discretion, (provided that the holders of the
Bonds of such Series have not directed the Indenture Trustee to sell the
Collateral), refrain from selling the Collateral for such Series and continue
to apply all amounts received on the Collateral to payments due on the Bonds of
such Series as collections are received on the Collateral, notwithstanding the
acceleration of the maturity of such
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Bonds. In addition, if a Series of Bonds has been declared due and payable upon
an Event of Default, the Indenture Trustee may in its discretion under certain
conditions, or will, if directed by the holders of the Bonds, sell the
Collateral for such Series. Following an acceleration of the Bonds after an
Event of Default all Bonds of such Series then outstanding will be payable pro
rata (in accordance with Imputed Principal Balances in the case of Special
Allocation Bonds and except to the extent provided otherwise in the related
Series Supplement), without regard to their respective Stated Maturities, out
of the collections on, or the proceeds from the sale of, such Collateral.
(Indenture, Section 5.8)
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default shall occur and be continuing,
the Indenture Trustee shall be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of Bonds, unless such holders have offered to the Indenture Trustee
reasonable security or indemnity satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request
or direction. (Indenture, Section 6.1) Following an acceleration of the Bonds
after an Event of Default, the Trustee shall be entitled to payment of its fees
prior to payment of principal and interest on the Bonds. (Indenture, Section
6.7) Subject to such provisions for indemnification and certain limitations
contained in the Indenture, the holders of a majority in principal amount of
the outstanding Bonds of a Series (or, in the case of a Series comprising
Classes of Senior Bonds and Junior Bonds, the holders of a majority in
principal amount of the outstanding Senior Bonds of such Series or in certain
cases, the majority in principal amount of the holders of the Highest Priority
Junior Class) shall have the right to direct the time, method, and place of
conducting any proceeding or any remedy available to the Indenture Trustee or
exercising any trust or power conferred on the Indenture Trustee with respect
to the Bonds of such Series; and the holders of a majority in principal amount
of the Bonds of a Series then outstanding (or, in the case of a Series
comprising Classes of Senior Bonds and Junior Bonds, 100% of the outstanding
Senior Bonds of such Series or, if the Imputed Principal Balance of the Senior
Bonds has been reduced to zero, the holders of the Highest Priority Junior
Class of such Series representing not less than 66 2/3% of the principal amount
of such Class) 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 the holder of each outstanding Bond affected
thereby. (Indenture, Sections 5.13 and 5.14). In the case of a Series of Bonds
comprising Classes of Senior Bonds and Junior Bonds, the holders of Junior
Bonds of such Series shall not be entitled to exercise any of the rights
referred to in the preceding sentence until the Senior Bonds of such Series
have been paid in full or the Imputed Principal Balance of each Class of the
Senior Bonds of a Series has been reduced to zero.
LIST OF BONDHOLDERS
Three or more holders of the Bonds of any Series (each of whom has owned a
Bond of such Series for at least six months) may, by written request to the
Indenture Trustee, obtain access to the list of all Bondholders maintained by
the Indenture Trustee for the purpose of communicating with other Bondholders
with respect to their rights under the Indenture. The Indenture Trustee may
elect not to afford the requesting Bondholders access to the list of
Bondholders if it agrees to mail the desired communication or proxy, on behalf
of the requesting Bondholders, to all Bondholders.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Indenture Trustee a
brief certificate as to its compliance with all conditions and covenants under
the Indenture. (Indenture, Section 3.9)
INDENTURE TRUSTEE'S ANNUAL REPORT
Except to the extent provided otherwise in the related Series Supplement,
the Indenture Trustee will be required to mail, in each year when required by
the Trust Indenture Act of 1939, as amended ("TIA"), to all Bondholders a brief
report relating to its eligibility and qualifications to continue as the
Indenture Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing
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by the Issuer to it in the Indenture Trustees's commercial capacity, the
property and funds physically held by the Indenture Trustee as such, any
release or substitution of property subject to the lien of the Indenture which
has not been previously reported, any additional Series of Bonds not previously
reported and any action taken by the Indenture Trustee which materially affects
the Bonds and which has not been previously reported. (Indenture, Section 7.3)
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the Collateral securing
the Bonds of a Series upon the delivery to the Indenture Trustee for
cancellation of all of the Bonds of such Series or, with certain limitations,
upon deposit with the Indenture Trustee of funds sufficient for the payment in
full of all of the Bonds of such Series. (Indenture, Section 4.1)
THE INDENTURE TRUSTEE
The Indenture Trustee for each Series of Bonds will be specified in the
respective Prospectus Supplement. Pursuant to the TIA, the Trustee may have a
"conflicting interest" if any Event of Default occurs with respect to one or
more Classes of Special Allocation Bonds issued under the Indenture or if any
Event of Default occurs with respect to a Series of Bonds that comprises
Classes of Senior Bonds and Classes of Junior Bonds. In such event, the Trustee
may be required to resign its trusteeship with respect to one or more Classes
of such Special Allocation Bonds, Senior Bonds or Junior Bonds and a successor
Trustee would be appointed for such Classes.
REPORTS BY INDENTURE TRUSTEE TO BONDHOLDERS
On each Principal Payment Date or Special Redemption Date in respect of a
Series, the Indenture Trustee for such Series will send a report to each
Bondholder setting forth the respective amounts of such payment representing
interest and principal and the remaining actual outstanding principal amount of
an Individual Bond of each Class, the Imputed Principal Balance (as defined in
the related Indenture) of any Individual Bond that is a Senior Bond or Junior
Bond, and the aggregate principal amount of the Bonds of each relevant Class in
the case of holders of Bonds on which payments of interest only are then being
made or in the case of a Class of Bonds on which principal payments are applied
by lot rather than pro rata, after giving effect to the payments made on such
Principal Payment Date or Special Redemption Date. (Indenture, Section 8.7)
LIMITATION ON SUITS
No holder of a Bond of any Series will have any right to institute any
Proceedings with respect to the Indenture unless (1) such holder has previously
given written notice to the Indenture Trustee for such Series of a continuing
Event of Default with respect to such Series; (2) the holders of at least 25%
in principal amount of the Bonds of such Series then outstanding (or in the
case of a Series comprising Classes of Senior Bonds and Junior Bonds (a) all of
the holders of the Classes of Senior Bonds of such Series having Imputed
Principal Balances greater than zero or (b) in the event that no Class of
Senior Bonds of such Series has an Imputed Principal Balance greater than zero,
the holders of the Highest Priority Junior Class of such Series representing
not less than 66 2/3% of the principal amount of such Class) shall have made
written request to the Indenture Trustee to institute Proceedings in respect of
such Event of Default in its own name as Indenture Trustee; (3) such holders
have offered to the Indenture Trustee reasonable indemnity satisfactory to it
against the costs, expenses and liabilities to be incurred in compliance with
such request; (4) for 60 days after its receipt of such notice, request and
offer of indemnity the Indenture Trustee has failed to institute any such
Proceedings; and (5) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the holders of
at least 50% in principal amount of the Bonds of such Series then outstanding
(or in the case of a Series comprising Classes of Senior Bonds and Junior Bonds
(a) any holder of a Class of Senior Bonds of such Series having Imputed
Principal Balances greater than zero or (b) in the event that no Class of
Senior Bonds of such Series has an Imputed Principal Balance greater than zero,
any holder of the Highest
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Priority Junior Class of such Series representing not less than 66 2/3% of the
principal amount of such Class). (Indenture, Section 5.9)
Notwithstanding any other provision of the Indenture, the Indenture
incorporates Section 316(b) of the TIA which provides that the right of any
holder of a Bond to receive payment of the principal of and interest on such
Bond, on or after the respective due dates expressed in such Bond, or to
institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
holder, except as to a postponement of an interest payment consented to as
provided in Section 316(a)(2) of the TIA, and except that such indenture may
contain provisions limiting or denying the right of any such holder to
institute any such suit, if and to the extent that the institution or
prosecution thereof or the entry or judgment therein would, under applicable
law, result in the surrender, impairment, waiver, or loss of the lien of such
indenture upon any property subject to such lien. (Indenture, Section 5.20)
PLAN OF DISTRIBUTION
The Issuer may sell the Bonds offered hereby through one or more
underwriters or groups of underwriters (the "Underwriters"). The Prospectus
Supplement with respect to each Series of Bonds will set forth the terms of the
offering of such Series of Bonds and each Class within such Series, including
the name or names of the Underwriters, the proceeds to and their intended use
by the Issuer, and if applicable, either the initial public offering price, the
discounts and commissions to the Underwriters and any discounts or concessions
allowed or reallowed to certain dealers, or the method by which the price at
which the Underwriters will sell the Bonds will be determined.
The obligations of any Underwriters will be subject to certain conditions
precedent, and such Underwriters will be obligated to purchase all of the
Series of Bonds described in the Prospectus Supplement with respect to such
Series if any such Bonds are purchased. The Bonds may be acquired by the
Underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. If the
Bonds of a Series are offered other than through underwriters, the related
Prospectus Supplement will contain information regarding the nature of such
offering and any agreements to be entered into between the Issuer and the
purchasers of the Bonds of such Series.
The place and time of delivery for the Series of Bonds in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
The legality of the Bonds will be passed upon for the Issuer by Andrews &
Kurth L.L.P., Dallas, Texas. Andrews and Kurth L.L.P. has also delivered its
opinion to the Issuer as to certain federal income tax consequences with
respect to the Bonds.
EXPERTS
The balance sheet of CMC Securities Corporation IV (formerly known as
Capstead Securities Corporation V), appearing in CMC Securities Corporation
IV's Annual Report on Form 10-K for the years ended December 31, 1994, 1995 and
1996 has been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such balance sheet is incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates
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prescribed by the Commission upon request to the Commission and inspected,
without charge, at the offices of the Commission.
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's Information Statement and most recent Supplement thereto and any
quarterly report made available by FHLMC can be obtained by writing or calling
FHLMC's Investor Inquiry Department at 8200 Jones Branch Drive, McLean,
Virginia 22102 (800-336-FMPC). The Issuer did not participate in the
preparation of FHLMC's Offering Circular, Information Statement or any
Supplement thereto or any such quarterly report.
Copies of FNMA's most recent Prospectus for FNMA Certificates and FNMA's
annual report and quarterly financial statements as well as other financial
information are available from the Vice President for Investor Relations of
FNMA, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7585). The
Issuer did not participate in the preparation of FNMA's Prospectus or any such
report, financial statement or other financial information.
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================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY IN ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR PROSPECTUS SUPPLEMENT, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Table of Contents........................................................ S-7
Summary of Prospectus Supplement......................................... S-8
Risk Factors............................................................. S-25
Description of the Certificates.......................................... S-27
Description of the Mortgage Pool......................................... S-28
Description of Insurance................................................. S-51
Additional Information................................................... S-52
The Loan Seller.......................................................... S-52
Description of the Securities............................................ S-53
Certain Yield and Prepayment Considerations.............................. S-71
Yield Considerations with respect to the Strip
Securities and Principal Only Securities............................... S-77
Indenture................................................................ S-80
Pooling and Servicing Agreement.......................................... S-80
Special Tax Considerations............................................... S-86
Restrictions on Purchase and Transfer of the
Residual Securities.................................................... S-88
Underwriting............................................................. S-88
Use of Proceeds.......................................................... S-89
Legal Opinions........................................................... S-89
Ratings.................................................................. S-89
Legal Investment......................................................... S-90
ERISA Considerations..................................................... S-90
Index of Terms........................................................... S-93
Appendix A............................................................... A-1
Appendix B............................................................... B-1
Appendix C............................................................... C-1
Appendix D............................................................... D-1
PROSPECTUS
Available Information.................................................... 4
Incorporation of Certain Documents by
Reference.............................................................. 4
Summary of Prospectus.................................................... 9
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 23
Description of the Bonds................................................. 23
Security for the Bonds................................................... 29
Certain Legal Aspects of the Mortgage Loans.............................. 36
The Issuer............................................................... 43
Certain Federal Income Tax Consequences.................................. 43
Legal Investment......................................................... 60
ERISA Matters............................................................ 61
The Indenture............................................................ 62
Plan of Distribution..................................................... 66
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
</TABLE>
UNTIL DECEMBER 26, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. 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.
================================================================================
================================================================================
$278,242,362
(APPROXIMATE)
CMC SECURITIES
CORPORATION IV
COLLATERALIZED MORTGAGE OBLIGATIONS,
SERIES 1997 - NAMC 3
CMC SECURITIES CORPORATION IV
ISSUER
NORTH AMERICAN
MORTGAGE COMPANY
MASTER SERVICER
[NORTH AMERICAN LOGO]
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SEPTEMBER 26, 1997
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