<PAGE> 1
PROSPECTUS SUPPLEMENT TO Filed Pursuant to Rule 424(b)(5)
PROSPECTUS DATED SEPTEMBER 26, 1997 Registration No. 33-47912
$776,776,738
(APPROXIMATE)
CMC SECURITIES CORPORATION IV
ISSUER
COLLATERALIZED MORTGAGE OBLIGATIONS, SERIES 1997-2
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CLASS BOND INTEREST
CLASS PRINCIPAL BALANCE RATE(1)
- ----- ----------------- -------------
<S> <C> <C>
IA-2 $ 39,100,200 6.6000%
IA-3 15,745,000 6.5000
IA-4 7,750,000 7.4000(2)
IA-5 11,580,000 7.2500
IA-6 70,008,075 7.2500
IA-7 179,804,570 7.0000
IA-8 57,324,965 7.4000
IA-9 101,445,224 Variable(3)
IA-10 -- Variable(4)
IA-11 31,440,000 7.2500
IA-12 37,917,363 7.2500
IA-13 10,696,500 6.6000
IA-14 10,134,654 6.6000
IA-15 31,416,600 6.5000
IX -- 7.2500(5)
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CLASS BOND INTEREST
CLASS PRINCIPAL BALANCE RATE(1)
- ----- ----------------- -------------
<S> <C> <C>
IIA-1 $ 65,076,568 7.0000%
IIA-2 22,456,000 7.0000
IIA-3 10,951,000 7.2500
IIA-4 12,504,652 Variable(6)
IIA-5 -- Variable(7)
IIA-6 19,585,000 7.2500
IIX -- 7.2500(8)
B-1 26,901,018 7.2500
B-2 9,379,994 7.2500
B-3 5,559,165 7.2500
RL 90 7.2500
RU 100 7.2500
</TABLE>
Footnotes appear on next page.
The Collateralized Mortgage Obligations, Series 1997-2 (the "Bonds") will
consist of the following Classes: (i) Class IA-1, Class IA-2, Class IA-3, Class
IA-4, Class IA-5, Class IA-6, Class IA-7, Class IA-8, Class IA-9, Class IA-10,
Class IA-11, Class IA-12, Class IA-13, Class IA-14 and Class IA-15 (the "Group
IA Bonds"); (ii) Class IIA-1, Class IIA-2, Class IIA-3, Class IIA-4, Class IIA-5
and Class IIA-6 (the "Group IIA Bonds" and, together with the Group IA Bonds,
the "Class A Bonds"); (iii) Class IX and Class IIX (the "Class X Bonds"); (iv)
Class B-1, Class B-2 and Class B-3 (the "Senior Subordinate Bonds"); (v) Class
B-4, Class B-5 and Class B-6 (the "Junior Subordinate Bonds" and, together with
the Senior Subordinate Bonds, the "Subordinate Bonds"); and (vi) Class RL and
Class RU (the "Residual Bonds" and, together with the Class A and Class X Bonds,
the "Senior Bonds"). The Group IA and Class IX Bonds are sometimes referred to
as the "Group I Bonds" and the Group IIA and Class IIX Bonds are sometimes
referred to as the "Group II Bonds." The Group I Bonds and Group II Bonds are
each a "Bond Group." The Class IA-9, Class IA-10, Class IIA-4 and Class IIA-5
Bonds are sometimes referred to as "LIBOR Bonds." The Class IA-9 and Class IIA-4
Bonds are sometimes referred to as the "Floater Bonds" and the Class IA-10 and
Class IIA-5 Bonds are sometimes referred to as "Inverse Floater Bonds." The
Class IA-10, Class IIA-5 and Class X Bonds are collectively referred to as the
"Notional Amount Bonds." The Class IA-5, Class IA-6, Class IA-11, Class IA-12
and Class IIA-6 Bonds are sometimes referred to as "Lockout Bonds." The Class
IA-1 and Class IA-8 Bonds are sometimes referred to as "Super Senior Bonds" and
the Class IA-5 Bonds are sometimes referred to as the "Senior Support Bonds."
Only the Senior Bonds (other than the Class IA-1 Bonds) and the Senior
Subordinate Bonds (collectively, the "Offered Bonds") are offered hereby. The
Class IA-1 Bonds and the Junior Subordinate Bonds are not offered hereby.
(Continued on next page)
------------------------
THE BONDS WILL BE NONRECOURSE OBLIGATIONS SOLELY OF THE ISSUER AND DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE LOAN SELLERS, THE MASTER
SERVICERS, THE CERTIFICATE TRUSTEE, THE INDENTURE TRUSTEE, THE UNDERWRITER OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE BONDS NOR THE UNDERLYING
MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE ISSUER, THE LOAN SELLERS, THE MASTER SERVICERS, THE
CERTIFICATE TRUSTEE, THE INDENTURE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
------------------------
THESE BONDS 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-24 OF THIS PROSPECTUS SUPPLEMENT.
The Offered Bonds 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 $785,180,099 plus accrued interest on the Offered Bonds from
October 1, 1997 (or, in the case of the LIBOR Bonds, from October 25, 1997) to
the Closing Date, before deducting issuance expenses payable by the Issuer which
are estimated to be approximately $200,000.
The Offered Bonds 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
Bonds (other than the Residual Bonds) 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 Residual Bonds will be delivered in
registered and certificated form at the office of Donaldson, Lufkin & Jenrette
Securities Corporation, New York, New York, on or about October 29, 1997 against
payment therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus Supplement is October 28, 1997.
<PAGE> 2
(Cover continued from previous page)
(1) Interest payable on the Bonds on each Payment Date will have accrued
during the preceding calendar month at the applicable per annum Bond
Interest Rate, except for the LIBOR Bonds which will accrue interest
during the period from the 25th of the month prior to the month of
such Payment Date to the 24th of the month of such Payment Date.
(2) On each Payment Date on or before the Class IA-4 Accretion Termination
Date (as defined herein), an amount equal to the Class IA-4 Accrual
Amount (as defined herein) will be added to the Class IA-4 Principal
Balance, and such amount will be paid as principal to other
Components (as defined herein) and Classes of Bonds as described
herein and will not be paid as interest to the Class IA-4 Bonds. The
Class IA-4 Bonds are "Compound Interest Bonds" as described in the
Prospectus.
(3) The Class IA-9 Bonds comprise three Components. The interest and
principal payable to the Class IA-9 Bonds will be based on the
interest and principal allocable to each Component thereof. The
initial Bond Interest Rate for the Class IA-9 Bonds will be 6.056% per
annum. Thereafter, the Class IA-9 Bonds will accrue interest at a per
annum rate equal to LIBOR (as defined herein) plus 0.400%, subject to
a minimum and maximum Bond Interest Rate of 0.400% and 9.000% per
annum, respectively.
(4) The initial Bond Interest Rate for the Class IA-10 Bonds will be
2.944% per annum. Thereafter, the Class IA-10 Bonds will accrue
interest at a per annum rate equal to 8.600% minus LIBOR, subject to a
minimum and maximum Bond Interest Rate of 0.000% and 8.600% per annum,
respectively. The Class IA-10 Bonds will not be entitled to receive
payments of principal and will accrue interest on the Class IA-10
Notional Amount which will equal the Class IA-9 Principal Balance at
the time of determination.
(5) The Bond Interest Rate for the Class IX Bonds will be 7.250% per
annum. The Class IX Bonds will accrue interest on the Class IX
Notional Amount (as defined in "Description of the Bonds -- Interest
Payments" herein). The Class IX Notional Amount as of the Cut-Off
Date will be approximately $22,084,861. The Class IX Bonds will not
be entitled to receive payments of principal.
(6) The initial Bond Interest Rate for the Class IIA-4 Bonds will be
6.2562% per annum. Thereafter, the Class IIA-4 Bonds will accrue
interest at a per annum rate equal to LIBOR plus 0.600%, subject to a
minimum and maximum Bond Interest Rate of 0.600% and 9.000% per annum,
respectively.
(7) The initial Bond Interest Rate for the Class IIA-5 Bonds will be
2.7438% per annum. Thereafter, the Class IIA- 5 Bonds will accrue
interest at a per annum rate equal to 8.400% minus LIBOR, subject to a
minimum and maximum Bond Interest Rate of 0.000% and 8.400% per annum,
respectively. The Class IIA-5 Bonds will not be entitled to receive
payments of principal and will accrue interest on the Class IIA-5
Notional Amount which will equal the Class IIA-4 Principal Balance at
the time of determination.
(8) The Bond Interest Rate for the Class IIX Bonds will be 7.250% per
annum. The Class IIX Bonds will accrue interest on the Class IIX
Notional Amount (as defined in "Description of the Bonds -- Interest
Payments" herein). The Class IIX Notional Amount as of the Cut-Off
Date will be approximately $2,632,445. The Class IIX Bonds will not
be entitled to receive payments of principal.
The Bonds 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 (i) PNC
Mortgage Securities Corp. ("PNC MORTGAGE"), (ii) PHH Mortgage Services
Corporation ("PHH"), or (iii) IndyMac, Inc. ("INDYMAC") (each, a "LOAN SELLER"
and collectively, the "LOAN SELLERS"). The Mortgage Loans will have an
aggregate principal balance as of October 1, 1997 (the "CUT-OFF DATE") of
$937,999,464.84 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 of Mortgage Loans
(each, a "LOAN GROUP"). The "GROUP I LOANS" (sometimes referred to herein as
"GROUP I") consist of Mortgage Loans having an aggregate principal balance as
of the Cut-Off Date of $800,336,707.69, and the "GROUP II LOANS" (sometimes
referred to herein as "GROUP II") consist of Mortgage Loans having an aggregate
principal balance as of the Cut-Off Date of $137,662,757.15. Group I and Group
II are each referred to herein as a Loan Group. Prior to the date of initial
issuance of the Bonds (the "CLOSING DATE"), (i) PHH will have sold certain of
the Mortgage Loans (the "PHH MORTGAGE LOANS") to DLJ Mortgage Capital, Inc.
("DLJMC"), an affiliate of the Underwriter, pursuant to one or more loan sale
agreements between PHH and DLJMC (collectively, the "PHH LOAN SALE AGREEMENT"),
(ii) PNC
S-2
<PAGE> 3
will have sold certain of the Mortgage Loans (the "PNC MORTGAGE LOANS") to
DLJMC, pursuant to a loan sale agreement between PNC and DLJMC (the "PNC LOAN
SALE AGREEMENT") and (iii) IndyMac will have sold certain of the Mortgage Loans
(the "INDYMAC MORTGAGE LOANS") to DLJMC pursuant to the terms of a loan sale
agreement between IndyMac and DLJMC (the "INDYMAC LOAN SALE AGREEMENT"). The
PHH Loan Sale Agreement, IndyMac Loan Sale Agreement and PNC Loan Sale
Agreement are collectively referred to herein as the "LOAN SALE AGREEMENTS."
On the Closing Date, DLJMC will sell the Mortgage Loans (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, pursuant to the terms of various
assignment and assumption agreements between DLJMC and CCC (the "DLJMC
ASSIGNMENT AGREEMENTS"). CCC will, in turn, simultaneously 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 pursuant to
various assignment and assumption agreements between CCC and the Issuer (the
"CCC ASSIGNMENT AGREEMENTS"). 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, PNC
Mortgage and IndyMac, as master servicers (each, a "MASTER SERVICER" and
collectively, the "MASTER SERVICERS"), PNC Mortgage, as bond administrator (in
such capacity, the "BOND ADMINISTRATOR") and U.S. Bank National Association, 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 U.S. Bank National Association, 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 Servicers pursuant
to the Pooling and Servicing Agreement. Certain characteristics of the
Mortgage Loans are described herein under "Description of the Mortgage Pool."
The Bonds constitute a Series of "BONDS" that are "SPECIAL ALLOCATION
BONDS," as each such 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 Bonds under the lien of the Indenture (the "TRUST
ESTATE") are the sole source of payments on the Bonds. Neither the Bonds nor
the Certificates are insured or guaranteed by any government agency or
instrumentality, CMC, CCC, the Issuer, the Loan Sellers, DLJMC, the Certificate
Trustee, the Indenture Trustee, the Underwriter or any other person or entity.
Each Class of Subordinate Bonds comprises two Components, one of which
relates to the Group I Loans and for purposes hereof is deemed to be included
in the Group I Bonds (each, a "GROUP I SUBORDINATE COMPONENT"), and one of
which relates to the Group II Bonds and for purposes hereof is deemed to be
included in the Group II Bonds (each, a "GROUP II SUBORDINATE COMPONENT"). The
Group I Subordinate Components and the Group II Subordinate Components are
collectively referred to herein as the "SUBORDINATE COMPONENTS."
Each Class of Senior Bonds constitutes a "SENIOR CLASS" of "SENIOR
BONDS" as described in the Prospectus and each Class of Subordinate Bonds
constitutes a "JUNIOR CLASS" of "JUNIOR BONDS" as described in the Prospectus.
The primary credit support for the Senior Bonds of each Bond Group is the
subordination of the Subordinate Components of such Bond Group to such Senior
Bonds. In addition, the Senior Bonds of each Bond Group, other than the
Lockout Bonds of such Bond Group, will be allocated all or a disproportionately
large share of the principal payments and prepayments received on the related
Loan Group for a period of time, as described herein. The primary credit
support for each Class of Senior Subordinate Bonds is the subordination of the
Subordinate Components relating to each Bond Group with higher numerical
designations. The rights of Components IB-2 and IIB-2 to receive payments of
principal and interest will be subordinate to such rights of the Components
IB-1 and IIB-1, respectively, and such rights of Components IB-3 and IIB-3
will be similarly subordinate to such rights of Components IB-1 and IB-2 and
Components IIB-1 and IIB-2 , respectively, in each case as and to the extent
described herein. Except for Excess Losses, Realized Losses on the Mortgage
Loans in a given Loan Group will be allocated first to the Junior Subordinate
Components (as defined herein) of the related Bond Group in reverse numerical
order, second to the Senior Subordinate Components (as defined herein) of the
related Bond Group in reverse numerical order, and then to the Senior Bonds of
the related Bond Group, in each case as described herein. Following the
reduction of the aggregate Component Principal Balances (as defined herein) of
the Junior Subordinate Components of a Bond Group to zero, the yield to
S-3
<PAGE> 4
maturity on each Class of Senior Subordinate Bonds, in increasing order of
numerical Class designation, will be extremely sensitive to such Realized
Losses on the Mortgage Loans because a disproportionately large amount of such
losses (rather than a pro rata portion thereof) will be allocable to the Senior
Subordinate Component with the highest numerical designation then outstanding
of the related Bond Group. Similarly, following the reduction of the aggregate
Component Principal Balances of the Subordinate Components of a Bond Group to
zero, the yield to maturity on the Senior Bonds of such Bond Group will be
extremely sensitive to all Realized Losses on the Mortgage Loans in the related
Loan Group. See "Description of the Bonds -- Subordination and Allocation of
Losses" herein.
As described under "Description of the Bonds -- Subordination and
Allocation of Losses," Realized Losses, including Excess Losses, which would
otherwise be allocable to the Class IA-1 Bonds (other than Component IA-1-4
thereof) and Realized Losses, including Excess Losses, which would otherwise be
allocable the Class IA-8 Bonds will first be allocated to the Senior Support
Bonds (which are the Class IA-5 Bonds), until the Class IA-5 Principal Balance
has been reduced to zero. See "Certain Yield and Prepayment Considerations."
Payments in respect of the Bonds 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 November 1997 (each, a "PAYMENT DATE"). As more
fully described herein under "Description of the Bonds -- Interest Payments,"
interest payments on the Offered Bonds will be based on the Principal Balances
thereof (or on the applicable Notional Amount (as defined herein), in the case
of the Notional Amount Bonds) and the related Bond Interest Rates. Interest
accruing on each Class of Bonds during each Interest Accrual Period (as defined
herein) after the first Interest Accrual Period will be calculated on the
assumption that principal payments on, and allocation of Realized Losses to,
such Bonds are made (and accrued interest is added to the Component Principal
Balance of Component IA-1-2 of the Class IA-1 Bonds and to the Principal
Balance of the Class IA-4 Bonds) on the last day of the preceding Interest
Accrual Period, and not on the following Payment Date when actually made or
added. Payments in respect of principal of the Bonds will be allocated among
the various Classes of Bonds entitled to principal as described under
"Description of the Bonds -- Principal Payments."
The yield to maturity on the Class IA-9 and Class IIA-4 Bonds will be
sensitive to fluctuations in the level of LIBOR and to the rate of Principal
Prepayments (as defined herein) on the Group I and Group II Loans,
respectively, and the yield to maturity on the Class IA-10 and Class IIA-5
Bonds will be extremely sensitive to fluctuations in the level of LIBOR and to
the rate of Principal Prepayments on the Group I and Group II Loans,
respectively. Prospective investors should fully consider the risks associated
with an investment in the Class IA-9, Class IA-10, Class IIA-4 and Class IIA-5
Bonds, including, in the case of the Class IA-10 and Class IIA-5 Bonds, the
possibility that if the rate of Principal Prepayments on the Mortgage Loans in
the related Loan Group is rapid or if the level of LIBOR is high, such
investors may not fully recoup their initial investments. See "Certain Yield
and Prepayment Considerations" herein.
The Class IA-4 Bonds will be especially sensitive to the rate of
prepayments on the Group I Loans because the Class IA-4 Bonds will receive
payments of principal on any Payment Date only to the extent of the portion of
the Group I Senior Principal Payment Amount (as defined herein) remaining, if
any, after payments to the PACs (as defined herein), to the extent of their
respective planned principal balances for such Payment Date as set forth in
Appendix E (each, a "PLANNED PRINCIPAL BALANCE"), and to the TACs (as defined
herein), to the extent of their respective targeted principal balances for such
Payment Date as set forth in Appendix F (each, a "TARGETED PRINCIPAL BALANCE").
Furthermore, if the Group I Senior Principal Payment Amount on any Payment Date
is not sufficient to reduce the Class or Component Principal Balances of the
PACs to their Planned Principal Balances and to reduce the Class or Component
Principal Balances of the TACs to their Targeted Principal Balances, the Class
IA-4 Bonds will receive no principal payment on such Payment Date.
The yield to maturity on the Class IX and Class IIX Bonds will be
extremely sensitive to the rate of Principal Prepayments on the Group I and
Group II Loans, respectively. The interest payable to the Class IX Bonds is
based on the weighted average of the Stripped Interest Rates (as defined
herein) of the Group I Loans having Net Mortgage Rates (as defined herein) in
excess of 7.250% (the "GROUP I PREMIUM RATE LOANS") and the interest payable to
the Class IIX Bonds is based on the weighted average of the Stripped Interest
Rates of the Group II Loans having Net Mortgage Rates in excess of 7.250% (the
"GROUP II PREMIUM RATE LOANS" and, together with the Group I Premium Rate
Loans, the "PREMIUM RATE LOANS"), and therefore the yield to maturity of the
Class IX and Class IIX Bonds will generally decrease as a result of faster than
expected Principal Prepayments on the related Premium Rate Loans. Prospective
investors should fully consider the risks associated with an investment in the
Class IX and Class IIX Bonds, including
S-4
<PAGE> 5
the possibility that if the rate of Principal Prepayments on the related
Premium Rate Loans is rapid, such investors may not fully recoup their initial
investments. See "Yield and Prepayment Considerations" herein.
No Principal Prepayments in respect of the Group I Loans will be paid
to the holders of the Class IA-5 or Class IA-6 Bonds prior to the Payment Date
occurring in November 2002 unless the Class Principal Balances of the Class IA
Bonds (other than the Class IA-5, Class IA-6, Class IA-11 and Class IA-12
Bonds) have been reduced to zero. No scheduled principal payments or Principal
Prepayments in respect of the Group I Loans will be paid to the holders of the
Class IA-11 and Class IA-12 Bonds prior to the Payment Date occurring in
November 2002, unless the Class Principal Balances of the Class IA Bonds (other
than the Class IA-5, Class IA-6, Class IA-11 and Class IA-12 Bonds) have been
reduced to zero, and no scheduled principal payments or Principal Prepayments
in respect of the Group I Loans will be paid to the holders of the Class IA-12
Bonds until the Class IA-11 Principal Balance has been reduced to zero. No
Principal Prepayments in respect of the Group II Loans will be paid to the
holders of the Class IIA-6 Bonds prior to the Payment Date occurring in
November 2002, unless the Class Principal Balances of the Group IIA Bonds
(other than the Class IIA-6 Bonds) have been reduced to zero. No Principal
Prepayments in respect of the Mortgage Loans in a Loan Group will be allocated
to the Subordinate Components of the related Bond Group prior to the Payment
Date occurring in November 2002 and no Principal Prepayments in respect of such
Mortgage Loans will be allocated to such Subordinate Components thereafter if
certain criteria relating to the extent of available subordination and the
delinquency and loss performance of such Mortgage Loans described herein are
not satisfied, unless in either case the Group IA Bonds, with respect to
Principal Prepayments in respect of the Group I Loans, or the Group IIA Bonds,
with respect to Principal Prepayments in respect of the Group II Loans, have
been reduced to zero.
It is a condition to the issuance of the Offered Bonds that the Class
A Bonds (other than the Class IA-10 and Class IIA-5 Bonds) and the Residual
Bonds each be rated "AAA" by Standard & Poor's, a division of the McGraw Hill
Companies, Inc. ("S&P") and by Duff & Phelps Credit Rating Co. ("DCR"), that
the Notional Amount Bonds each be rated "AAAr" by S&P and "AAA" by DCR and that
the B-1 Bonds be rated not less than "AA" by DCR, the Class B-2 Bonds be rated
not less than "A" by DCR and the Class B-3 Bonds be rated not less than "BBB"
by DCR. See "Ratings" herein.
As described herein, two real estate mortgage investment conduit
("REMIC") elections will be made with respect to the Bonds for federal income
tax purposes (such REMICs being referred to as the "UPPER REMIC" and "LOWER
REMIC," respectively). The Bonds (other than the Residual Bonds) will
constitute "regular interests" in the Upper REMIC and "REMIC REGULAR BONDS" for
purposes of the Prospectus. The Class RL and Class RU Bonds will constitute
the "residual interest" in the Lower REMIC and the Upper REMIC, respectively,
and "RESIDUAL BONDS" for purposes of the Prospectus. The holders of the
Residual Bonds 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 Bonds 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
(a "RATING AGENCY").
The Class B-3 Bonds and the Notional Amount Bonds 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 Bond or a Notional
Amount Bond 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 Residual Bonds 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 Bonds are subject
to additional transfer restrictions. See "Restrictions on Purchase and
Transfer of the Residual Bonds" herein.
There is currently no secondary market for the Offered Bonds.
Donaldson, Lufkin & Jenrette Securities Corporation (the "UNDERWRITER") intends
to make a secondary market in the Offered Bonds but has no obligation to do so.
There can be no assurance that a secondary market for the Offered Bonds will
develop or, if it does develop, that it will continue or will provide investors
with a sufficient level of liquidity. The Offered Bonds will not be listed on
any securities exchange. See "Risk Factors" herein and in the Prospectus.
S-5
<PAGE> 6
The information set forth herein under "Summary of Prospectus
Supplement -- The Mortgage Pool," "Description of the Mortgage Pool," "The Loan
Sellers" and "Pooling and Servicing Agreement -- The Master Servicers" is based
on information that has been provided by the Loan Sellers. 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 Sellers.
THE OFFERED BONDS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
DUE TO THEIR COMPLEX NATURE. NO INVESTOR SHOULD PURCHASE THE OFFERED BONDS
UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD,
LIQUIDITY AND OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE OFFERED BONDS.
_______________
No person is authorized in connection with this offering to give any
information or to make any representation about the Issuer, the Loan Sellers,
DLJMC, the Master Servicers, the Certificate Trustee, the Indenture Trustee,
the Offered Bonds, 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 Sellers, DLJMC, the Master Servicers, 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 Bonds, 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.
_______________
THE OFFERED BONDS OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL BE PART
OF A SEPARATE SERIES OF BONDS 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.
_______________
REPORTS TO BONDHOLDERS
With respect to the Senior Bonds (other than the Notional Amount Bonds
and Residual Bonds), unless and until definitive bonds are issued, monthly
reports containing information concerning the Trust Estate and prepared by the
Indenture Trustee, will be sent to Cede & Co. ("CEDE"), as nominee of DTC and
registered holder of such Senior Bonds, pursuant to the Indenture. Such
reports may be available to beneficial owners of Senior Bonds (other than the
Notional Amount Bonds and Residual Bonds) in accordance with the regulations
and procedures of DTC.
_______________
The Issuer will file with the Securities and Exchange Commission (the
"COMMISSION") certain materials relating to the Mortgage Pool and the Offered
Bonds 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 BONDHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
SUMMARY OF PROSPECTUS
SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Limited Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Yield and Prepayment Considerations . . . . . . . . . . . . . . . . . . . . . S-24
Residual Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Allocation of Realized Losses to Class IA-5
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Geographic Concentration of the
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . . . . . . . S-28
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Loan Group I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Loan Group II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Loan Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Underwriting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
DESCRIPTION OF INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Primary Mortgage Insurance Policies . . . . . . . . . . . . . . . . . . . . . S-49
Standard Hazard Insurance Policies
and Flood Insurance Policies . . . . . . . . . . . . . . . . . . . . . . S-49
Title Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
THE LOAN SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
PNC Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
PHH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
IndyMac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
DESCRIPTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Priority of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Principal Payment Amount and
Principal Prepayment Amount . . . . . . . . . . . . . . . . . . . . . . . S-68
Subordination and Allocation of Losses . . . . . . . . . . . . . . . . . . . . S-69
Optional Redemption of the Bonds . . . . . . . . . . . . . . . . . . . . . . . S-72
Special Redemption of the Bonds . . . . . . . . . . . . . . . . . . . . . . . S-72
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
Weighted Average Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-76
Yield Considerations with Respect to the
Notional Amount Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . S-78
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
Assignment of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . S-82
Substitution of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . S-83
Representations and Warranties Regarding the Mortgage Loans . . . . . . . . . S-83
The Master Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-84
Special Servicing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . S-84
Payments on Mortgage Loans; Custodial
Accounts for P&I, Investment Account
and Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . S-85
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
Servicing Compensation and
Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
Certain Matters Regarding the Master
Servicers, the Issuers and the
Bond Administrators . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
Rights upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . S-89
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-89
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
The Certificate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
SPECIAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
Residual Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-90
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL BONDS . . . . . . . . . . . . S-92
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
</TABLE>
S-7
<PAGE> 8
<TABLE>
<S> <C>
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
INDEX OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
</TABLE>
S-8
<PAGE> 9
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.
<TABLE>
<S> <C>
TITLE OF BONDS . . . . . . . . . . . . Collateralized Mortgage Obligations, Series 1997-2.
ISSUER . . . . . . . . . . . . . . . . CMC Securities Corporation IV ("CMCSC IV" or the "ISSUER"). See "The Issuer"
in the Prospectus.
MASTER SERVICERS . . . . . . . . . . . With respect to the PNC Mortgage Loans and the PHH Mortgage Loans, PNC
Mortgage Securities Corp. ("PNC MORTGAGE"), and with respect to the IndyMac
Mortgage Loans, IndyMac, Inc. ("INDYMAC"). Notwithstanding anything to the
contrary in the Prospectus, the Master Servicers will provide all customary
servicing functions with respect to the related Mortgage Loans pursuant to
the Pooling and Servicing Agreement. Each Master Servicer will be entitled
to: (i) a monthly master servicing fee with respect to each Mortgage Loan
serviced by such Master Servicer, (ii) any interest or investment income
earned on funds deposited in certain accounts as described herein, and (iii)
certain additional servicing compensation as described herein. See "Pooling
and Servicing Agreement -- The Master Servicers" herein.
CERTIFICATE TRUSTEE . . . . . . . . . . U.S. Bank National Association, as Certificate Trustee under the Pooling and
Servicing Agreement. See "Pooling and Servicing Agreement -- The
Certificate Trustee" herein.
INDENTURE TRUSTEE . . . . . . . . . . . U.S. Bank National Association, as Indenture Trustee under the Indenture.
See "Indenture -- The Indenture Trustee" herein.
BOND ADMINISTRATOR . . . . . . . . . . PNC Mortgage, as Bond Administrator under the Pooling and Servicing
Agreement and the Indenture. The Bond Administrator will perform certain
securities administration functions for the Issuer under the Indenture,
including, among other things, monitoring the amounts on deposit in the
collection account (the "COLLECTION ACCOUNT") and other accounts established
in accordance with the Indenture and maintained with the Indenture Trustee,
calculating amounts payable to Bondholders on each Payment Date, the
preparation of and distribution to Bondholders of monthly statements and
other reports as provided in the Indenture.
LOAN SELLERS . . . . . . . . . . . . . Each of (i) PNC Mortgage, as seller of the PNC Mortgage Loans, (ii) PHH, as
seller of the PHH Mortgage Loans, and (iii) IndyMac, as seller of the
IndyMac Mortgage Loans. See "The Loan Sellers" herein.
CUT-OFF DATE . . . . . . . . . . . . . October 1, 1997.
CLOSING DATE . . . . . . . . . . . . . On or about October 29, 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 November 1997 (each, a "PAYMENT
DATE").
</TABLE>
S-9
<PAGE> 10
<TABLE>
<S> <C>
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.
DUE DATE . . . . . . . . . . . . . . . The first day of each calendar month.
PREPAYMENT PERIOD . . . . . . . . . . . With respect to each Payment Date and each Payoff (as defined herein) in
respect of a PNC Mortgage Loan or a PHH Mortgage Loan, the related
"PREPAYMENT PERIOD" will commence on the 15th day of the month preceding the
month in which the related Payment Date occurs (or in the case of the first
Payment Date, commencing on the Cut-Off Date) and will end on the 14th day
of the month in which such Payment Date occurs. With respect to each
Payment Date and each Payoff in respect of an IndyMac Mortgage Loan, the
related "PREPAYMENT PERIOD" will be the calendar month preceding the month
in which the related Payment Date occurs. With respect to each Curtailment
(as defined herein) in respect of a Mortgage Loan, the related "PREPAYMENT
PERIOD" will be the month preceding the month in which the related Payment
Date occurs.
BONDS: . . . . . . . . . . . . . . . . The Bonds will be issued pursuant to an Indenture to be dated as of
October 1, 1997, as supplemented by a Series 1997-2 Supplement dated
October 29, 1997 (collectively, the "INDENTURE"), between the Issuer and the
Indenture Trustee.
</TABLE>
[Remainder of Page Intentionally Left Blank]
S-10
<PAGE> 11
<TABLE>
<S> <C>
The approximate initial Class Principal Balances, Bond Interest
Rates, and types of the Offered Bonds will be as follows:
<CAPTION>
Approximate Initial Bond
Class Principal Interest
Class Balance Rate Type
----- -------------------- ----------- ----
<S> <C> <C> <C>
IA-2 $ 39,100,200 6.6000% Senior/PAC
IA-3 15,745,000 6.5000 Senior/PAC
IA-4 7,750,000 7.4000 Senior/Accrual
IA-5 11,580,000 7.2500 Senior/Lockout/
Senior Support
IA-6 70,008,075 7.2500 Senior/Lockout
IA-7 179,804,570 7.0000 Senior/TAC
IA-8 57,324,965 7.4000 Senior/PAC/
Super Senior
IA-9 101,445,224 Variable Senior/Component/
Floater
IA-10 -- Variable Senior/Notional
Amount/Inverse
Floater
IA-11 31,440,000 7.2500 Senior/Lockout
IA-12 37,917,363 7.2500 Senior/Lockout
IA-13 10,696,500 6.6000 Senior/PAC
IA-14 10,134,654 6.6000 Senior/PAC
IA-15 31,416,600 6.5000 Senior/PAC
IX -- 7.2500 Senior/Notional
Amount
IIA-1 65,076,568 7.0000 Senior
IIA-2 22,456,000 7.0000 Senior
IIA-3 10,951,000 7.2500 Senior
IIA-4 12,504,652 Variable Senior/Floater
IIA-5 -- Variable Senior/Notional
Amount/Inverse
Floater
IIA-6 19,585,000 7.2500 Senior/Lockout
IIX -- 7.2500 Senior/Notional
Amount
B-1 26,901,018 7.2500 Senior Subordinate
B-2 9,379,994 7.2500 Senior Subordinate
B-3 5,559,165 7.2500 Senior Subordinate
RL 90 7.2500 Senior/Residual
RU 100 7.2500 Senior/Residual
The "PRINCIPAL BALANCE" of a Bond as of any date of determination is the
original principal balance thereof (plus, in the case of the Class
IA-4 Bonds, Class IA-4 Accrual Amounts added thereto as described
herein) minus all prior payments in respect of principal of such
Bond and minus all Realized Losses in respect of principal allocated
to such Bond. The "CLASS PRINCIPAL BALANCE" of a Class of Bonds is (i) in
the case of a Class of Bonds that does not comprise Components, the aggregate
of the Principal Balances of the Bonds of such Class and (ii) in
the case of a Class of Bonds that comprises Components, the aggregate of the Component
Principal Balances of the related Components. The "NOTIONAL AMOUNT" of a
Notional Amount Bond is an amount used as a
</TABLE>
S-11
<PAGE> 12
<TABLE>
<S> <C>
reference to calculate the amount of interest due on a Notional Amount Bond.
The "CLASS NOTIONAL AMOUNT" of a Class of Notional Amount Bonds is the
aggregate of the Notional Amounts of the Bonds of such Class. The "BOND
INTEREST RATE" for a Class of Bonds or a Component is the interest rate
borne by the Bonds of such Class or such Component, as described herein.
Components. Certain Classes of Bonds will comprise multiple components
(each, a "COMPONENT"), each of which will have a specified principal balance
(a "COMPONENT PRINCIPAL BALANCE") or notional amount (a "COMPONENT NOTIONAL
AMOUNT") which functions and is calculated in a manner comparable to that of
a Class Principal Balance or Class Notional Amount, respectively, on which
interest will accrue at a designated Bond Interest Rate (other than
Component IA-1-1 and Component IA-1-4 of the Class IA-1 Bonds, which are not
entitled to payments of interest). Component IA-1-4 of the Class IA-1 Bonds
will consist of two sub-components (each, a "SUB-COMPONENT"), each of which
will have a specified principal balance (a "SUB-COMPONENT PRINCIPAL
BALANCE") which functions and is calculated in a manner similar to that of a
Class Principal Balance. Holders of a Class of Bonds comprising Components
will be entitled to receive payments on each Payment Date to the extent of
the amount paid with respect to the related Components on such Payment Date.
HOLDERS OF A CLASS OF BONDS COMPRISING COMPONENTS MAY NOT TRANSFER SUCH
COMPONENTS SEPARATELY.
For purposes of calculating principal payments, the Class IA-9 Bonds will
comprise three Components having the designations, initial Component
Principal Balances and types of Components set forth below:
<CAPTION>
Approximate Initial
Component Principal
Designation Balance Type
----------- ------------------- ----
<S> <C> <C>
Component IA-9-1 . . . . . . . $ 29,965,681 PAC
Component IA-9-2 . . . . . . . 26,528,400 PAC
Component IA-9-3 . . . . . . . 44,951,143 TAC
For purposes of calculating payments, the Class IA-1 Bonds which are not
offered hereby, will comprise four Components having the designations,
initial Component Principal Balances and Bond Interest Rates set forth
below:
<CAPTION>
Approximate Initial
Component Principal Bond Interest
Designation Balance Rate
----------- ------------------- --------------
<S> <C> <C>
Component IA-1-1 . . . . . $ 12,238,815 (1)
Component IA-1-2 . . . . . 138,125,000 7.400%(2)
Component IA-1-3 . . . . . -- 7.250%(3)
Component IA-1-4 . . . . . 2,485,739 (4)
</TABLE>
S-12
<PAGE> 13
<TABLE>
<S> <C>
(1) Component IA-1-1 will not be entitled to payments of interest.
(2) On each Payment Date on or before the Component IA-1-2 Accretion Termination Date
(as defined herein), an amount equal to the Component IA-1-2 Accrual Amount (as
defined herein) will be added to the Component IA-1-2 Principal Balance, and such
amount will be paid as principal to other Components and Classes of Bonds as described
herein and will not be paid as interest to Component IA-1-2.
(3) Component IA-1-3 will accrue interest on the Component IA-1-3 Notional Amount (as
defined in "Description of the Bonds -- Interest Payments" herein). The Component
IA-1-3 Notional Amount as of the Cut-Off Date will be approximately $25,925,707.
Component IA-1-3 will not be entitled to receive payments of principal.
(4) Component IA-1-4 will consist of two Sub-Components, designated as Sub-Component
IA-1-4I and Sub-Component IA-1- 4II, which will have approximate initial Sub-Component
Principal Balances of $1,591,028 and $894,711, respectively. Sub-Components IA-1-4I
and IA-1-4II will not be entitled to payments of interest and will receive principal
only in respect of those Group I Mortgage Loans and Group II Mortgage Loans,
respectively, with Net Mortgage Rates that are less than 7.250%. For a description of
the principal payments to Sub-Components IA-1-4I and IA-1-4II, see "Description of the
Bonds -- Principal Payments -- Group I Bond Principal Payments -- Sub-Component
IA-1-4I Principal Payments" and "Group II Bond Principal Payments -- Sub-Component
IA-1-4II Principal Payments" herein.
For purposes of calculating principal payments and allocating Realized Losses, each Class of
Subordinate Bonds (only the Senior Subordinate Bonds of which are offered hereby) will
comprise two Components having the designations and initial Component Principal Balance, and
relating to the Classes of Subordinate Bonds and Bond Groups, as set forth below:
</TABLE>
S-13
<PAGE> 14
<TABLE>
<CAPTION>
Initial Related
Component Class of
Component Principal Subordinate Related
Designation Balance Bonds Bond Group
----------- ------- ----- ----------
<S> <C> <C> <C> <C>
IB-1 $24,010,101 B-1 Group I
IIB-1 2,890,917 B-1 Group II
IB-2 8,003,367 B-2 Group I
IIB-2 1,376,627 B-2 Group II
IB-3 4,802,020 B-3 Group I
IIB-3 757,145 B-3 Group II
IB-4 2,401,010 B-4 Group I
IIB-4 412,988 B-4 Group II
IB-5 2,401,010 B-5 Group I
IIB-5 344,156 B-5 Group II
IB-6 2,401,011 B-6 Group I
IIB-6 412,992 B-6 Group II
The IB-1, IIB-1, IB-2, IIB-2, IB-3 and IIB-3 Components are collectively
referred to herein as the "SENIOR SUBORDINATE COMPONENTS" and the IB-4, IIB-
4, IB-5, IIB-5, IB-6 and IIB-6 Components are referred to herein as the
"JUNIOR SUBORDINATE COMPONENTS". The IB-1, IB-2 and IB-3 Components are
referred to herein as the "GROUP I SENIOR SUBORDINATE COMPONENTS," and the
IB-4, IB-5 and IB-6 Components are referred to herein as the "GROUP I JUNIOR
SUBORDINATE COMPONENTS," and the Group I Senior Subordinate Components and
the Group I Junior Subordinate Components are collectively referred to as
the "GROUP I SUBORDINATE COMPONENTS." The IIB-1, IIB-2 and IIB-3 Components
are referred to herein as the "GROUP II SENIOR SUBORDINATE COMPONENTS," and
the IIB-4, IIB-5 and IIB-6 Components are referred to herein as the "GROUP
II JUNIOR SUBORDINATE COMPONENTS," and the Group II Senior Subordinate
Components and the Group II Junior Subordinate Components are collectively
referred to as the "GROUP II SUBORDINATE COMPONENTS." Each Subordinate
Component will have a Bond Interest Rate of 7.250% per annum.
DENOMINATIONS . . . . . . . . . . . . . The Offered Bonds, other than the Class IIA-2, Class IIA-3, Notional Amount
and Residual Bonds, will be issued in minimum denominations of $25,000 and
integral multiples of $1 in excess thereof. The Class IIA-2 and Class IIA-3
Bonds will be issued in minimum denominations of $1,000 and integral
multiples of $1 in excess thereof. The Notional Amount Bonds will be issued
in minimum initial Notional Amounts of $100,000 and integral multiples of $1
in excess thereof. The Class RL and Class RU Bonds will be issued in
minimum denominations of $90 and $100, respectively. In addition, one Bond
of each Class of Bonds having Principal Balances may be issued evidencing
the sum of an authorized denomination thereof and the remainder of the
aggregate initial Class Principal Balance of such Class.
REGISTRATION . . . . . . . . . . . . . Each Class of the Offered Bonds (other than the Residual Bonds) will be
"BOOK-ENTRY BONDS" represented by a certificate registered in the name of
Cede & Co., as nominee of DTC. No person acquiring a beneficial interest in
a Book-Entry Bond (each, a "BENEFICIAL OWNER")
</TABLE>
S-14
<PAGE> 15
<TABLE>
<S> <C>
will be entitled to receive a Bond in certificated form, except under the
limited circumstances described herein. For each Book-Entry Bond held by
DTC, DTC will effect payments to and transfers of the related Book-Entry
Bonds 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 Bonds beneficially owned by it. All references in this Prospectus
Supplement to the Book-Entry Bonds reflect the rights of Beneficial Owners
of such Bonds only as such rights may be exercised through DTC and its
participating organizations so long as such Bonds are held by DTC. The
Residual Bonds will be offered in registered and certificated form. See
"Description of the Bonds -- 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 Sellers, the Mortgage
Loans will have the characteristics described herein. The Mortgage Pool
will consist of Mortgage Loans with an aggregate principal balance as of the
Cut-Off Date of $937,999,464.84. The Mortgage Loans are secured by first
liens on fee simple interests in one- to four-family residential real
properties (each, a "MORTGAGED PROPERTY") 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 Loans will consist of a pool of approximately 2,355 Mortgage
Loans with an aggregate principal balance as of the Cut-Off Date of
$800,336,707.69 (representing approximately 85.32% of the Mortgage Loans by
aggregate principal balance as of the Cut-Off Date). The principal balance
at origination of the Group I Loans ranged from a minimum of $214,605.00 to
a maximum of $1,300,000.00, with an average principal balance at origination
of $340,655.65. The Group II Loans will consist of a pool of approximately
436 Mortgage Loans with an aggregate principal balance as of the Cut-Off
Date of $137,662,757.15 (representing approximately 14.68% of the Mortgage
Loans by aggregate principal balance as of the Cut-Off Date). The principal
balance at origination of the Group II Loans ranged from a minimum of
$216,000.00 to a maximum of $825,500.00, with an average principal balance
at origination of $316,100.67.
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 and no Mortgage Loan had been sixty or more days delinquent.
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INTEREST PAYMENTS . . . . . . . . . . . With respect to each Class of Bonds (except Components IA-1-1 and Component
IA-1-4 of the Class IA-1 Bonds, which are not entitled to interest),
interest will be paid monthly on each Payment Date, commencing in November
1997, except that (1) interest accrued on Component IA-1-2 on or before the
Component IA-1-2 Accretion Termination Date will not be paid to Component
IA-1-2 and will instead be added to the Component IA-1-2 Principal Balance
and (2) interest accrued on the Class IA-4 Bonds on or before the Class IA-4
Accretion Termination Date will not be paid to the Class IA-4 Bonds and will
instead be added to the Class IA-4 Principal Balance. With respect to each
Payment Date, an amount of interest will accrue or accrete on each Class of
Bonds, or, with respect to the Class IA-1 Bonds, Component IA-1-2 and
Component IA-1-3, generally equal to 1/12th of the applicable Bond Interest
Rate for such Class or Component multiplied by the related Class Principal
Balance, Component Principal Balance, Class Notional Amount or Component
Notional Amount, as applicable. The Bond Interest Rates for the Offered
Bonds entitled to interest (other than the LIBOR Bonds) are fixed as set
forth on the cover page hereof. The Bond Interest Rates for Component IA-1-2
and Component IA-1-3 of the Class IA-1 Bonds will be 7.400% and 7.250% per
annum, respectively. For a description of how the Component IA-1-3, Class
IA-10, Class IIA-5, Class X Notional Amounts are determined, see
"Description of the Bonds -- Interest Payments." Interest to be paid on the
Bonds on any Payment Date will consist of accrued and unpaid interest as of
the previous Payment Date and interest accrued during the preceding calendar
month, except for the LIBOR Bonds which accrue interest during the period
commencing on the 25th day of the preceding calendar month and ending on the
24th day of the month of such Payment Date. All payments of interest for
each Class of Senior Bonds and each Subordinate Component in a Bond Group
will generally be made only to the extent of the Available Funds for the
related Loan Group as described herein under "Description of the Bonds --
Priority of Payments".
See "Description of the Bonds -- Interest Payments" herein.
LIBOR . . . . . . . . . . . . . . . . . The Bond Interest Rates for the LIBOR Bonds will be determined by the Bond
Administrator based on the average of quotations of the London Interbank
Offered Rate for one-month U.S. dollar deposits ("LIBOR") as provided by the
Reference Banks (as defined herein), as further described herein. See
"Description of the Bonds -- LIBOR" herein.
PRINCIPAL PAYMENTS . . . . . . . . . . On each Payment Date, to the extent of the Available Funds with respect to
each Bond Group, amounts in respect of principal will be paid to the holders
of the Bonds of the related Bond Group (other than the Notional Amount Bonds
of such Bond Group) as provided herein under "Description of the Bonds --
Principal Payments."
The Notional Amount Bonds are "interest only" securities and are not
entitled to principal payments.
ADVANCES . . . . . . . . . . . . . . . Each Master Servicer is required to make advances ("ADVANCES") in respect of
delinquent payments of principal and interest (net of the
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related Servicing Fees) on the Mortgage Loans being master serviced by it,
subject to the limitations described herein. Such Advances are reimbursable
to the related Master Servicer prior to payments to the Bondholders, as
described under the heading "Pooling and Servicing Agreement -- 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 "Pooling and Servicing Agreement -- Advances" herein.
SUBORDINATION
AND ALLOCATION OF LOSSES . . . . . . The Subordinate Components of each Bond Group will be subordinate in right
of payment to and provide credit support to the Senior Bonds of such Bond
Group, and each Subordinate Component in each Bond Group will be subordinate
in right of payment to and provide credit support to each Subordinate
Component in such Bond Group, if any, with a lower numerical Component
designation. See "Description of the Bonds -- Subordination and Allocation
of Losses" herein.
As described under "Description of the Bonds -- Subordination and Allocation
of Losses," Realized Losses, including Excess Losses, which would otherwise
be allocable to the Class IA-1 Bonds (other than Component IA-1-4 thereof)
and Realized Losses, including Excess Losses, which would otherwise be
allocable the Class IA-8 Bonds will first be allocated to the Senior Support
Bonds (which are the Class IA-5 Bonds) until the Class IA-5 Principal
Balance has been reduced to zero. See "Certain Yield and Prepayment
Considerations."
SHIFTING OF INTERESTS . . . . . . . . . The Senior Bonds of a Bond Group entitled to principal, other than the
Lockout Bonds of such Bond Group, will receive 100% of the Principal
Prepayments received in respect of the Mortgage Loans in the related Loan
Group until at least the fifth anniversary of the first Payment Date. During
the next four years, the Senior Bonds of a Bond Group, other than the
Lockout Bonds of such Bond Group, generally will receive a
disproportionately large, but decreasing, share of Principal Prepayments
received in respect of the Mortgage Loans in the related Loan Group. This
will result in an acceleration of the amortization of the Senior Bonds,
other than the Lockout Bonds, subject to the priorities described in
"Description of the Bonds -- Principal Payments" herein, enhancing the
likelihood that holders of such Classes of Bonds will be paid the full
amount of principal to which they are entitled.
JUNIOR SUBORDINATE BONDS . . . . . . . The Class B-4, Class B-5 and Class B-6 Bonds will each have a Bond Interest
Rate equal to 7.250% per annum for each Payment Date and the aggregate of
the initial Class Principal Balances of such Bonds will be approximately
$2,813,998, $2,745,166 and $2,814,003, respectively.
OPTIONAL REDEMPTION . . . . . . . . . . At its option, the Bond Administrator may, upon giving written notice to the
Issuer, each Master Servicer, 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 Bonds, 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 Bond
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Administrator 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 Bond Administrator, each 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 Bonds. Any such repurchase shall be at a price (the "REDEMPTION PRICE")
equal to the aggregate Class Principal Balances of the then outstanding
Bonds, 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. See
"Pooling and Servicing Agreement -- Termination" herein.
YIELD AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . The effective yield to maturity of each Class of Offered Bonds will depend
upon, among other things, the price at which such Bonds are purchased, the
applicable Bond Interest Rate, the actual characteristics of the Mortgage
Loans, the rate of principal payments (including Principal Prepayments) on
the Mortgage Loans in the related Loan Group and the rate of liquidations on
the Mortgage Loans in the related Loan Group. A higher than anticipated
rate of principal payments (including Principal Prepayments) and
liquidations would reduce the aggregate principal balance of the Mortgage
Loans more quickly than expected, thereby reducing the aggregate interest
payments with respect to such Mortgage Loans. Therefore, a higher rate of
principal payments (including Principal Prepayments) and liquidations in a
Loan Group could result in a lower than expected yield to maturity on
Classes of Bonds in the related Bond Group purchased at a premium.
Conversely, a lower than anticipated rate of principal payments (including
Principal Prepayments) and liquidations in a Loan Group could result in a
lower than expected yield to maturity on Classes of Bonds in the related
Bond Group purchased at a discount, in that payments of principal with
respect to the Mortgage Loans in such Loan Group would occur later than
anticipated.
The actual rate of payments of principal (including Principal Prepayments)
and liquidations on the Mortgage Loans may be influenced by a variety of
economic, geographic, social and other factors. In general, if interest
rates generally rise above the interest rates on the Mortgage Loans, the
rate of prepayment would be expected to decrease. Conversely, 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. See "Risk Factors" and "Yield and Prepayment
Considerations" herein.
See "Description of the Bonds -- Principal Payments" and "Certain Yield and
Prepayment Considerations" herein, and see "Risk Factors -- Prepayment and
Yield Considerations" in the Prospectus. For a discussion of special yield
and prepayment considerations applicable to the Accrual Directed Classes and
Components, the PACs, the TACs, the Class X Bonds, the LIBOR Bonds, the
Lockout Bonds and the Senior Subordinate Bonds, see "Risk Factors -- Yield
and Prepayment Considerations."
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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 Bonds, 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 Bonds, Components or Sub-Components
thereof (other than the Residual Bonds) and the Subordinate Bonds will be
designated as the "regular interests" in the Upper REMIC, and the Class RL
and Class RU Bonds will be designated as the "residual interests" in the
Lower REMIC and the Upper REMIC, respectively.
Because the Senior Bonds, Components or Sub-Components thereof (other than
the Residual Bonds) and the Subordinate Bonds will be considered REMIC
regular interests, they will be taxable debt obligations under the Code, and
interest paid or accrued on such Bonds, including any original issue
discount, will be taxable to the holders of such Bonds in accordance with
the accrual method of accounting, regardless of such Bondholder's usual
method of accounting. It is expected that the Class IA-4, Class IA-10,
Class IIA-5 and Class X Bonds will be, and the other Classes of Bonds may
be, treated as having been issued with original issue discount for federal
income tax purposes. 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 Bonds is 250% of the Basic Prepayment Assumption, as defined herein,
with respect to the Group I Loans and 195% of the Basic Prepayment
Assumption with respect to the Group II Loans. 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 Bonds 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
Bonds 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.
For further information regarding the federal income tax consequences of
investing in the Offered Bonds see "Certain Federal Income Tax Consequences"
in the Prospectus.
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FEDERAL INCOME TAX ASPECTS
OF RESIDUAL BONDS . . . . . . . . . The Residual Bonds generally will be treated in the same manner as the other
Offered Bonds 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 RL and Class RU Bonds will be
considered as representing the right to the net income or loss of the Lower
REMIC and the Upper REMIC, respectively. Holders of the Residual Bonds
("RESIDUAL BONDHOLDERS") 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 Bonds of any Class outstanding, even though such
Bondholders previously may have received full payment of their stated
interest and principal. Furthermore, the taxable income of Residual
Bondholders attributable to the Residual Bonds may exceed the principal and
interest payments received by such Bondholders with respect to such Bonds
during the corresponding period, which could result in a highly negative
after-tax return for such Bondholders. 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 RL and Class RU Bondholder, 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 Bondholders.
Consequently, Residual Bondholders may experience an after-tax return that
is highly negative. Residual Bondholders 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 RU Bonds will constitute NERDs and TAPRIs for
purposes of the REMIC Regulations on the Closing Date. A transferor of a
Residual Bond should consult with its tax advisor to determine whether the
Residual Bonds 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.
THE CLASS RL AND CLASS RU BONDS REPRESENT THE RESIDUAL INTEREST IN THE LOWER
REMIC AND UPPER 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 BOND AND THE SUITABILITY OF THE RESIDUAL BONDS TO THEIR INVESTMENT
OBJECTIVES.
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RESTRICTIONS ON PURCHASE
AND TRANSFER OF RESIDUAL
BONDS . . . . . . . . . . . . . . . The Residual Bonds 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 prohibitions on transfers of Residual Bonds to a Plan or
Plan Investor (each as defined herein). Finally, none of the Residual Bonds
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
Bonds" 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 Bonds 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 Bonds, Class B-2 Bonds and the Senior Bonds, other than the
Residual Bonds and the Notional Amount Bonds, 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 Notional
Amount Bonds, the Residual Bonds or the Class B-3 Bonds by a Plan Investor
may constitute a non-exempt prohibited transaction or result in the
imposition of excise taxes or penalties. Accordingly, the Notional Amount
Bonds, the Residual Bonds and the Class B-3 Bonds may not be transferred to
a Plan Investor unless the Plan Investor provides the Bond Administrator,
each 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
such Bond is an insurance company eligible for an exemption from the
applicable prohibited transaction provisions of ERISA and the Code. Each
purchaser of a Notional Amount Bond, the Residual Bonds or a Class B-3 Bond,
by virtue of such purchaser's receipt of such Bond, 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.
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See also "Restrictions on Purchase and Transfer of the Residual Bonds"
herein.
STATED MATURITY OF THE BONDS . . . . . The "STATED MATURITY" of each Class of Bonds will be the Payment Date
occurring in November 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 Bonds in each
Bond Group will depend on the rate of payment of principal (including
prepayments) on the Mortgage Loans in the related Loan Group, the actual
final payment on any Class of Offered Bonds 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 Bonds that the Class A
Bonds (other than the Class IA-10 and Class IIA-5 Bonds) and the Residual
Bonds each be rated "AAA" by Standard & Poor's, a division of the McGraw
Hill Companies, Inc. ("S&P") and by Duff & Phelps Credit Rating Co. ("DCR"),
that the Notional Amount Bonds each be rated "AAAr" by S&P and "AAA" by DCR
and that the Class B-1 Bonds be rated not less than "AA" by DCR, the Class
B-2 Bonds be rated not less than "A" by DCR and the Class B-3 Bonds be rated
not less 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 Notional Amount Bonds do not
address the possibility that the holders of such Bonds may fail to fully
recover their initial investment. The ratings of the Residual Bonds do not
assess the likelihood of return to investors in the Residual Bonds, except
to the extent of the initial Class Principal Balance thereof and interest
thereon at the applicable Bond Interest Rate. See "Certain Yield and
Prepayment Considerations" and "Ratings" herein and "Risk Factors --
Prepayment and Yield Considerations" in the Prospectus.
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 Bonds from 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 Bonds, or if one does,
what rating would be assigned by such rating agency.
LEGAL INVESTMENT . . . . . . . . . . . The Senior Bonds and the Class B-1 Bonds 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
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nationally recognized statistical ratings organization. The Class B-2 and
Class B-3 Bonds 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 Bonds for legal investment,
financial institution regulatory or other purposes, or as to the ability of
particular investors to purchase any Class of Offered Bonds under applicable
legal investment restrictions. These uncertainties may adversely affect the
liquidity of the Offered Bonds. 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 Bonds, and, in particular, the Senior
Subordinate Bonds, 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 Bonds.
LIMITED OBLIGATIONS
The Offered Bonds will be nonrecourse obligations solely of the Issuer
and will not represent an obligation of or interest in CMC, CCC, DLJMC, the
Loan Sellers, the Master Servicers, the Certificate Trustee, the Indenture
Trustee or any of their respective affiliates. None of the Offered Bonds, 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
Sellers, the Master Servicers, 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 Bonds, and there will be no
recourse to the Issuer, CMC, CCC, DLJMC, the Loan Sellers, the Master
Servicers, 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 Bonds.
YIELD AND PREPAYMENT CONSIDERATIONS
Payments of principal and interest to the Group IA Bonds (other than
Sub-Component IA-1-4II of Component IA-1-4 of the Class IA-1 Bonds), and to the
Group IIA Bonds and Sub-Component IA-1-4II of Component IA-1-4 of the Class
IA-1 Bonds, generally relate to collections of principal and interest on the
Group I Loans and Group II Loans, respectively. Payments of interest on the
Class IX and Class IIX Bonds generally relate to collections of interest on the
Group I Loans and Group II Loans, respectively. Payments of principal and
interest to the Subordinate Bonds relate to collections of principal and
interest on both the Group I Loans and Group II Loans.
The rate of principal payments, the aggregate amount of payments of
principal and interest and the yield to maturity of each Class of the Offered
Bonds will be directly related to the rate of payments of principal on the
Mortgage Loans in the related Loan Group (and in the case of the Class X Bonds,
particularly on those Premium Rate Loans in the related Loan Group with higher
rates of interest) and will also be directly related 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, and optional purchase by the Bond
Administrator or the Issuer of all of the Mortgage Loans in connection with the
optional redemption of the Bonds. See "Certain Yield and Prepayment
Considerations," "Description of the Bonds -- Optional Redemption of the Bonds"
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 the Mortgage Loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage 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 Mortgage Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to decrease.
An investor that purchases any Offered Bonds at a discount should
consider the risk that a slower than anticipated rate of principal payments
(including Principal Prepayments) on the Mortgage Loans in the related Loan
Group will result in an actual yield that is lower than such investor's
expected yield. An investor that purchases any Offered Bonds at a premium or
that purchases any Class of Notional Amount Bonds should consider the risk that
a faster than anticipated rate of principal payments (including Principal
Prepayments) on the Mortgage Loans in the related Loan Group (particularly,
with respect to the Class X Bonds, the Premium Rate Loans in the related Loan
Group with higher Net Mortgage Rates) will result in an actual yield that is
lower than such investor's expected yield. See "Certain Yield and Prepayment
Considerations" herein.
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<PAGE> 25
"PRINCIPAL PREPAYMENTS" include prepayments in full on a Mortgage Loan
("PAYOFFS") and partial principal prepayments on a Mortgage Loan
("CURTAILMENTS").
The Class IA-3, Class IA-4, Class IA-7, Class IA-15 Bonds and
Component IA-1-2, Component IA-9-2 and Component IA-9-3 (the "ACCRUAL DIRECTED"
Classes and Components) will receive payments of principal otherwise payable as
interest to Component IA-1-2 (on or before the Component IA-1-2 Accretion
Termination Date) and the Class IA-4 Bonds (on or before the Class IA-4
Accretion Termination Date). Because the Accrual Directed Classes and
Components receive such payments of principal, they may amortize faster than
otherwise would be the case.
Principal payments on the Class IA-2, Class IA-3, Class IA-8, Class
IA-13, Class IA-14 and Class IA-15 Bonds and Components IA-9-1 and IA-9-2 of
the Class IA-9 Bonds (the "PACS") on any Payment Date will be payable in
amounts determined on the basis of their respective planned principal balances
for such Payment Date as set forth in Appendix E (each, a "PLANNED PRINCIPAL
BALANCE"). The Planned Principal Balances for the Class IA-2, Class IA-8,
Class IA-13 and Class IA-14 Bonds and Component IA-9-1 were determined assuming
that the prepayment rate of the Group I Loans occurs each month at a constant
level between approximately 100% and 500% of the Basic Prepayment Assumption,
and for the Class IA-3 and Class IA-15 Bonds and Component IA-9-2 were
determined assuming that the prepayment rate of the Group I Loans occurs each
month at a constant level between approximately 0% and 250% of the Basic
Prepayment Assumption. However, as discussed herein, actual principal payments
may deviate from the described amounts, because the actual prepayment rate of
the Group I Loans each month may not occur at a constant level between
approximately 100% and 500%, or between 0% and 250%, as applicable, of the
Basic Prepayment Assumption. If the Class and Component Principal Balances of
the Class IA-7 Bonds and Components IA-1-2 and IA-9-3 (the "TACS") and the
Class IA-4 Principal Balance are reduced to zero before the Class and Component
Principal Balances of the PACs are reduced to zero, the weighted average lives
of the PACs will become significantly more sensitive to changes in the
prepayment rate of the Group I Loans, and principal payments thereon will be
more likely to deviate from the described amounts.
Principal payments on the TACs, the Class IA-3 and Class IA-15 Bonds
and Component IA-9-2 on any Payment Date are payable based on a combined
targeted principal balance for the Class IA-3, Class IA-7 and Class IA-15 Bonds
and Components IA-9-2 and IA-9-3 for such Payment Date as set forth in Appendix
F (the "COMBINED TARGETED PRINCIPAL BALANCE" for such Payment Date) and, with
respect to Component IA-1-2, based on its targeted principal balance for such
Payment Date as set forth in Appendix F (the "COMPONENT IA-1-2 TARGETED
PRINCIPAL BALANCE" for such Payment Date). The Combined Targeted Principal
Balances and the Component IA-1-2 Targeted Principal Balances (the "TARGETED
PRINCIPAL BALANCES") were determined assuming that the prepayment rate of the
Group I Loans remains constant at 250% of the Basic Prepayment Assumption.
However, as discussed herein, actual principal payments may deviate from the
described amounts, because the actual prepayment rate of the Group I Loans each
month may not remain constant at 250% of the Basic Prepayment Assumption. If
the Class IA-4 Principal Balance has been reduced to zero, the rate of
principal payments and the weighted average life of the TACs will become
significantly more sensitive to changes in the prepayment rate of the Group I
Loans.
Principal Prepayments on the Group I Loans and other unscheduled
payments of principal may result in principal available for payment to the PACs
and TACs on a Payment Date in an amount greater than the amount necessary to
reduce the applicable Class and Component Principal Balances of the PACs and
TACs to their scheduled amounts. Such excess will generally be paid first to
the Class IA-4 Bonds until the Class IA-4 Principal Balance has been reduced to
zero, then to the TACs, the Class IA-3 and Class IA-15 Bonds and Component
IA-9-2, and then to the other PACS as more fully described in "Description of
the Bonds -- Payments of Principal -- Senior Principal Payment Amount -- Group
I Bond Principal Payment Amount" herein. Accordingly, the rate of payments on
the Group I Loans is expected to have a greater effect on the weighted average
life of the Class IA-4 Bonds, and under certain prepayment scenarios, the TACs,
the Class IA-3 and Class IA-15 Bonds and Component IA-9-2, than on the weighted
average lives of the other PACs. If the rate of Principal Prepayments and other
unscheduled payments of principal on the Group I Loans causes the principal
available for payment on the Group I Bonds on any Payment Date to be less than
the amounts necessary to reduce the Class or Component Principal Balances of
the PACs then entitled to receive principal to their respective Planned
Principal Balances, to reduce the aggregate of the Class and Component
Principal Balances of the Class IA-3, Class IA-7 and Class IA-15 Bonds and
Component IA-9-2 and Component IA-9-3 to the applicable Combined Targeted
Principal Balance and to reduce the Component IA-1-2 Principal Balance to the
applicable Component IA-1-2 Targeted Principal Balance, the Class IA-4 Bonds
will not receive any payment of principal. See "Yield and Prepayment
Considerations" herein.
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<PAGE> 26
The yield to maturity on the Class IX Bonds and Class IIX Bonds will
be extremely sensitive to the rate and timing of principal payments (including
prepayments) on the Group I Premium Rate Loans and the Group II Premium Rate
Loans, respectively, which, in either case, may fluctuate significantly from
time to time, and by other factors set forth herein. Investors in the Class IX
Bonds and the Class IIX Bonds should consider the risk that a rapid rate of
principal payments on the Group I Premium Rate Loans and Group II Premium Rate
Loans, respectively, particularly such Mortgage Loans having higher Net
Mortgage Rates, could result in the failure of such investors to fully recoup
their initial investments. See "Yield and Prepayment Considerations" herein.
The yield to maturity on the Floater Bonds will be sensitive to
fluctuations in the level of LIBOR (as defined herein) and to the rate of
Principal Prepayments on the Mortgage Loans in the related Loan Group, and the
yield to maturity on the Inverse Floater Bonds will be extremely sensitive to
fluctuations in the level of LIBOR and to the rate of Principal Prepayments on
the Mortgage Loans in the related Loan Group. Prospective investors should
fully consider the risks associated with an investment in the Floater Bonds and
the Inverse Floater Bonds, including, in the case of the Class IA-10 and Class
IIA-5 Bonds, the possibility that if the rate of Principal Prepayments on the
Mortgage Loans in the related Loan Group is rapid or if the level of LIBOR is
high, the holders of the Class IA-10 and Class IIA-5 Bonds may not fully recoup
their initial investment. See "Yield and Prepayment Considerations" herein.
Although the Lockout Bonds are Senior Bonds, the Class IA-5, Class
IA-6 and Class IIA-6 Bonds will generally not be entitled to receive any
payments of Principal Prepayments in respect of Mortgage Loans in the related
Loan Group, the Class IA-11 Bonds generally will not be entitled to receive any
payments of principal in respect of Group I Loans until the Payment Date in
November 2002, and the Class IA-12 Bonds will not be entitled to receive any
payments of principal until the Class IA-11 Principal Balance has been reduced
to zero. Therefore, the Lockout Bonds of a Bond Group will not be entitled to
receive the disproportionate allocation of Principal Prepayments and, with
respect to the Class IA-11 and Class IA-12 Bonds, the proportionate allocation
of scheduled payments of principal, that the other Senior Bonds of the related
Bond Group are entitled to receive.
The yield to maturity on each Class of the Senior Subordinate Bonds
will be extremely sensitive to Realized Losses on the Mortgage Loans (other
than Excess Losses), in increasing order of numerical Class designation,
because a disproportionately large amount of such losses (rather than a pro
rata portion thereof) will be allocable to the Senior Subordinate Component
with the highest numerical designation then outstanding of the related Bond
Group following the reduction of the aggregate of the Component Principal
Balances of the related Junior Subordinate Components to zero, as described
under "Description of the Bonds -- Subordination and Allocation of Losses"
herein.
RESIDUAL BONDS
The Class RL and Class RU Bonds, which represent the residual interest
in the Lower REMIC and the Upper REMIC, respectively, may experience a highly
negative after tax return. See "Special Tax Considerations" herein.
ALLOCATION OF REALIZED LOSSES TO CLASS IA-5 BONDS
As described under "Description of the Bonds -- Subordination and
Allocation of Losses," Realized Losses, including Excess Losses, which would
otherwise be allocable to the Class IA-1 Bonds (other than Component IA-1-4
thereof) and Realized Losses, including Excess Losses, which would otherwise be
allocable the Class IA-8 Bonds will first be allocated to the Senior Support
Bonds (which are the Class IA-5 Bonds) until the Class IA-5 Principal Balance
has been reduced to zero. See "Certain Yield and Prepayment Considerations."
SUBORDINATION
The rights of the Subordinate Components of a Bond Group to receive
payments in respect of the Mortgage Loans in the related Loan Group will be
subordinated to such rights of the holders of the Senior Bonds of such Bond
Group and the Subordinate Components of such Bond Group senior thereto, all to
the extent described herein under "Description of the Bonds." Except for
Excess Losses, Realized Losses on Mortgage Loans in a Loan Group will be
allocated first to the Junior Subordinate Components of the related Bond Group
in reverse numerical order, second to the Senior Subordinate Components of such
Bond Group in reverse numerical order, and then to the Senior Bonds of such
Bond Group, in each case, described herein. See "Description of the Bonds --
Subordination and Allocation of Losses" herein.
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<PAGE> 27
GEOGRAPHIC CONCENTRATION OF THE MORTGAGED PROPERTIES
Approximately 59.83% of the Group I Loans (by aggregate principal
balance as of the Cut-Off Date) and approximately 32.61% of the Group II Loans
(by aggregate principal balance as of the Cut-Off Date) are expected to be
secured by Mortgaged Properties located in the state of California, including
approximately 29.27% and 18.46% of the Group I Loans and the Group II Loans,
respectively (in each case by aggregate principal balance as of the Cut-Off
Date), in the Southern California Area. As used herein, the "SOUTHERN
CALIFORNIA AREA" includes the areas of Southern California having United States
postal zip codes to and including 90000 through 93600. Consequently, losses
and prepayments on the Mortgage Loans and resultant payments on the Offered
Bonds 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 state of
California in general, and the Southern California Area, in particular.
DESCRIPTION OF THE CERTIFICATES
Each Certificate securing the Bonds will be issued pursuant to the
Pooling and Servicing Agreement. On or prior to the Closing Date, DLJMC will
have acquired the Mortgage Loans from the Loan Sellers pursuant to the terms of
the related Loan Sale Agreements. On the Closing Date, DLJMC will assign and
convey the Mortgage Loans, together with all of DLJMC's rights and benefits
under the related Loan Sale Agreements, to CCC and CCC will, in turn, assign
and convey the Mortgage Loans, together with all of CCC's rights and benefits
under the related Loan Sale Agreements, to the Issuer. The Issuer will
simultaneously convey the Mortgage Loans, together with all of the Issuer's
rights and benefits under the related Loan Sale Agreements, to the Trust and
the Trust will issue the Certificates in exchange therefor.
Pursuant to the Pooling and Servicing Agreement, each Seller/Servicer
will remit from its Custodial Account for P&I to the applicable Master
Servicer, for deposit into the related Investment Account maintained by such
Master Servicer, payments (including prepayments) of principal received on each
related Mortgage Loan, together with interest thereon at a rate (the
"REMITTANCE RATE") equal to the mortgage rate of interest borne by such
Mortgage Loan (the "MORTGAGE RATE"), less the applicable Servicing Fee. Funds
in the related Investment Account will be invested by the applicable Master
Servicer from time to time in permitted instruments maturing on or before the
next Payment Date. Funds or permitted instruments in each Investment Account
will be transferred to the Certificate Account maintained with the Certificate
Trustee and will be applied on each Payment Date to make distributions to the
Indenture Trustee, as holder of the Certificates, in respect of the of
Available Funds (as defined herein) for each Loan Group. The Indenture Trustee
shall deposit such funds into the Collection Account and such funds will be
available to make payments on the Bonds and to provide for payment of fees of,
and reimbursements to, the Bond Administrator, if applicable, and the Master
Servicers.
Each Certificate will evidence the entire interest in a Loan Group.
The Mortgage Loans constituting each Loan Group will be transferred and
assigned to the Certificate Trustee for the benefit of the Indenture Trustee,
as sole Certificateholder. The Certificates will be issued by the Certificate
Trustee, transferred to the Issuer in exchange for the Mortgage Loans and
pledged by the Issuer to the Indenture Trustee as collateral for the Bonds.
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 Bondholders.
Pursuant to the Loan Sale Agreements, the related Loan Sellers will
have made certain representations and warranties with respect to the related
Mortgage Loans thereunder and will be obligated to (i) repurchase Mortgage
Loans as to which there has been a breach of such representations and
warranties that materially and adversely affects the interests of the holders
of the Certificates (the "CERTIFICATEHOLDERS") or as to which the related
documentation is found to contain a material defect, or (ii) substitute a new
mortgage loan for such Mortgage Loan which satisfies the conditions set forth
in the Pooling and Servicing Agreement. Such representations and warranties
will be different for each Loan Seller but will generally conform to the
representations and warranties described herein under "Pooling and Servicing
Agreement -- Representations and Warranties Regarding the Mortgage Loans". The
only recourse that the Certificate Trustee, on behalf of the Indenture Trustee,
as sole Certificateholder, will have with respect to the Mortgage Loans will be
against the related Loan Sellers for any breaches of the representations and
warranties regarding the Mortgage Loans made by such Loan Seller under the
related Loan Sale Agreement. Each Master Servicer's obligations with respect
to the Mortgage Loans being master serviced by it will consist of (i) the
obligation to notify the Certificate Trustee if the documentation for any such
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 such Mortgage Loans. The Mortgage Loans will be
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<PAGE> 28
master serviced by the Master Servicers pursuant to the Pooling and Servicing
Agreement. See "Pooling and Servicing Agreement" herein.
DESCRIPTION OF THE MORTGAGE POOL(1)
The information set forth in the following paragraphs is based on
information provided by the Loan Sellers. 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 Mortgage Pool will consist of Mortgage Loans that will have an
aggregate principal balance outstanding as of October 1, 1997 (the "CUT-OFF
DATE"), after deducting payments due on or before that date, of
$937,999,464.84. The Group I Loans and Group II Loans have an aggregate
principal balance outstanding as of the Cut-Off Date, after deducting payments
due on or before that date, of $800,336,707.69 and $137,662,757.15,
respectively. Certain of the risks of loss on certain Mortgage Loans will be
covered up to specified limits by Primary Insurance Policies.
The Mortgage Loans are secured by first mortgages or first deeds of
trust or other similar security instruments (each, a "MORTGAGE") creating first
liens on one- to four-family residential properties (the "MORTGAGED
PROPERTIES"), which may include detached homes, duplexes, townhouses,
individual condominium units, individual units in planned unit developments and
other attached dwelling units which are part of buildings consisting of more
than four units (so long as the property subject to the lien of the related
Mortgage consists of no more than four units), and having the additional
characteristics described below.
Each Mortgage Loan will have a first payment date during the period
from August 1992 through November 1997 inclusive, and will have an original
term to maturity of not more than 30 years.
LOAN GROUP I
As of the Cut-Off Date, the Mortgage Rate on each Group I Loan will be
not less than 6.500% and not more than 9.625% per annum. As of the Cut-Off
Date, the weighted average of the Mortgage Rates on the Group I Loans will be
approximately 7.954% per annum. As of the Cut-Off Date, the Net Mortgage Rate
for each Group I Loan will be not less than 6.200% and not more than 9.335% per
annum. With respect to each Mortgage Loan, the term "NET MORTGAGE RATE" is a
rate equal to the Mortgage Rate, less the applicable Servicing Fee, the
applicable Master Servicing Fee and the Bond Administration Fee, if applicable.
As of the Cut-Off Date, the weighted average of the Net Mortgage Rates for the
Group I Loans will be approximately 7.671% per annum.
All of the Group I Loans will have principal and interest payable on
the first day of each month. Approximately 0.19% of the Group I Loans will be
"BUYDOWN LOANS" which include provisions whereby the Seller or a third party
partially
- -----------------------------
(1) The description herein of the Mortgage Pool and the Mortgaged
Properties is based upon the Mortgage Loans at the close of business on the
Cut-Off Date, after deducting the scheduled principal payments due on or before
such date, whether or not actually received. All references herein to
principal balance refer to the principal balance as of the Cut-Off Date,
unless otherwise specifically stated or required by the context. Unless
otherwise specified, references herein to percentages of Mortgage Loans refer in
each case to the percentage of the aggregate principal balance of the Mortgage
Loans in the related Loan Group, based on the outstanding principal balances of
the Mortgage Loans in such Loan Group after giving effect to scheduled Monthly
Payments due on or prior to the Cut-Off Date, whether or not received. Unless
otherwise specified, references to weighted averages refer, in each case, to
weighted averages by principal balance as of the Cut-Off Date of the Mortgage
Loans (determined as described in the preceding sentence) in the related Loan
Group. Prior to the issuance of the Bonds, Mortgage Loans may be removed from
the Mortgage Pool as a result of Payoffs, delinquencies or otherwise. In such
event, other Mortgage Loans may be included in the Mortgage Pool. The Issuer
believes that the information set forth herein with respect to the Mortgage Pool
is representative of the characteristics of the Mortgage Pool as it will
actually be constituted at the time the Bonds are issued, although the range of
Mortgage Rates and certain other characteristics of the Mortgage Loans in the
Mortgage Pool may vary. See "-- Additional Information" herein.
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<PAGE> 29
subsidizes the monthly payments of the related mortgagor (each a "MORTGAGOR")
during the initial portion of the term of the Buydown Loan, the difference to
be made up from funds contributed by the Mortgagor, the Seller or a third party
at the time of origination of the Mortgage Loan (such funds, exclusive of
interest earnings thereon, being referred to herein as "BUYDOWN FUNDS").
Buydown Funds will be in an amount equal to either the discounted value or the
aggregate amount of future payment subsidies. The latest original scheduled
maturity of any Group I Loan will be October 2027. Each of the Group I Loans
will have original terms to maturity of not more than 30 years, and as of the
Cut-Off Date, the weighted average remaining term to maturity (adjusted for
Curtailments) of the Group I Loans will be approximately 357 months. At
origination, based upon an appraisal of the Mortgaged Property securing each
Group I Loan, approximately 85.12% of the Group I Loans will have had
Loan-to-Value Ratios less than or equal to 80%, and approximately 14.88% of the
Group I Loans will have had Loan-to-Value Ratios greater than 80% but less than
or equal to 95%. No Group I Loan will have had a Loan-to-Value Ratio at
origination greater than 95%. At origination, the weighted average of the
Loan- to-Value Ratios of the Group I Loans was approximately 75.78%. As of the
Cut-Off Date, the weighted average of the Loan-to-Value Ratios of the Group I
Loans is approximately 75.61%. As of the Cut-Off Date, approximately 15.18% of
the Group I Loans are covered by a Primary Insurance Policy. All of the Group
I Loans with Loan-to-Value Ratios as of the Cut-Off Date in excess of 80% were
covered by a Primary Insurance Policy. At origination, each Group I Loan will
have had a principal balance of not less than $214,605.00 nor more than
$1,300,000.00, and the average principal balance of the Group I Loans as of the
Cut-Off Date will be $339,845.74. Approximately 96.59% of the Group I Loans
will have been secured by owner-occupied Mortgaged Properties which were the
primary residences of the related Mortgagors, based solely on representations
of the Mortgagors obtained at the origination of the related Group I Loans, and
approximately 2.38% of the Group I Loans will have been secured by
owner-occupied Mortgaged Properties which were second or vacation homes of the
related Mortgagors, based solely on such representations. Approximately 1.03%
of the Group I Loans will have been secured by Mortgaged Properties which were
investor properties of the related Mortgagors, based solely on such
representations. The aggregate principal balance of Group I Loans originated
under reduced, limited, no ratio, no documentation, or no income/no asset
programs (including certain Group I Loans for which verification of income and
deposits was not required), which generally limit the original Loan-to-Value
Ratio of the Group I Loan, will be approximately $106,534,544.26, which will be
approximately 13.31% of the Group I Loans. As of the Cut-Off Date, the
weighted average of the Loan-to-Value Ratios of such Group I Loans originated
under such reduced, limited, no ratio, no documentation or no income/no asset
programs is approximately 71.67%.
As used herein, the term "Loan-to-Value Ratio" means, with respect to
a Mortgage Loan, a ratio, expressed as a percentage, equal to the principal
amount of such Mortgage Loan divided by the lesser of (i) the appraised value
determined in an appraisal obtained at origination and (ii) the sales price (if
applicable) of the related Mortgaged Property.
Approximately 59.83% of the Group I Loans are secured by Mortgaged
Properties located in California and no other single state contains Mortgaged
Properties securing more than 5.00% of the Group I Loans. No more than 1.01%
of the Group I Loans will be secured by Mortgaged Properties located in any one
California zip code area, and no more than 0.32% of the Group I Loans will be
secured by Mortgaged Properties located in any other single zip code area.
Approximately 41.52% of the Group I Loans will have been originated for the
purpose of refinancing existing mortgage debt, including cash-out refinancings.
Approximately 57.88% of the Group I Loans will have been originated for the
purpose of purchasing the Mortgaged Property.
LOAN GROUP II
As of the Cut-Off Date, the Mortgage Rate on each Group II Loan will
be not less than 6.750% and not more than 8.625% per annum. As of the Cut-Off
Date, the weighted average of the Mortgage Rates on the Group II Loans will be
approximately 7.603% per annum. As of the Cut-Off Date, the Net Mortgage Rate
for each Group II Loan will be not less than 6.510% and not more than 8.325%
per annum. As of the Cut-Off Date, the weighted average of the Net Mortgage
Rates for the Group II Loans will be approximately 7.342% per annum.
All of the Group II Loans will have principal and interest payable on
the first day of each month. Approximately 0.67% of the Group II Loans will be
Buydown Loans. The latest original scheduled maturity of any Group II Loan
will be October 2027. Each of the Group II Loans will have original terms to
maturity of not more than 30 years, and as of the Cut-Off Date, the weighted
average remaining term to maturity (adjusted for Curtailments) of the Group II
Loans will be approximately 356 months. At origination, based upon an appraisal
of the Mortgaged Property securing each Group II Loan, approximately 86.57% of
the Group II Loans will
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<PAGE> 30
have had Loan-to-Value Ratios less than or equal to 80%, and approximately
13.43% of the Group II Loans will have had Loan-to-Value Ratios greater than
80% but less than or equal to 95%. No Group II Loan will have had a
Loan-to-Value Ratio at origination greater than 95%. At origination, the
weighted average of the Loan-to-Value Ratios of the Group II Loans was
approximately 76.27%. As of the Cut-Off Date, the weighted average of the
Loan-to-Value Ratios of the Group II Loans is approximately 76.18%. As of the
Cut-Off Date, approximately 13.43% of the Group II Loans are covered by a
Primary Insurance Policy. All of the Group II Loans with Loan-to-Value Ratios
as of the Cut-Off Date in excess of 80% were covered by a Primary Insurance
Policy. At origination, each Group II Loan will have had a principal balance
of not less than $216,000.00 nor more than $825,500.00 and the average
principal balance of the Group II Loans as of the Cut- Off Date will be
$315,740.27. Approximately 99.56% of the Group II Loans will have been secured
by owner-occupied Mortgaged Properties which were the primary residences of the
related Mortgagors, based solely on representations of the Mortgagors obtained
at the origination of the related Group II Loans, and approximately 0.44% of
the Group II Loans will have been secured by owner-occupied Mortgaged
Properties which were second or vacation homes of the related Mortgagors, based
solely on such representations. None of the Group II Loans will have been
secured by Mortgaged Properties which were investor properties of the related
Mortgagors. The aggregate principal balance of Group II Loans originated under
reduced or limited documentation programs (including certain Group II Loans for
which verification of income and deposits was not required), which generally
limit the original Loan-to-Value Ratio of the Group II Loan, will be
$1,763,473.40, which will be approximately 1.28% of the Group II Loans. As of
the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of such
Group II Loans originated under such reduced or limited documentation programs
is approximately 78.39%.
Approximately 32.61% of the Group II Loans are secured by Mortgaged
Properties located in California; 6.93%, in Massachusetts; 6.88%, in Texas;
5.36%, in Pennsylvania; and no other single state contains Mortgaged Properties
securing more than 5.00% of the Group II Loans. No more than 1.63% of the Group
II Loans will be secured by Mortgaged Properties located in any one California
zip code area, and no more than 1.05% of the Group II Loans will be secured by
Mortgaged Properties located in any other single zip code area. Approximately
34.71% of the Group II Loans will have been originated for the purpose of
refinancing existing mortgage debt, including cash-out refinancings.
Approximately 64.88% of the Group II Loans will have been originated for the
purpose of purchasing the Mortgaged Property.
LOAN TABLES
The tables below set forth certain characteristics of the Mortgage
Pool and each Loan Group 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 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.
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<PAGE> 31
MORTGAGE LOAN SCHEDULES FOR ALL MORTGAGE LOANS
LOAN-TO-VALUE RATIOS AT ORIGINATION
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
LOAN-TO-VALUE RATIOS NUMBER OF AGGREGATE BY AGGREGATE
AT ORIGINATION (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 207 $ 80,983,367.25 8.63%
60.0+ to 65.0 . . . . . . . . 119 47,363,951.40 5.05
65.0+ to 70.0 . . . . . . . . 207 77,357,915.41 8.25
70.0+ to 75.0 . . . . . . . . 435 153,139,106.01 16.33
75.0+ to 80.0 . . . . . . . . 1,329 441,540,255.60 47.07
80.0+ to 85.0 . . . . . . . . 53 15,018,589.92 1.60
85.0+ to 90.0 . . . . . . . . 292 83,599,572.85 8.91
90.0+ to 95.0 . . . . . . . . 149 38,996,706.40 4.16
------ --------------- ------
TOTALS: . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</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
75.85%.
<TABLE>
<CAPTION>
MORTGAGE RATES
OF ALL MORTGAGE LOANS(1)
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
6.250+ to 6.500 . . . . . . 1 $687,086.50 0.07%
6.500+ to 6.750 . . . . . . 2 624,167.49 0.07
6.750+ to 7.000 . . . . . . 12 3,268,251.60 0.35
7.000+ to 7.250 . . . . . . 80 25,613,245.90 2.73
7.250+ to 7.500 . . . . . . 330 107,728,770.07 11.48
7.500+ to 7.750 . . . . . . 796 260,072,061.27 27.73
7.750+ to 8.000 . . . . . . 837 284,173,489.26 30.30
8.000+ to 8.250 . . . . . . 384 129,256,740.84 13.78
8.250+ to 8.500 . . . . . . 225 82,289,338.94 8.77
8.500+ to 8.750 . . . . . . 89 31,226,710.95 3.33
8.750+ to 9.000 . . . . . . 24 8,754,457.73 0.93
9.000+ to 9.250 . . . . . . 7 2,635,928.45 0.28
9.250+ to 9.500 . . . . . . 3 1,445,290.72 0.15
9.500+ to 9.750 . . . . . . 1 223,925.12 0.02
----- --------------- ------
TOTALS: . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average Mortgage Rate of all the
Mortgage Loans is expected to be approximately 7.902% per annum.
S-31
<PAGE> 32
GEOGRAPHIC DISTRIBUTION
OF ALL MORTGAGE LOANS(1)(2)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama . . . . . . . . . . . . . . 9 $2,859,977.03 0.30%
Arkansas . . . . . . . . . . . . . 3 871,502.01 0.09
Arizona . . . . . . . . . . . . . . 59 18,576,588.26 1.98
California . . . . . . . . . . . . 1,479 523,750,282.91 55.84
Colorado . . . . . . . . . . . . . 78 25,982,903.39 2.77
Connecticut . . . . . . . . . . . . 32 10,347,563.80 1.10
District of Columbia . . . . . . . 5 1,508,779.86 0.16
Delaware . . . . . . . . . . . . . 6 1,589,033.97 0.17
Florida . . . . . . . . . . . . . . 48 15,097,166.66 1.61
Georgia . . . . . . . . . . . . . . 59 18,160,202.49 1.94
Hawaii . . . . . . . . . . . . . . 20 9,081,085.19 0.97
Idaho . . . . . . . . . . . . . . . 15 4,688,387.64 0.50
Illinois . . . . . . . . . . . . . 81 25,010,710.97 2.67
Indiana . . . . . . . . . . . . . . 13 3,971,411.53 0.42
Iowa . . . . . . . . . . . . . . . 1 292,615.37 0.03
Kansas . . . . . . . . . . . . . . 2 504,935.57 0.05
Kentucky . . . . . . . . . . . . . 9 2,992,220.85 0.32
Louisiana . . . . . . . . . . . . . 1 276,909.30 0.03
Massachusetts . . . . . . . . . . . 122 37,212,604.50 3.97
Maryland . . . . . . . . . . . . . 57 17,368,988.59 1.85
Michigan . . . . . . . . . . . . . 29 8,915,588.76 0.95
Minnesota . . . . . . . . . . . . . 20 7,537,260.06 0.80
Missouri . . . . . . . . . . . . . 7 2,300,864.61 0.25
Mississippi . . . . . . . . . . . . 1 271,376.50 0.03
Montana . . . . . . . . . . . . . . 3 762,716.02 0.08
North Carolina . . . . . . . . . . 15 3,954,933.27 0.42
North Dakota . . . . . . . . . . . 1 255,646.48 0.03
Nebraska . . . . . . . . . . . . . 1 235,578.97 0.03
New Hampshire . . . . . . . . . . . 10 3,348,107.27 0.36
New Jersey . . . . . . . . . . . . 88 27,329,462.55 2.91
New Mexico . . . . . . . . . . . . 9 2,498,197.17 0.27
Nevada . . . . . . . . . . . . . . 25 9,137,483.12 0.97
New York . . . . . . . . . . . . . 73 24,908,307.79 2.66
Ohio . . . . . . . . . . . . . . . 28 8,564,193.23 0.91
Oklahoma . . . . . . . . . . . . . 5 1,668,050.09 0.18
Oregon . . . . . . . . . . . . . . 45 13,524,577.48 1.44
Pennsylvania . . . . . . . . . . . 51 14,867,028.13 1.58
Rhode Island . . . . . . . . . . . 6 1,484,708.23 0.16
South Carolina . . . . . . . . . . 4 1,093,196.12 0.12
Tennessee . . . . . . . . . . . . . 9 2,629,132.46 0.28
Texas . . . . . . . . . . . . . . . 89 29,438,792.62 3.14
Utah . . . . . . . . . . . . . . . 20 6,623,408.70 0.71
Virginia . . . . . . . . . . . . . 61 17,337,677.83 1.85
Washington . . . . . . . . . . . . 56 17,511,445.81 1.87
Wisconsin . . . . . . . . . . . . . 34 10,919,574.21 1.16
Wyoming . . . . . . . . . . . . . . 2 738,287.47 0.08
----- --------------- ------
TOTALS: . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
S-32
<PAGE> 33
- -----------------------------
(1) No more than 0.92% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more
than 0.36% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area outside of California.
(2) Approximately 27.69% of the Mortgage Loans will be secured by
Mortgaged Properties located in the Southern California area. See
"Risk Factors -- Geographic Concentration of the Mortgaged Properties"
herein for a description of the Southern California area.
OCCUPANCY TYPES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
OCCUPANCY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . 2,713 $910,093,284.11 97.02%
Secondary . . . . . . . . . . . . . . . . . . 52 19,649,193.52 2.09
Investor . . . . . . . . . . . . . . . . . . 26 8,256,987.21 0.88
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Full Documentation . . . . . . . . . . . . . 2,507 $829,701,447.18 88.45%
Reduced or Limited Documentation . . . . . . 225 87,044,188.07 9.28
No Documentation or No Income/No Asset . . . 2 568,264.61 0.06
No Debt Ratios . . . . . . . . . . . . . . . 57 20,685,564.98 2.21
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) For information relating to each 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
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family Dwelling . . . . . . . . . . . 2,147 $727,121,048.94 77.52%
Two Family Dwelling . . . . . . . . . . . . . 28 10,114,495.51 1.08
Three Family Dwelling . . . . . . . . . . . . 17 6,441,719.75 0.69
Four Family Dwelling . . . . . . . . . . . . 11 3,920,485.22 0.42
Condominium/Townhouse . . . . . . . . . . . . 107 33,332,877.22 3.55
Planned Unit Development (PUD) . . . . . . . 312 104,840,835.79 11.18
De minimus PUD . . . . . . . . . . . . . . . 168 51,978,002.41 5.54
Cooperative . . . . . . . . . . . . . . . . . 1 250,000.00 0.03
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
CURRENT PRINCIPAL BALANCES
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
RANGE OF CURRENT NUMBER OF AGGREGATE BY AGGREGATE
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
150,000.00 - 200,000.00 . . . . . . 1 $ 168,403.45 0.02%
200,000.00 - 250,000.00 . . . . . . 702 164,373,270.65 17.52
250,000.00 - 300,000.00 . . . . . . 820 225,384,547.00 24.03
300,000.00 - 350,000.00 . . . . . . 430 139,831,162.85 14.91
350,000.00 - 400,000.00 . . . . . . 290 109,170,199.31 11.64
400,000.00 - 450,000.00 . . . . . . 173 73,709,483.61 7.86
450,000.00 - 500,000.00 . . . . . . 127 60,895,587.37 6.49
500,000.00 - 550,000.00 . . . . . . 63 33,131,428.40 3.53
550,000.00 - 600,000.00 . . . . . . 52 29,919,626.25 3.19
600,000.00 - 650,000.00 . . . . . . 66 41,824,746.11 4.46
650,000.00 - 700,000.00 . . . . . . 7 4,794,885.43 0.51
700,000.00 - 750,000.00 . . . . . . 7 5,058,199.37 0.54
750,000.00 - 800,000.00 . . . . . . 4 3,157,348.96 0.34
800,000.00 - 850,000.00 . . . . . . 4 3,269,793.88 0.35
850,000.00 - 900,000.00 . . . . . . 10 8,859,205.05 0.94
900,000.00 - 950,000.00 . . . . . . 11 10,194,196.88 1.09
950,000.00 - 1,000,000.00 . . . . . . 21 20,721,490.61 2.21
Over 1,000,000.00 . . . . . . . . 3 3,535,889.66 0.38
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the average current aggregate principal
balance of all Mortgage Loans is expected to be approximately
$336,080.07.
S-34
<PAGE> 35
REMAINING TERM TO STATED MATURITY
OF ALL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
REMAINING STATED NUMBER OF AGGREGATE BY AGGREGATE
TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
228+ to 234 . . . . . . . . . . . . . . . . . 1 $ 324,169.66 0.03%
234+ to 240 . . . . . . . . . . . . . . . . . 15 4,308,340.15 0.46
294+ to 300 . . . . . . . . . . . . . . . . . 14 4,076,529.03 0.43
300+ to 306 . . . . . . . . . . . . . . . . . 2 528,670.44 0.06
306+ to 312 . . . . . . . . . . . . . . . . . 6 2,063,268.58 0.22
312+ to 318 . . . . . . . . . . . . . . . . . 2 535,240.99 0.06
336+ to 342 . . . . . . . . . . . . . . . . . 5 2,750,440.31 0.29
342+ to 348 . . . . . . . . . . . . . . . . . 3 1,426,934.63 0.15
348+ to 354 . . . . . . . . . . . . . . . . . 96 41,445,133.12 4.42
354+ to 360 . . . . . . . . . . . . . . . . . 2,647 880,540,737.93 93.87
----- --------------- ------
TOTALS: . . . . . . . . . . . . . 2,791 $937,999,464.84 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average remaining term to stated
maturity of all Mortgage Loans is expected to be approximately 357
months.
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
LOAN-TO-VALUE RATIOS AT NUMBER OF AGGREGATE BY AGGREGATE
ORIGINATION (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 185 $73,676,409.32 9.21%
60.0+ to 65.0 . . . . . . . . 97 40,146,763.70 5.02
65.0+ to 70.0 . . . . . . . . 163 62,017,898.70 7.75
70.0+ to 75.0 . . . . . . . . 364 131,372,666.60 16.41
75.0+ to 80.0 . . . . . . . . 1,118 373,999,931.07 46.73
80.0+ to 85.0 . . . . . . . . 44 12,501,937.29 1.56
85.0+ to 90.0 . . . . . . . . 256 73,036,929.13 9.13
90.0+ to 95.0 . . . . . . . . 128 33,584,171.88 4.20
----- --------------- ------
TOTALS: . . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average Loan-to-Value Ratio at
origination of the Group I Loans is expected to be approximately
75.78%.
S-35
<PAGE> 36
MORTGAGE RATES OF
THE GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
6.250+ to 6.500 . . . . . . 1 $687,086.50 0.09%
6.500+ to 6.750 . . . . . . 1 284,754.62 0.04
6.750+ to 7.000 . . . . . . 6 1,822,362.60 0.23
7.000+ to 7.250 . . . . . . 37 12,910,546.79 1.61
7.250+ to 7.500 . . . . . . 219 72,553,640.36 9.07
7.500+ to 7.750 . . . . . . 562 184,665,022.73 23.07
7.750+ to 8.000 . . . . . . 801 273,113,875.63 34.12
8.000+ to 8.250 . . . . . . 383 129,001,907.64 16.12
8.250+ to 8.500 . . . . . . 222 81,247,986.60 10.15
8.500+ to 8.750 . . . . . . 88 30,989,922.20 3.87
8.750+ to 9.000 . . . . . . 24 8,754,457.73 1.09
9.000+ to 9.250 . . . . . . 7 2,635,928.45 0.33
9.250+ to 9.500 . . . . . . 3 1,445,290.72 0.18
9.500+ to 9.750 . . . . . . 1 223,925.12 0.03
----- --------------- ------
TOTALS: . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average Mortgage Rate of the
Group I Loans is expected to be approximately 7.954% per annum.
S-36
<PAGE> 37
GEOGRAPHIC DISTRIBUTION OF
THE GROUP I LOANS(1)(2)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama . . . . . . . . . . . . . . 6 $2,041,899.26 0.26%
Arkansas . . . . . . . . . . . . . 1 375,206.52 0.05
Arizona . . . . . . . . . . . . . . 46 14,996,252.56 1.87
California . . . . . . . . . . . . 1,352 478,854,362.66 59.83
Colorado . . . . . . . . . . . . . 61 21,159,662.45 2.64
Connecticut . . . . . . . . . . . . 23 7,876,806.90 0.98
District of Columbia . . . . . . . 4 1,288,935.13 0.16
Delaware . . . . . . . . . . . . . 1 234,267.13 0.03
Florida . . . . . . . . . . . . . . 38 12,315,240.70 1.54
Georgia . . . . . . . . . . . . . . 40 12,613,889.61 1.58
Hawaii . . . . . . . . . . . . . . 20 9,081,085.19 1.13
Iowa . . . . . . . . . . . . . . . 1 292,615.37 0.04
Idaho . . . . . . . . . . . . . . . 14 4,448,736.16 0.56
Illinois . . . . . . . . . . . . . 67 21,015,908.36 2.63
Indiana . . . . . . . . . . . . . . 5 1,447,437.70 0.18
Kansas . . . . . . . . . . . . . . 2 504,935.57 0.06
Kentucky . . . . . . . . . . . . . 3 985,854.40 0.12
Louisiana . . . . . . . . . . . . . 1 276,909.30 0.03
Massachusetts . . . . . . . . . . . 90 27,675,825.39 3.46
Maryland . . . . . . . . . . . . . 40 12,285,430.68 1.54
Michigan . . . . . . . . . . . . . 27 8,425,451.75 1.05
Minnesota . . . . . . . . . . . . . 17 5,904,379.21 0.74
Missouri . . . . . . . . . . . . . 7 2,300,864.61 0.29
Mississippi . . . . . . . . . . . . 1 271,376.50 0.03
Montana . . . . . . . . . . . . . . 3 762,716.02 0.10
North Carolina . . . . . . . . . . 9 2,388,063.43 0.30
North Dakota . . . . . . . . . . . 1 255,646.48 0.03
Nebraska . . . . . . . . . . . . . 1 235,578.97 0.03
New Hampshire . . . . . . . . . . . 10 3,348,107.27 0.42
New Jersey . . . . . . . . . . . . 73 22,930,278.81 2.87
New Mexico . . . . . . . . . . . . 8 2,183,119.70 0.27
Nevada . . . . . . . . . . . . . . 23 8,468,668.83 1.06
New York . . . . . . . . . . . . . 64 21,690,402.21 2.71
Ohio . . . . . . . . . . . . . . . 9 2,717,786.68 0.34
Oklahoma . . . . . . . . . . . . . 4 1,332,638.48 0.17
Oregon . . . . . . . . . . . . . . 42 12,578,066.66 1.57
Pennsylvania . . . . . . . . . . . 26 7,489,177.96 0.94
Rhode Island . . . . . . . . . . . 5 1,201,120.65 0.15
South Carolina . . . . . . . . . . 4 1,093,196.12 0.14
Tennessee . . . . . . . . . . . . . 7 2,162,532.24 0.27
Texas . . . . . . . . . . . . . . . 61 19,964,886.20 2.49
Utah . . . . . . . . . . . . . . . 17 5,754,949.52 0.72
Virginia . . . . . . . . . . . . . 43 12,539,794.12 1.57
Washington . . . . . . . . . . . . 54 16,752,189.00 2.09
Wisconsin . . . . . . . . . . . . . 22 7,076,167.76 0.88
Wyoming . . . . . . . . . . . . . . 2 738,287.47 0.09
----- --------------- ------
TOTALS: . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
S-37
<PAGE> 38
- -----------------------------
(1) No more than 1.01% of the Group I Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more
than 0.32% of the Group I Loans will be secured by Mortgaged
Properties located in any one zip code area outside of California.
(2) Approximately 29.27% of the Group I Loans will be secured by Mortgaged
Properties located in the Southern California area. See "Risk Factors
-- Geographic Concentration of the Mortgaged Properties" herein for a
description of the Southern California area.
OCCUPANCY TYPES
FOR GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
OCCUPANCY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . 2,279 $773,029,823.68 96.59%
Secondary . . . . . . . . . . . . . . . . . . 50 19,049,896.80 2.38
Investor . . . . . . . . . . . . . . . . . . 26 8,256,987.21 1.03
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -----------------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
FOR GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Full Documentation . . . . . . . . . . . . . 2,077 $693,802,163.43 86.69%
Reduced or Limited Documentation . . . . . . 219 85,280,714.67 10.66
No Documentation or No Income/No Asset . . . 2 568,264.61 0.07
No Debt Ratios . . . . . . . . . . . . . . . 57 20,685,564.98 2.58
----- --------------- ------
TOTALS: . . . . . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) For information relating to each Loan Seller's underwriting programs
see "-- Underwriting Standards" herein.
S-38
<PAGE> 39
TYPE OF MORTGAGED PREMISES
FOR GROUP I LOANS
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family Dwelling . . . . . . . . . . . 1,797 $616,421,196.30 77.02%
Two Family Dwelling . . . . . . . . . . . . . 25 8,671,361.09 1.08
Three Family Dwelling . . . . . . . . . . . . 15 5,420,431.04 0.68
Four Family Dwelling . . . . . . . . . . . . 11 3,920,485.22 0.49
Condominium/Townhouse . . . . . . . . . . . . 99 31,206,136.69 3.90
Planned Unit Development (PUD) . . . . . . . 309 103,899,883.25 12.98
De minimus PUD . . . . . . . . . . . . . . . 98 30,547,214.10 3.82
Cooperative . . . . . . . . . . . . . . . . . 1 250,000.00 0.03
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
CURRENT PRINCIPAL BALANCES
FOR GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
RANGE OF CURRENT NUMBER OF AGGREGATE BY AGGREGATE
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
150,000.00+ to 200,000.00 . . . . . . 1 $168,403.45 0.02%
200,000.00+ to 250,000.00 . . . . . . 589 137,786,820.89 17.22
250,000.00+ to 300,000.00 . . . . . . 668 183,816,079.49 22.97
300,000.00+ to 350,000.00 . . . . . . 368 119,741,558.69 14.96
350,000.00+ to 400,000.00 . . . . . . 248 93,316,769.42 11.66
400,000.00+ to 450,000.00 . . . . . . 144 61,404,388.72 7.67
450,000.00+ to 500,000.00 . . . . . . 111 53,256,951.62 6.65
500,000.00+ to 550,000.00 . . . . . . 60 31,597,501.77 3.95
550,000.00+ to 600,000.00 . . . . . . 47 26,997,911.76 3.37
600,000.00+ to 650,000.00 . . . . . . 54 34,180,197.67 4.27
650,000.00+ to 700,000.00 . . . . . . 6 4,098,902.33 0.51
700,000.00+ to 750,000.00 . . . . . . 7 5,058,199.37 0.63
750,000.00+ to 800,000.00 . . . . . . 4 3,157,348.96 0.39
800,000.00+ to 850,000.00 . . . . . . 3 2,444,891.35 0.31
850,000.00+ to 900,000.00 . . . . . . 10 8,859,205.05 1.11
900,000.00+ to 950,000.00 . . . . . . 11 10,194,196.88 1.27
950,000.00+ to 1,000,000.00 . . . . . . 21 20,721,490.61 2.59
Over 1,000,000.00 . . . . . . 3 3,535,889.66 0.44
----- --------------- ------
TOTALS: . . . . . . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the average current aggregate principal
balance of the Group I Loans is expected to be approximately
$339,845.74.
S-39
<PAGE> 40
REMAINING TERM TO STATED MATURITY
FOR GROUP I LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
REMAINING STATED NUMBER OF AGGREGATE BY AGGREGATE
TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
228+ to 234 1 $324,169.66 0.04%
234+ to 240 8 2,190,195.46 0.27
294+ to 300 12 3,619,052.19 0.45
300+ to 306 2 528,670.44 0.07
306+ to 312 6 2,063,268.58 0.26
312+ to 318 2 535,240.99 0.07
336+ to 342 5 2,750,440.31 0.34
342+ to 348 3 1,426,934.63 0.18
348+ to 354 95 41,195,487.46 5.15
354+ to 360 2,221 745,703,247.97 93.17
----- --------------- ------
TOTALS: . . . . . . . . . 2,355 $800,336,707.69 100.00%
===== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average remaining term to stated
maturity of the Group I Loans is expected to be approximately 357
months.
LOAN-TO-VALUE RATIOS AT ORIGINATION OF
THE GROUP II LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
LOAN-TO-VALUE RATIOS AT NUMBER OF AGGREGATE BY AGGREGATE
ORIGINATION (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
0.0+ to 60.0 . . . . . . . . 22 $7,306,957.93 5.31%
60.0+ to 65.0 . . . . . . . . 22 7,217,187.70 5.24
65.0+ to 70.0 . . . . . . . . 44 15,340,016.71 11.14
70.0+ to 75.0 . . . . . . . . 71 21,766,439.41 15.81
75.0+ to 80.0 . . . . . . . . 211 67,540,324.53 49.06
80.0+ to 85.0 . . . . . . . . 9 2,516,652.63 1.83
85.0+ to 90.0 . . . . . . . . 36 10,562,643.72 7.67
90.0+ to 95.0 . . . . . . . . 21 5,412,534.52 3.93
--- --------------- ------
TOTALS: . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average Loan-to-Value Ratio at
origination of the Group II Loans is expected to be approximately
76.27%.
S-40
<PAGE> 41
MORTGAGE RATES OF
THE GROUP II LOANS (1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
6.500+ to 6.750 . . . . . . 1 $339,412.87 0.25%
6.750+ to 7.000 . . . . . . 6 1,445,889.00 1.05
7.000+ to 7.250 . . . . . . 43 12,702,699.11 9.23
7.250+ to 7.500 . . . . . . 111 35,175,129.71 25.55
7.500+ to 7.750 . . . . . . 234 75,407,038.54 54.78
7.750+ to 8.000 . . . . . . 36 11,059,613.63 8.03
8.000+ to 8.250 . . . . . . 1 254,833.20 0.19
8.250+ to 8.500 . . . . . . 3 1,041,352.34 0.76
8.500+ to 8.750 . . . . . . 1 236,788.75 0.17
--- --------------- ------
TOTALS: . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average Mortgage Rate of the
Group II Loans is expected to be approximately 7.603% per annum.
S-41
<PAGE> 42
GEOGRAPHIC DISTRIBUTION OF
THE GROUP II LOANS(1)(2)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama . . . . . . . . . . . . . . 3 $818,077.77 0.59%
Arkansas . . . . . . . . . . . . . 2 496,295.49 0.36
Arizona . . . . . . . . . . . . . . 13 3,580,335.70 2.60
California . . . . . . . . . . . . 127 44,895,920.25 32.61
Colorado . . . . . . . . . . . . . 17 4,823,240.94 3.50
Connecticut . . . . . . . . . . . . 9 2,470,756.90 1.79
District of Columbia . . . . . . . 1 219,844.73 0.16
Delaware . . . . . . . . . . . . . 5 1,354,766.84 0.98
Florida . . . . . . . . . . . . . . 10 2,781,925.96 2.02
Georgia . . . . . . . . . . . . . . 19 5,546,312.88 4.03
Idaho . . . . . . . . . . . . . . . 1 239,651.48 0.17
Illinois . . . . . . . . . . . . . 14 3,994,802.61 2.90
Indiana . . . . . . . . . . . . . . 8 2,523,973.83 1.83
Kentucky . . . . . . . . . . . . . 6 2,006,366.45 1.46
Massachusetts . . . . . . . . . . . 32 9,536,779.11 6.93
Maryland . . . . . . . . . . . . . 17 5,083,557.91 3.69
Michigan . . . . . . . . . . . . . 2 490,137.01 0.36
Minnesota . . . . . . . . . . . . . 3 1,632,880.85 1.19
North Carolina . . . . . . . . . . 6 1,566,869.84 1.14
New Jersey . . . . . . . . . . . . 15 4,399,183.74 3.20
New Mexico . . . . . . . . . . . . 1 315,077.47 0.23
Nevada . . . . . . . . . . . . . . 2 668,814.29 0.49
New York . . . . . . . . . . . . . 9 3,217,905.58 2.34
Ohio . . . . . . . . . . . . . . . 19 5,846,406.55 4.25
Oklahoma . . . . . . . . . . . . . 1 335,411.61 0.24
Oregon . . . . . . . . . . . . . . 3 946,510.82 0.69
Pennsylvania . . . . . . . . . . . 25 7,377,850.17 5.36
Rhode Island . . . . . . . . . . . 1 283,587.58 0.21
Tennessee . . . . . . . . . . . . . 2 466,600.22 0.34
Texas . . . . . . . . . . . . . . . 28 9,473,906.42 6.88
Utah . . . . . . . . . . . . . . . 3 868,459.18 0.63
Virginia . . . . . . . . . . . . . 18 4,797,883.71 3.49
Washington . . . . . . . . . . . . 2 759,256.81 0.55
Wisconsin . . . . . . . . . . . . . 12 3,843,406.45 2.79
--- --------------- ------
TOTALS: . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) No more than 1.63% of the Group II Loans will be secured by Mortgaged
Properties located it any one zip code area in California and no more
than 1.05% of the Group II Loans will be secured by Mortgaged
Properties located in any one zip code area outside of California.
(2) Approximately 18.46% of the Group II Loans will be secured by
Mortgaged Properties located in the Southern California area. See
"Risk Factors -- Geographic Concentration of the Mortgaged Properties"
herein for a description of the Southern California area.
S-42
<PAGE> 43
OCCUPANCY TYPES
FOR GROUP II LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
OCCUPANCY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . 434 $137,063,460.43 99.56%
Secondary . . . . . . . . . . . . . . . . . . 2 599,296.72 0.44
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) Based upon representations of the related borrower at the time of
origination.
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
FOR GROUP II LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Full Documentation . . . . . . . . . . . . . 430 $135,899,283.75 98.72%
Reduced or Limited Documentation . . . . . . 6 1,763,473.40 1.28
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) For information relating to each Loan Seller's underwriting programs
see " -- Underwriting Standards" herein.
S-43
<PAGE> 44
TYPE OF MORTGAGED PREMISES
FOR GROUP II LOANS
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family Dwelling . . . . . . . . . . . 350 $110,699,852.64 80.41%
Two Family Dwelling . . . . . . . . . . . . . 3 1,443,134.42 1.05
Three Family Dwelling . . . . . . . . . . . . 2 1,021,288.71 0.74
Condominium/Townhouse . . . . . . . . . . . . 8 2,126,740.53 1.54
Planned Unit Development (PUD) . . . . . . . 3 940,952.54 0.68
De minimus PUD . . . . . . . . . . . . . . . 70 21,430,788.31 15.57
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
CURRENT PRINCIPAL BALANCES
FOR GROUP II LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
RANGE OF CURRENT NUMBER OF AGGREGATE BY AGGREGATE
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
200,000.00 - 250,000.00 . . . . . . 113 $26,586,449.76 19.31%
250,000.00 - 300,000.00 . . . . . . 152 41,568,467.51 30.20
300,000.00 - 350,000.00 . . . . . . 62 20,089,604.16 14.59
350,000.00 - 400,000.00 . . . . . . 42 15,853,429.89 11.52
400,000.00 - 450,000.00 . . . . . . 29 12,305,094.89 8.94
450,000.00 - 500,000.00 . . . . . . 16 7,638,635.75 5.55
500,000.00 - 550,000.00 . . . . . . 3 1,533,926.63 1.11
550,000.00 - 600,000.00 . . . . . . 5 2,921,714.49 2.12
600,000.00 - 650,000.00 . . . . . . 12 7,644,548.44 5.55
650,000.00 - 700,000.00 . . . . . . 1 695,983.10 0.51
800,000.00 - 850,000.00 . . . . . . 1 824,902.53 0.60
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the average current aggregate principal
balance of the Group II Loans is expected to be approximately
$315,740.27.
S-44
<PAGE> 45
REMAINING TERM TO STATED MATURITY
FOR GROUP II LOANS(1)
<TABLE>
<CAPTION>
PERCENTAGES OF
MORTGAGE LOANS
REMAINING STATED NUMBER OF AGGREGATE BY AGGREGATE
TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
234+ to 240 . . . . . . . . . . . . . . . . 7 $2,118,144.69 1.54%
294+ to 300 . . . . . . . . . . . . . . . . 2 457,476.84 0.33
348+ to 354 . . . . . . . . . . . . . . . . 1 249,645.66 0.18
354+ to 360 . . . . . . . . . . . . . . . . 426 134,837,489.96 97.95
--- --------------- ------
TOTALS: . . . . . . . . . . . . . . 436 $137,662,757.15 100.00%
=== =============== ======
</TABLE>
- -------------------------------------------
(1) As of the Cut-Off Date, the weighted average remaining term to stated
maturity of the Group II Loans is expected to be approximately 357
months.
UNDERWRITING STANDARDS
The Mortgage Loans have been generally underwritten in accordance with
the underwriting standards of the applicable Loan Sellers. The Mortgage Loans
have been originated by or purchased from various banks, savings and loan
associations, mortgage bankers (which may or may not be affiliated with a Loan
Seller) and other mortgage loan originators (each, a "SELLER"). The applicable
Master Servicers will be responsible for the master servicing and
administration of the related Mortgage Loans and the applicable
seller/servicers will perform the customary servicing functions with respect to
the related Mortgage Loans (in such capacity, "SELLER/SERVICERS"). A
description of the applicable underwriting standards for each Loan Seller is
set forth below.
PNC Mortgage Underwriting Standards. The PNC Mortgage Loans are
subject to the various credit, appraisal and underwriting standards described
herein. PNC Mortgage's credit, appraisal and underwriting standards are
published in PNC Mortgage's Selling Guide (together with PNC Mortgage's
Servicing Guide, the "PNC MORTGAGE GUIDE", as modified from time to time). The
credit, appraisal and underwriting standards as set forth in the PNC Mortgage
Guide are continuously revised based on opportunities and prevailing conditions
in the residential mortgage market. The Mortgage Loans may be underwritten by
PNC Mortgage or by designated third parties.
PNC Mortgage's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value
and adequacy of the proposed mortgaged property as collateral. In the loan
application process, prospective mortgagors will be required to provide
information regarding such factors as their assets, liabilities, income, credit
history, employment history and other related items. Each prospective
mortgagor will also provide an authorization to apply for a credit report which
summarizes the mortgagor's credit history. With respect to establishing the
prospective mortgagor's ability to make timely payments, PNC Mortgage requires
evidence regarding the mortgagor's employment and income, and of the amount of
deposits made to financial institutions where the mortgagor maintains demand or
savings accounts. In some instances, mortgage loans which were originated under
a limited documentation origination program may be sold to PNC Mortgage. For a
mortgage loan originated under a limited documentation origination program to
qualify for purchase by PNC Mortgage, the prospective mortgagor must have a
good credit history and make a larger cash down payment, in a purchase, or be
willing to finance less of the appraised value, in a refinancing, than would
otherwise be required by PNC Mortgage. Currently, PNC Mortgage's underwriting
standards provide that only mortgage loans with certain Loan-to-Value Ratios
will qualify for purchase under such a program. If the mortgage loan qualifies,
PNC Mortgage waives some of its documentation requirements and eliminates
verification of income and employment for the prospective mortgagor.
PNC Mortgage's underwriting standards generally follow Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") underwriting guidelines. In determining the adequacy of
the property as collateral, an independent appraisal is made of each property
considered for financing. The appraiser is required to inspect
S-45
<PAGE> 46
the property and verify that it is in good condition and that construction, if
new, has been completed. The appraisal is based on the appraiser's judgment of
values, giving appropriate weight to both the market value of comparable homes
and the cost of replacing the property.
Certain states where the Mortgaged Properties may be located are
"anti-deficiency" states where, in general, lenders providing credit on one- to
four-family properties must look solely to the property for repayment in the
event of foreclosure. See "Certain Legal Aspects of the Mortgage Loans --
Anti-Deficiency Legislation and Other Limitations on Lenders" in the
Prospectus. PNC Mortgage's underwriting standards in all states (including
anti-deficiency states) require that the underwriting officers be satisfied
that the value of the property being financed, as indicated by the independent
appraisal, currently supports and is anticipated to support in the future the
outstanding loan balance, and provides sufficient value to mitigate the effects
of adverse shifts in real estate values.
Certain of the PNC Mortgage Loans do not conform to the underwriting
standards set forth in the PNC Mortgage Guide. Such PNC Mortgage Loans have
been purchased by PNC Mortgage in negotiated transactions from Seller/Servicers
who represented that such PNC Mortgage Loans were originated in accordance with
credit, appraisal and underwriting standards agreed to by PNC Mortgage which
may vary substantially from the credit, appraisal and underwriting standards
set forth in the PNC Guide. PNC Mortgage generally reviews only a limited
portion of such PNC Mortgage Loans for conformity with the applicable credit,
appraisal and underwriting standards.
Due to the variety of underwriting standards and review procedures
that may be applicable to the PNC Mortgage Loans, there can be no assurance
that every PNC Mortgage Loan was originated in conformity with the applicable
credit, appraisal and underwriting standards in all material respects, or that
the quality or performance of PNC Mortgage Loans underwritten pursuant to
varying standards as described above will be equivalent under all
circumstances.
PHH Underwriting Standards. The underwriting standards of PHH
generally allow Loan-to-Value Ratios at origination of up to 95% for mortgage
loans with original principal balance of up to $300,000, up to 80% for mortgage
loans with original principal balances of up to $500,000, and up to 75% for
mortgage loans with original principal balances of up to $650,000. In
determining whether a prospective borrower has sufficient monthly income
available (i) to meet the borrower's monthly obligation on the proposed
mortgage loan and (ii) to meet monthly housing expenses and other financial
obligations including the borrower's monthly obligations on the proposed
mortgage loan. PHH generally applies ratios of up to 33% and 38%,
respectively, of the proposed borrower's acceptable stable monthly gross
income. From time to time, PHH makes loans where these ratios are exceeded.
In those instances, PHH's underwriters typically look at mitigating factors
such as the liquidity of the mortgagor, the stability of the real estate market
where the mortgaged property is located, and local economic conditions. In
addition, with respect to mortgage loans secured by owner-occupied condominium
units, PHH generally will fund up to the lesser of 10 units or 50% of the total
units in a project.
PHH also originates mortgage loans pursuant to alternative sets of
underwriting criteria under its reduced documentation program ("REDUCED
DOCUMENTATION PROGRAM"), no-income, no asset program ("NO ASSET, NO INCOME
PROGRAM"), and rate term refinance limited documentation program ("STREAMLINED
DOCUMENTATION PROGRAM"). Each of these programs are designed to facilitate the
loan approval process. Under the Reduced Documentation Program and the No
Assets, No Income Program, certain documentation concerning income/employment
and asset verification is reduced or excluded. Loans underwritten under the
Reduced Documentation Program and the No Asset, No Income Program are generally
limited to borrowers who have demonstrated an established ability and
willingness to repay the mortgage loans in a timely fashion. Permitted maximum
Loan-to-Value Ratios under the Reduced Documentation Program and the No Assets,
No Income Program are generally more restrictive than that under the standard
underwriting criteria of PHH.
Under the Streamlined Documentation Program, which is generally
available only to PHH portfolio refinances having an original Loan-to-Value
Ratio of 80% or less and no mortgage delinquencies in the past 12 months, rate
and term refinance loans are underwritten based solely on the original
appraisal and limited credit verification, if any. Although no current
appraisal of the property is obtained with respect to the origination of these
mortgage loans, a "drive-by" appraisal may be obtained in certain cases.
From time to time, exceptions to PHH's underwriting policies may be
made. Such exceptions may be made only on a loan-by-loan basis at the
discretion of the PHH underwriter. Exceptions may be made only after careful
consideration of
S-46
<PAGE> 47
certain mitigating factors such as borrower capacity, liquidity, employment and
residential stability and local economic conditions.
Approximately 0.47% and approximately 1.04% of the PHH Mortgage Loans
included in the Group I Loans and the Group II Loans, respectively, are BUYDOWN
LOANS. Buydown Loans are subject to temporary Buydown plans, pursuant to which
the monthly payments made by the Mortgagor in the early years of a Buydown Loan
will be less than the scheduled monthly payments thereon after the expiration
of the Buydown period, the resulting differences to be made up from Buydown
Funds placed in a custodial account (a "BUYDOWN ACCOUNT").
With respect to each Buydown Loan, not later than the Withdrawal Date
in each month during the Buydown period, the related servicer will be required
to deposit into the related Buydown Account the amount, if any, of the Buydown
Funds for such Buydown Loan that, when added to the amount due from the
mortgagor or such Buydown Loan, equals the full monthly payment which would be
due on the Buydown Loan on the related Due Date if it were not subject to the
Buydown plan.
IndyMac Underwriting Standards. IndyMac operates a conduit program
established in April 1993 to purchase "conventional non-conforming mortgage
loans" (i.e., loans which are not insured by the FHA or partially guaranteed by
the VA or which do not qualify for sale to FNMA or FHLMC) secured by first
liens on one- to four-family residential properties. Non-conforming loans
purchased by IndyMac pursuant to its underwriting programs typically differ
from those purchased pursuant to the guidelines established by FNMA, FHLMC and
GNMA primarily with respect to Loan-to-Value Ratios, borrower income, required
documentation, interest rates, borrower occupancy of the mortgaged property
and/or property types. To the extent that these programs reflect underwriting
standards different from those of FNMA, FHLMC and GNMA, the performance of
loans made thereunder may reflect higher delinquency rates and/or credit
losses.
Each Seller/Servicer from which IndyMac purchases mortgage loans must
be an approved HUD mortgagee in good standing or a seller/servicer in good
standing and approved by either FNMA or FHLMC. IndyMac approves individual
institutions as eligible Seller/Servicers after an evaluation of certain
criteria, including the Seller/Servicer's mortgage origination and servicing
experience and financial stability.
IndyMac currently operates three mortgage loan purchase programs as
part of its conduit operations:
1. Prior Approval Program. Under this program, IndyMac
performs a full credit review and analysis of each mortgage loan to be
purchased to ensure compliance with its underwriting guidelines. Only
after IndyMac issues an approval notice to a Seller/Servicer is a
mortgage loan eligible for purchase pursuant to this program.
2. Standard Delivery Program. Under this program,
IndyMac does not perform a full underwriting review prior to purchase
of a mortgage loan, but instead relies on the credit review and
analysis performed by a mortgage pool insurer previously selected by
IndyMac and its own post-purchase quality review. Only mortgage loans
with mortgage pool insurance commitments are eligible for purchase
pursuant to this program.
3. Preferred Delegated Underwriting Program. Under this
program, Seller/Servicers which meet certain eligibility requirements
(each, a "PDU SELLER/SERVICER") are allowed to underwrite mortgage
loans for purchase without the need for either prior pool insurance
approval or prior IndyMac approval. The Preferred Delegated
Underwriting Program is specifically designed for those
Seller/Servicers that meet higher financial and performance criteria
than those applicable to Seller/Servicers generally. Under the
Preferred Delegated Underwriting Program, each PDU Seller/Servicer is
required to underwrite mortgage loans in compliance with IndyMac's
underwriting guidelines, as the same may have been modified pursuant
to commitments negotiated with such PDU Seller/Servicer. A greater
percentage of mortgage loans purchased pursuant to this program are
selected for post-purchase quality control review than for the other
two programs. Notwithstanding the Seller/Servicer's status as a PDU
Seller/Servicer, certain types of mortgage loans are required to
receive an approval notice prior to purchase. The majority of
mortgage loans currently being purchased by IndyMac are originated
under the Preferred Delegated Underwriting Program. IndyMac also
operates a restricted delegated underwriting program that is available
to substantially all of IndyMac's Seller/Servicers. The only mortgage
loans that may be submitted under this program are IndyMac's standard
loan products with Loan-to-Value Ratios and outstanding balance
requirements that are more restrictive than IndyMac's standard
guidelines.
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All mortgage loans purchased by IndyMac must meet credit, appraisal
and underwriting standards acceptable to IndyMac. Such underwriting standards,
including negotiated modifications thereto (the "INDYMAC UNDERWRITING
STANDARDS"), are applied to evaluate the prospective borrower's credit standing
and repayment ability and the value and adequacy of the mortgaged property as
collateral. The IndyMac Underwriting Standards are applied in accordance with
applicable federal and state laws and regulations. Exceptions to the IndyMac
Underwriting Standards are permitted where compensating factors are present or
in the context of negotiated bulk purchases. In addition, the requirements of
a mortgage pool insurer may differ from the IndyMac Underwriting Standards as a
result of which mortgage loans certified by such mortgage pool insurer may not
comply with the IndyMac Underwriting Standards.
For each mortgage loan with a Loan-to-Value Ratio at origination
exceeding 80%, IndyMac generally requires a primary mortgage guaranty insurance
policy insuring a portion of the balance of the mortgage loan 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 property 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 primary mortgage guaranty insurance
policy will be required to be maintained with respect to any such mortgage loan
(i) 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 new appraised value or (ii) if maintaining
such policy is prohibited by applicable law. All of the insurers which have
issued Primary Insurance Policies with respect to the IndyMac Mortgage Loans
meet FNMA's or FHLMC's standards or are acceptable to the Rating Agencies.
In determining whether a prospective borrower has sufficient monthly
income available (i) to meet the borrower's monthly obligation on the proposed
mortgage loan and (ii) to meet monthly housing expenses and other financial
obligations including the borrower's monthly obligations on the proposed
mortgage loan, IndyMac 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.
IndyMac purchases loans which have been originated under one of four
documentation programs: (i) the Full Documentation Program, (ii) the
Alternative Documentation Program, (iii) the Reduced Documentation Program, and
(iv) the No Income/No Asset Program.
Under the Full Documentation Program, the prospective borrower's
employment, income and assets are verified through written or telephonic
communications. All loans may be submitted under the Full Documentation
Program. The Alternative Documentation Program provides for alternative
methods of employment verification generally using W-2 forms or pay stubs.
Generally, mortgage loans submitted under the Alternative Documentation Program
have maximum Loan-to- Value Ratios which are the same as those described above.
Under the Reduced Documentation Program, more emphasis is placed on
the value and adequacy of the mortgaged property as collateral and other assets
of the borrower than on credit underwriting. Mortgage loans underwritten under
the Reduced Documentation Program are limited to borrowers with credit
histories that demonstrate an established ability to repay indebtedness in a
timely fashion. Under the Reduced Documentation Program, certain credit
underwriting documentation concerning income or income verification and/or
employment verification is waived. For certain loans submitted under the
Reduced Documentation Program with Loan-to-Value Ratios not exceeding 80%,
income ratios for the prospective borrower are not calculated.
Under the No Income/No Asset Program, emphasis is placed on the value
and adequacy of the mortgaged property as collateral rather than on credit
underwriting and assets of the borrower. Mortgage loans underwritten under the
No Income/No Asset Program are limited to borrowers with excellent credit
histories. Under the No Income/No Asset Program, credit underwriting
documentation concerning income, employment verification and asset verification
is waived and income ratios are not calculated.
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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
"PRIMARY INSURANCE 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 or selling price of the related Mortgaged Property and the
denominator of which is the original principal balance of the related Mortgage
Loan plus accrued interest thereon and related foreclosure expenses. The
Pooling and Servicing Agreement requires each Master Servicer to use its best
reasonable efforts to keep in full force and effect such Primary Insurance
Policies until such policies are no longer required. No such Primary Insurance
Policy will be required with respect to any such Mortgage Loan (i) 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
Property, or (ii) if maintaining such policy is prohibited by applicable law.
Claim payments, if any, under each Primary Insurance Policy will be
required to be remitted by the related 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 AND FLOOD INSURANCE POLICIES
The Pooling and Servicing Agreement requires each Master Servicer to
cause to be maintained for each related Mortgage Loan a hazard insurance policy
(each, a "STANDARD HAZARD POLICY") providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary in
the state in which the Mortgaged Property is located. Such coverage will
generally be in an amount which is not less than the original principal balance
of such Mortgage Loan, except in cases approved by the related Master Servicer
in which such amount exceeds the value of the improvements to the related
Mortgaged Property. In general, the standard form of Standard Hazard Policy
covers physical damage to or destruction of the Mortgaged Property 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.
In addition, whenever any part of any improvement to the related
Mortgaged Property is located in a federally designated special flood hazard
area and in a community which participates in the national flood insurance
program at the time of origination of the related Mortgage Loan, the Pooling
and Servicing Agreement requires each 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 generally be equal to the
lesser of (i) the replacement cost of the improvements which are part of the
related Mortgaged Property, and (ii) the maximum amount of insurance available
for such Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is located is
participating in such program). The ability of a 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 or Flood
Policy, or upon the extent to which information in this regard is furnished to
such Master Servicer by the related Mortgagors. All amounts collected by a
Master Servicer under any Standard Hazard Policy or Flood Policy (other than
amounts to be applied to the restoration or repair of the related Mortgaged
Property) will be deposited in the Certificate Account.
Since the amount of insurance to be maintained on the Mortgaged
Properties 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 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
Property and that such Title Insurance Policy contain no coverage exceptions,
except those permitted pursuant to the guidelines heretofore established by
FNMA.
THE LOAN SELLERS
The information set forth in the following paragraphs has been
provided by the Loan Sellers. 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 Sellers.
PNC MORTGAGE
PNC Mortgage Securities Corp., a Delaware corporation ("PNC
MORTGAGE"), is a wholly-owned indirect subsidiary of PNC Bank Corp., a bank
holding company. PNC Mortgage was organized for the purpose of providing
mortgage lending institutions, including affiliated institutions, with greater
financing and lending flexibility by purchasing mortgage loans from such
institutions and issuing mortgage-backed securities. PNC Mortgage's
obligations with respect to such mortgage-backed securities generally include
master servicing and bond administration. PNC Mortgage's principal executive
offices are located at 75 North Fairway Drive, Vernon Hills, Illinois 60061,
telephone (847) 549-6500.
PHH
PHH Mortgage Services Corporation, a New Jersey corporation ("PHH"),
is a wholly-owned subsidiary of HFS Inc. PHH was organized for the purpose of
providing mortgage banking operations to corporate clients, government
agencies, and affinity groups. PHH's principal executive offices are located
at 6000 Atrium Way, Mount Laurel, NJ 08054, telephone (609) 439-6000.
INDYMAC
IndyMac, Inc. (formerly known as Independent National Mortgage
Corporation), is a Delaware corporation ("INDYMAC"). The principal executive
offices of IndyMac are located at 155 North Lake Avenue, Pasadena, California
91101.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued pursuant to the Indenture between the Issuer
and the Indenture Trustee. Copies of the Indenture will be available following
the Closing Date from the Indenture Trustee and will be filed with the
Commission after the Closing Date. See "Indenture" herein and in the
Prospectus.
The Bonds constitute a Series of 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 Bonds. 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 Collection Accounts
established by the Indenture Trustee for the benefit of the Bondholders. Each
Certificate will represent the beneficial ownership interest in (i) the
Mortgage Loans in the related Loan Group and all rights pertaining thereto;
(ii) such assets as from time to time may be held by the Certificate Trustee
(or its duly appointed agent) in the Certificate Account or the Master
Servicers' Investment Accounts (except amounts representing the applicable
Master Servicing Fee or the applicable Servicing Fee); (iii) property which
secured a related Mortgage Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure or, in the case of a cooperative loan (a
"COOPERATIVE LOAN"), a similar form of conversion, after the Cut-Off Date; (iv)
amounts paid or payable by the insurer under any Primary Insurance Policy and
any other insurance policy related to any Mortgage Loan in the related Loan
Group; and (v) the rights and benefits of the Issuer in and under each of the
Loan Sale Agreements.
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Payments on the Offered Bonds will be made on each Payment Date,
commencing in November 1997, to Bondholders of record on the immediately
preceding Record Date.
The Offered Bonds (with the exception of the Residual Bonds) will be
issued as Book-Entry Bonds, maintained and transferred on the book-entry
records of the DTC and its participants. The Book-Entry Bonds 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 Bonds 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 Bond will be entitled to receive a definitive bond representing such
person's interest, except as set forth below under " -- Book Entry Registration
- -- Definitive Bonds." Unless and until definitive bonds are issued for the
Book-Entry Bonds under the limited circumstances described herein, all
references to actions by Bondholders with respect to the Book-Entry Bonds shall
refer to actions taken by DTC upon instructions from its Participants, and all
references herein to payments, notices, reports and statements to Bondholders
with respect to the Book-Entry Bonds shall refer to payments, notices, reports
and statements to DTC or Cede, as the registered holder of the Book-Entry
Bonds, for distribution to Beneficial Owners by DTC in accordance with DTC
procedures.
The Residual Bonds will be issued in certificated, fully-registered
form. Payments on the Offered Bonds that are issued in certificated form will
be made to each registered holder entitled thereto, either (i) by check mailed
to the address of the applicable Bondholder 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 Bond having an initial Principal Balance or Notional
Amount of not less than $1,000,000, by wire transfer in immediately available
funds, provided, that the final payment in respect of any Offered Bond will be
made only upon presentation and surrender of such Bond at the Corporate Trust
Office of the Indenture Trustee. See "The Indenture Trustee" herein.
The Offered Bonds, other than the Class IIA-2, Class IIA-3, Notional
Amount and Residual Bonds, will be issued in minimum denominations of $25,000
and integral multiples of $1 in excess thereof. The Class IIA-2 and Class
IIA-3 Bonds will be issued in minimum denominations of $1 and integral
multiples of $1 in excess thereof. The Notional Amount Bonds will be issued in
minimum initial Notional Amounts of $100,000 and integral multiples of $1 in
excess thereof. The Class RL and Class RU Bonds will be issued in minimum
denominations of $90 and $100, respectively. In addition, one Bond of each
Class may be issued evidencing the sum of an authorized denomination thereof
and the remainder of the initial Class Principal Balance of such Class.
HOLDERS OF A CLASS OF BONDS COMPRISING COMPONENTS MAY NOT TRANSFER
SUCH COMPONENTS SEPARATELY.
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 Bonds 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
Bonds through DTC and its participants and indirect participants. Accordingly,
Beneficial Owners may experience delays in their receipt of payments. Unless
and until definitive bonds are issued for the related Book-Entry Bonds, it is
anticipated that the only registered holder of such Book-Entry Bonds will be
Cede, as nominee of DTC. Beneficial Owners will not be recognized by the
Indenture Trustee or the Master Servicers as Bondholders, as such term is used
in the Indenture, and Beneficial Owners will be permitted to receive
information furnished to Bondholders and to exercise the rights of Bondholders
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 Bonds among participants and to receive and transmit payments of
principal of and interest on such Book-Entry Bonds. Participants and indirect
participants with which Beneficial Owners have accounts with respect to such
Book-Entry Bonds 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 Bonds, 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 Bonds.
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None of the Issuer, the Loan Sellers, DLJMC, the Master Servicers, 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 Bonds held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Bond. Each Class of the Book-Entry Bonds will be issued in
definitive, registered form to Beneficial Owners or their nominees, and
thereupon such Beneficial Owners will become Bondholders 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
Bonds 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
Bonds, 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 Bondholders
and will deal directly with the Indenture Trustee with respect to transfers,
notices, payments and requests for redemption.
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
Bondholder under the Indenture only at the direction of one or more DTC
participants to whom the Book-Entry Bonds 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 Bonds only at the direction of and on behalf
of DTC Participants with respect to that principal amount of such Book-Entry
Bonds. For example, if a vote of Beneficial Owners is required to accelerate
maturity of one or more Classes of the Book-Entry Bonds 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 Bonds 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 Bonds owned by a
different group of Beneficial Owners.
ISSUANCE OF THE BOOK-ENTRY BONDS OFFERED HEREBY IN BOOK ENTRY FORM
RATHER THAN AS PHYSICAL CERTIFICATES MAY ADVERSELY AFFECT THE LIQUIDITY OF THE
BOOK-ENTRY BONDS IN THE SECONDARY MARKET AND THE ABILITY OF BENEFICIAL OWNERS
TO PLEDGE THEM. IN ADDITION, AS DESCRIBED ABOVE, PRIOR TO BOOK-ENTRY
TERMINATION PAYMENTS ON THE BOOK-ENTRY BONDS WILL BE MADE BY THE INDENTURE
TRUSTEE TO DTC AND DTC WILL CREDIT SUCH PAYMENTS 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 PAYMENTS. 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 Bonds, see
"Description of Book-Entry Procedures" herein and "Description of the Bond --
Book Entry Registration" in the Prospectus.
AVAILABLE FUNDS
The "AVAILABLE FUNDS" for any Payment Date and either Loan Group and
the related Bond Group will equal the sum of the following amounts (in the case
of paragraphs (1), (2) and (3), with respect to the Mortgage Loans in such Loan
Group):
(1) the total amount of all cash received by or on behalf of the
related Master Servicer with respect to such Mortgage Loans by the
Determination Date for such Payment Date and not previously distributed
(including Advances made by Seller/Servicers, proceeds of Liquidated Loans and
scheduled amounts of distributions from Buydown Funds respecting Buydown Loans,
if any), except,
(a) all scheduled payments of principal and interest collected
but due on a date subsequent to the related Due Date;
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(b) all Curtailments received after the related Prepayment
Period (together with any interest payment received with such
prepayments to the extent that it represents the payment of interest
accrued on a related Mortgage Loan subsequent to the related
Prepayment Period);
(c) (i) in the case of the PNC Mortgage Loans and the PHH
Mortgage Loans, all Payoffs received on or after the 15th day of the
month of any such Determination Date (together with any interest
payment received with such Payoffs to the extent that it represents
the payment of interest accrued on a related Mortgage Loan subsequent
to the calender month prior to such Determination Date), and interest
accrued during the period from the 1st to the 14th day of the month of
such Determination Date and received with Payoffs received during such
period, which interest shall not be included in the calculation of the
Available Funds for any Payment Date, and (ii) in the case of the
IndyMac Mortgage Loans, all Payoffs received after the Prepayment
Period immediately preceding such Determination Date;
(d) Insurance Proceeds and Liquidation Proceeds received after
the Due Period;
(e) all amounts in the Certificate Account which are due and
reimbursable to a Seller/Servicer or the Master Servicer pursuant to
the terms of the Pooling and Servicing Agreement;
(f) the sum of the Master Servicing Fee and the Servicing Fee
for each Mortgage Loan and the Bond Administrator Fee with respect to
the IndyMac Mortgage Loans; and
(g) Excess Liquidation Proceeds;
(2) the sum, to the extent not previously distributed, of the
following amounts, to the extent advanced or received, as applicable, by the
related Master Servicer by the Payment Date:
(a) any Advance made by the related Master Servicer to the
Certificate Trustee with respect to such Payment Date; and
(b) Compensating Interest; and
(3) the total amount, to the extent not previously distributed, of
all cash received by the Payment Date by the Certificate Trustee, in respect of
a permitted repurchase of Mortgage Loans or a mandatory repurchase of defective
Mortgage Loans under the Pooling and Servicing Agreement.
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. In addition, with
respect to any Payment Date, "EXCESS LIQUIDATION PROCEEDS" is the excess, if
any, of aggregate Liquidation Proceeds in the preceding month over the amount
that would have been received if a Payoff had been made on the last day of such
month with respect to each Mortgage Loan which became a Liquidated Loan during
such month.
PRIORITY OF PAYMENTS
On each Payment Date, prior to the acceleration, if any, of the Bonds,
payments will be made in the order and priority as follows:
(a) With respect to the Group I and Residual Bonds, prior to the
Group I Credit Support Depletion Date, to the extent of the
Available Funds for such Payment Date and for Group I
remaining following prior payments, if any, on such Payment
Date:
(i) first, to Sub-Component IA-1-4I, the Sub-Component
IA-1-4I Discount Mortgage Loan Principal Payment
Amount (as defined herein);
(ii) second, (a) to the Group IA Bonds (other than
Components IA-1-1 and IA-1-4 of the Class IA-1
Bonds), the Class IX Bonds and the Residual Bonds
accrued and unpaid interest at their respective Bond
Interest Rates on their respective Class Principal
Balances,
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Component Principal Balances, Class Notional Amounts
or Component Notional Amounts, as the case may be,
pro rata (based on the amount of interest to which
each such Class or Component is entitled to receive)
provided, however, that no such payments will be
made to Component IA-1-2 on or before the Component
IA-1-2 Accretion Termination Date (as defined herein)
or to the Class IA-4 Bonds on or before the Class
IA-4 Accretion Termination Date (as defined herein),
(b) on or before the Component IA-1-2 Accretion
Termination Date, to the Classes and Components in
the manner described below, as principal, the
Component IA-1-2 Accrual Amount and (c) on or before
the Class IA-4 Accretion Termination Date, to the
Classes and Components in the manner described below,
as principal, the Class IA-4 Accrual Amount;
(iii) third, to the Group IA Bonds (other than the Class
IA-10 Bonds and Components IA-1-3 and IA-1-4 of the
Class IA-1 Bonds) and the Residual Bonds as
principal, the Group I Senior Principal Payment
Amount for such Payment Date in the order described
in "-- Principal Payments -- Group I Senior Principal
Payment Amount" herein;
(iv) fourth, for so long as the Component Principal
Balances of each of the Group I Subordinate
Components has not been reduced to zero, to
Sub-Component IA-1-4I, to the extent of amounts
otherwise available to pay the Group I Subordinate
Principal Payment Amount (as defined herein) (without
regard to clause (B) of such definition) on such
Payment Date, the sum of (a) principal in an amount
equal to the Sub-Component IA-1-4I Fraction of
certain principal losses on the Group I Discount
Loans (the "SUB-COMPONENT IA-1-4I LOSSES PAYABLE"
with respect to such Payment Date), as described in
"-- Principal Payments -- Sub-Component IA-1-4I
Principal Payments" herein and (b) the sum of
amounts, if any, by which the Sub-Component IA-1-4I
Losses Payable for each prior Payment Date exceeded
the amount actually paid in respect thereof on each
such prior Payment Date and not subsequently paid;
provided that any amounts paid in respect of losses
pursuant to this paragraph shall not cause a further
reduction in the Sub- Component IA-1-4I Principal
Balance;
(v) fifth, to Component IB-1, accrued and unpaid interest
at the Class B-1 Bond Interest Rate on the Component
IB-1 Principal Balance;
(vi) sixth, to Component IB-1, its pro rata share of the
Group I Subordinate Principal Payment Amount;
(vii) seventh, to Component IB-2, accrued and unpaid
interest at the Class B-2 Bond Interest Rate on the
Component IB-2 Principal Balance;
(viii) eighth, to Component IB-2, its pro rata share of the
Group I Subordinate Principal Payment Amount;
(ix) ninth, to Component IB-3, accrued and unpaid interest
at the Class B-3 Bond Interest Rate on the Component
IB-3 Principal Balance;
(x) tenth, to Component IB-3, its pro rata share of the
Group I Subordinate Principal Payment Amount;
(xi) eleventh, to the Group I Junior Subordinate
Components, interest and principal in the same manner
as for the Group I Senior Subordinate Components,
first to Component IB-4, then to Component IB-5 and
then to Component IB-6; and
(xii) twelfth, to each Group I Subordinate Components in
the order of seniority, the remaining portion, if
any, of the Available Funds for Group I, up to the
amount of unreimbursed Realized Losses previously
allocated to such Component, if any, provided payment
of any amount pursuant to this paragraph shall not
cause a further reduction in the Component Principal
Balance of any such Component; and
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(xiii) thirteenth, to the Class RL Bonds, the remaining
portion, if any, of the Available Funds for Group I
for such Payment Date;
(b) With respect to the Group II Bonds, Sub-Component IA-1-4II of
Component IA-1-4, of the Class IA-1 Bonds and the Class RL
Bonds, prior to the Group II Credit Support Depletion Date, to
the extent of the Available Funds for such Payment Date for
Group II remaining following prior payments, if any, on such
Payment Date:
(i) first, to Sub-Component IA-1-4II, the Sub-Component
IA-1-4II Discount Mortgage Loan Principal Payment
Amount (as defined herein);
(ii) second, to the Group IIA Bonds and the Class IIX
Bonds, accrued and unpaid interest at their
respective Bond Interest Rates on their respective
Class Principal Balances or Class Notional Amounts as
the case may be, pro rata (based on the amount of
interest to which each such Class of Bonds is
entitled to receive);
(iii) third, to the Group IIA Bonds, other than the Class
IIA-5 Bonds, as principal, the Group II Senior
Principal Payment Amount for such Payment Date in the
order described in "-- Principal Payments -- Group II
Senior Principal Payment Amount" herein; and
(iv) fourth, for so long as the Component Principal
Balances of each of the Group II Subordinate
Components has not been reduced to zero, to
Sub-Component IA-1-4II, to the extent of amounts
otherwise available to pay the Group II Subordinate
Principal Payment Amount (as defined herein) (without
regard to clause (B) of such definition) on such
Payment Date, the sum of (a) principal in an amount
equal to the Sub-Component IA-1-4II Fraction of
certain principal losses on the Group II Discount
Loans (the "SUB-COMPONENT IA-1-4II LOSSES PAYABLE"
with respect to such Payment Date), as described in
"-- Principal Payments -- Sub-Component IA-1-4II
Principal Payments" herein and (b) the sum of
amounts, if any, by which the Sub-Component IA-1-4II
Losses Payable for each prior Payment Date exceeded
the amount actually paid in respect thereof on each
such prior Payment Date and not subsequently paid;
provided, that any amounts paid in respect of losses
pursuant to this paragraph shall not cause a further
reduction in the Sub- Component IA-1-4II Principal
Balance.
(v) fifth, to Component IIB-1, accrued and unpaid
interest at the Class B-1 Bond Interest Rate on the
Component IIB-1 Principal Balance;
(vi) sixth, to Component IIB-1, its pro rata share of the
Group II Subordinate Principal Payment Amount;
(vii) seventh, to Component IIB-2, accrued and unpaid
interest at the Class B-2 Bond Interest Rate on the
Component IIB-2 Principal Balance;
(viii) eighth, to Component IIB-2, its pro rata share of the
Group II Subordinate Principal Payment Amount;
(ix) ninth, to Component IIB-3, accrued and unpaid
interest at the Class B-3 Bond Interest Rate on the
Component IIB-3 Principal Balance;
(x) tenth, to Component IIB-3, its pro rata share of the
Group II Subordinate Principal Payment Amount;
(xi) eleventh, to the Group II Junior Subordinate
Components, interest and principal in the same manner
as for the Group II Senior Subordinate Components,
first to Component IIB-4, then to Component IIB-5 and
then to Component IIB-6;
S-55
<PAGE> 56
(xii) twelfth, to each Group II Subordinate Component in
the order of seniority, the remaining portion, if
any, of the Available Funds for Group II, up to the
amount of unreimbursed Realized Losses previously
allocated to such Component, if any, provided payment
of any amount pursuant to this paragraph shall not
cause a further reduction in the Component Principal
Balance of any such Component; and
(xiii) thirteenth, to the Class RL Bonds, the remaining
portion, if any, of the Available Funds for Group II
for such Payment Date.
Component IA-1-2 Accrual. The "COMPONENT IA-1-2 ACCRETION TERMINATION
DATE" is the earlier to occur of (i) the Payment Date on which the Class
Principal Balances of the Class IA-3, Class IA-7 and Class IA-15 Bonds have
been reduced to zero and (ii) the Group I Credit Support Depletion Date. On
each Payment Date on or before the Component IA-1-2 Accretion Termination Date,
an amount (the "COMPONENT IA-1-2 ACCRUAL AMOUNT") equal to the accrued interest
that would otherwise be payable in respect of Component IA-1-2 on such Payment
Date will be added to the Component IA-1-2 Principal Balance (such amount to
thereafter accrue interest at the Component IA-1-2 Bond Interest Rate) and such
amount will be paid, as principal, to the following Bonds and Components:
(1) first, to the extent necessary to reduce the aggregate of the
Class Principal Balances of the Class IA- 3, Class IA-7 and Class IA-15 Bonds
and the Component Principal Balances of Components IA-9-2 and IA-9-3 of the
Class IA-9 Bonds to the Combined Targeted Principal Balance for such Payment
Date, sequentially as follows:
(a) concurrently as follows:
(i) 36.000000000% to Component IA-9-2 to the
extent necessary to reduce the Component IA- 9-2 Principal
Balance to its Planned Principal Balance for such Payment
Date; and
(ii) 64.000000000% as follows: (A) concurrently,
51.186605982% to the Class IA-3 Bonds to the extent necessary
to reduce the Class IA-3 Principal Balance to its Planned
Principal Balance for such Payment Date and 48.813394018% to
reduce the Class IA-15 Principal Balance and (B) the remainder
to the Class IA-15 Bonds to the extent necessary to reduce the
Class IA-15 Principal Balance to its Planned Principal Balance
for such Payment Date;
(b) concurrently, 79.999999822% to the Class IA-7 Bonds,
until the Class IA-7 Principal Balance has been reduced to zero, and
20.000000178% to Component IA-9-3 until the Component IA-9-3 Principal
Balance has been reduced to zero;
(c) concurrently,
(i) 36.000000000% to Component IA-9-2 until the
Component IA-9-2 Principal Balance is reduced to zero; and
(ii) 64.000000000% as follows: (A) concurrently,
51.186605982% to the Class IA-3 Bonds until the Class IA-3
Principal Balance is reduced to zero and 48.813394018% to
reduce the Class IA-15 Principal Balance and (B) the remainder
to the Class IA-15 Bonds until the Class IA-15 Principal
Balance is reduced to zero;
(2) second, to Component IA-1-2 to the extent necessary to reduce
the Component IA-1-2 Principal Balance to the Component IA-1-2 Targeted
Principal Balance for such Payment Date;
(3) third, to the Class IA-4 Bonds, until the Class IA-4 Principal
Balance has been reduced to zero;
(4) fourth, concurrently, as follows:
S-56
<PAGE> 57
(a) 90.000000000%, as provided in paragraph 1(a)-(c)
above (but without regard to the Combined Targeted Principal Balance,
or the Planned Principal Balance of any such Class or Component, until
the applicable Class Principal Balances or Component Principal
Balances are reduced to zero); and
(b) 10.000000000% to Component IA-1-2 to reduce the
Component IA-1-2 Principal Balance to zero without regard to the
Component IA-1-2 Targeted Principal Balance;
(5) fifth, to Component IA-1-2, until the Component IA-1-2
Principal Balance has been reduced to zero.
Class IA-4 Accrual. The "CLASS IA-4 ACCRETION TERMINATION DATE" is
the earlier to occur of (i) the Payment Date on which the Component IA-1-2
Principal Balance has been reduced to zero and (ii) the Group I Credit Support
Depletion Date. On each Payment Date on or before the Class IA-4 Accretion
Termination Date, after the Component IA-1-2 Accrual Amount has been paid as
described above, an amount (the "CLASS IA-4 ACCRUAL AMOUNT") equal to the
accrued interest that would otherwise be payable in respect of the Class IA-4
Bonds on such Payment Date will be added to the Class IA-4 Principal Balance
(such amount to thereafter accrue interest at the Class IA-4 Bond Interest
Rate) and such amount will be paid, as principal, to the following Bonds and
Components: (1) first, as in clause (1) of the preceding paragraph; (2) second,
as in clause (2) of the preceding paragraph; and (3) third, as in clause (3) of
the preceding paragraph.
With respect to the Subordinate Components of each Bond Group,
notwithstanding the foregoing, on any Payment Date on which the Subordination
Level for any Subordinate Component of a Bond Group is less than such
percentage as of the Cut-Off Date, the portion of the Group I Subordinate
Principal Payment Amount or Group II Subordinate Principal Payment Amount, as
applicable, for such Payment Date otherwise allocable to the Subordinate
Component or Components in the related Bond Group junior to such Subordinate
Component will be allocated to the most senior Subordinate Component of such
Bond Group for which the Subordination Level is less than such percentage as of
the Cut-Off Date and to the Subordinate Component or Components in the related
Bond Group senior thereto, pro rata according to the Component Principal
Balances of such Subordinate Components. The "SUBORDINATION LEVEL" on any
specified date with respect to any Subordinate Component of a Bond Group is the
percentage obtained by dividing the sum of the Component Principal Balances of
all Components in such Bond Group which are subordinate in right of payment to
such Component by the sum of the Class Principal Balances of all of the Bonds
and the Component Principal Balances of all Subordinate Components in the
related Bond Group as of such date prior to giving effect to payments or
allocations of Realized Losses on the Mortgage Loans in the related Loan Group
on such date; provided, however, that for purposes of the preceding
calculation, Sub-Component IA-1-4II shall be deemed to be in Group II and not
in Group I.
On each Payment Date on or after the Group I Credit Support Depletion
Date, prior to the acceleration, if any, of the Bonds, payments will be made
with respect to the Group I and Residual Bonds, subject, in each case, to the
extent of the Available Funds for Group I remaining following prior payments,
if any, on such Payment Date as follows:
(i) first, to Sub-Component IA-1-4I of the Class IA-1
Bonds, the Sub-Component IA-1-4I Discount Mortgage
Loan Principal Payment Amount for such Payment Date;
(ii) second, to the Group IA and Class IX Bonds (other
than Components IA-1-1 and IA-1-4 of the Class IA-1
Bonds) and the Residual Bonds, accrued and unpaid
interest at their respective Bond Interest Rates on
their respective Class Principal Balances, Component
Principal Balances, Class Notional Amounts or
Component Notional Amounts, as the case may be, pro
rata (based on the amount of interest to which each
such Class or Component is entitled to receive);
(iii) third, to the Group IA Bonds (other than the Class
IA-10 Bonds and Components IA-1-3 and IA-1-4 of the
Class IA-1 Bonds) and the Residual Bonds, the Group I
Senior Principal Payment Amount, pro rata according
to their respective Class Principal Balances and
Component Principal Balances; and
(iv) fourth, to the Class RL Bonds, the remaining portion,
if any, of the Available Funds for Group I for such
Payment Date, as described in the Indenture.
S-57
<PAGE> 58
The "GROUP I CREDIT SUPPORT DEPLETION DATE" is the first Payment Date
on which the Group I Senior Percentage (as defined under "--Principal
Prepayments -- Group I Principal Payments") for such Payment Date equals 100%.
On each Payment Date on or after the Group II Credit Support Depletion
Date, prior to the acceleration if any, of the Bonds, payments will be made
with respect to the Group II and Class RL Bonds and Sub-Component IA-1-4II of
the Class IA-1 Bonds, subject, in each case, to the extent of the Available
Funds for such Payment Date for Group II remaining following prior payments, if
any, on such Payment Date as follows:
(i) first, Sub-Component IA-1-4II of the Class IA-1
Bonds, the Sub-Component IA-1-4II Principal Payment
Amount for such Payment Date;
(ii) second, to the Group IIA and Class IIX Bonds, accrued
and unpaid interest at their respective Bond Interest
Rates on their respective Class Principal Balances or
Class Notional Amounts, pro rata (based on the amount
of interest to which each such Class of Bonds is
entitled to receive);
(iii) third, to the Group IIA Bonds (other than the Class
IIA-5 Bonds), the Group II Senior Principal Payment
Amount, pro rata, according to their respective Class
Principal Balances; and
(iv) fourth, to the Class RL Bonds, the remaining portion,
if any, of the Available Funds for Group II for such
Payment Date, as described in the Indenture.
The "GROUP II CREDIT SUPPORT DEPLETION DATE" is the first Payment Date
on which the Group II Senior Percentage (as defined under "--Principal Payments
- -- Group II Principal Payments") for such Payment Date equals 100%.
Except with respect to payments of principal on Sub-Component IA-1-4II
as described herein and except as described in the following paragraph,
payments of interest and principal to the Group I Bonds and Group II Bonds will
be based solely on payments received with respect to Group I Loans and Group II
Loans, respectively.
If the maturity of the Bonds is accelerated as described in this
paragraph, payments will be made on the Bonds as described in this paragraph.
Upon the occurrence of an event of default under the Indenture (an "Indenture
Event of Default"), holders of Senior Bonds representing 100% of the Class
Principal Balances of each Class of Senior Bonds then outstanding may exercise
their remedies pursuant to the terms of the Indenture; provided, however, that
after the aggregate of the Class Principal Balances of the Senior Bonds has
been reduced to zero, holders representing 66 2/3% of the Class Principal
Balance of the Class of Subordinate Bonds then outstanding with the lowest
numerical Class designation may exercise such remedies. Such Class of
Subordinate Bonds is the "Highest Priority Junior Class" for purposes of "The
Indenture -- Rights Upon Event of Default" in the Prospectus. These remedies
include the right to cause the payments of accrued interest on the Bonds to be
paid pro rata in accordance with the amount of unpaid accrued interest and
payments of principal on the outstanding Bonds (other than the Notional Amount
Bonds) to be paid (either in lump sum from proceeds of the sale of the Trust
Estate or from monthly collections on the Certificates), pro rata out of
remaining Available Funds for both Loan Groups, regardless of the allocation,
or sequential nature, of principal payments described above, based upon the
Principal Balance of the Bonds (technically, an "acceleration"). Since the
entitlement to such amounts is based on the Principal Balances of the Bonds,
after the Credit Support Depletion Date for a Bond Group, the Subordinate
Components of such Bond Group would not share in such payments, except as
provided in the following sentence. On each Payment Date on and after such
acceleration of the Bonds, and following the reduction to zero of the Principal
Balance of all Classes of Bonds, any remaining Available Funds for both Loan
Groups will be applied in repayment first of any unpaid accrued interest on the
Bonds and then to repay any previously unpaid Realized Losses allocated to the
Bonds, pro rata. However, it is expected that in such case there would not be
any remaining Available Funds.
An Indenture Event of Default with respect to the Bonds is defined in
the Indenture as being: (a) a default in the payment of principal of any Bond
as provided under the Series Supplement and the Indenture or a default for five
days or more in the payment of any interest on any Bond as required by the
Series Supplement and the Indenture, in each case as described herein under
"The Indenture--Indenture Events of Default"; (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; or (c) certain events of
bankruptcy, insolvency, receivership or reorganization of the Issuer.
S-58
<PAGE> 59
INTEREST PAYMENTS
With respect to each Class of Bonds (except Components IA-1-1 and
IA-1-4 of the Class IA-1 Bonds, which are not entitled to interest), interest
will be paid monthly on each Payment Date, commencing in November 1997, except
that (1) interest accrued on Component IA-1-2 on or before the Component IA-1-2
Accretion Termination Date will be added to the Component IA-1-2 Principal
Balance and (2) interest accrued on the Class IA-4 Bonds on or before the
Class IA-4 Accretion Termination Date will be added to the Class IA-4 Principal
Balance. With respect to each Payment Date, an amount of interest will accrue
or accrete on each Class of Bonds, or, with respect to the Class IA-1 Bonds,
Components IA-1-2 and IA-1-3, generally equal to 1/12th of the applicable Bond
Interest Rate for such Class or Component multiplied by the related Class
Principal Balance, Component Principal Balance, Class Notional Amount or
Component Notional Amount, as applicable. Interest to be paid or accreted on
each Class of Bonds 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 Bonds will
generally be made only to the extent of the Available Funds for the related
Loan Group as described herein under "-- Priority of Payments." Interest
payable on the Bonds will be calculated based on the Class Principal Balance,
Component Principal Balance, Class Notional Amount or Component Notional
Amount, as applicable, of each Class of Bonds or Component after giving effect
to all accretions of interest, payments of principal and allocations of
Realized Losses on all preceding Payment Dates. For each Payment Date, the
"INTEREST ACCRUAL PERIOD" is, for each Class of Bonds (or Component thereof)
other than the LIBOR Bonds, the calendar month preceding such Payment Date, and
for each Class of LIBOR Bonds is the period commencing on the 25th day of the
preceding calendar month and ending on the 24th day of the month of such
Payment Date.
The Bond Interest Rates for the Offered Bonds (other than the LIBOR
Bonds) are fixed as set forth on the cover page hereof. The Bond Interest Rate
of Components IA-1-2 and IA-1-3 of the Class IA-1 Bonds will be 7.4000% and
7.250% per annum, respectively. The Bond Interest Rates for the LIBOR Bonds
are adjustable monthly based on changes in LIBOR, as described herein. The
initial Bond Interest Rate for the Class IA-9 Bonds will be 6.056% per annum,
and thereafter the Class IA-9 Bonds will accrue interest at a per annum rate
equal to LIBOR plus 0.400%, subject to a minimum and maximum Remittance Rate of
0.400% and 9.000% per annum, respectively. The initial Bond Interest Rate for
the Class IA- 10 Bonds will be 2.944% per annum, and thereafter the Class IA-10
Bonds will accrue interest at a per annum rate equal to 8.600% minus LIBOR,
subject to a minimum and maximum Bond Interest Rate of 0.000% and 8.600% per
annum, respectively. The initial Bond Interest Rate for the Class IIA-4 Bonds
will be 6.2562% per annum. Thereafter, the Class IIA-4 Bonds will accrue
interest at a per annum rate equal to LIBOR plus 0.600%, subject to a minimum
and maximum Bond Interest Rate of 0.600% and 9.000% per annum, respectively.
The initial Bond Interest Rate for the Class IIA-5 Bonds will be 2.7438% per
annum. Thereafter, the Class IIA-5 Bonds will accrue interest at a per annum
rate equal to 8.400% minus LIBOR, subject to a minimum and maximum Bond
Interest Rate of 0.000% and 8.400% per annum, respectively.
The Class IA-10, Class IIA-5 and Class X Bonds and Component IA-1-3
will accrue interest on the applicable Class Notional Amount or Component
Notional Amount, as applicable.
The "CLASS IA-10 NOTIONAL AMOUNT" will equal the Class IA-9 Principal
Balance as of any date of determination, and the "CLASS IIA-5 NOTIONAL AMOUNT"
will equal the Class IIA-4 Principal Balance as of any date of determination.
The "CLASS IX NOTIONAL AMOUNT" with respect to any Payment Date will
equal 46.00% of the Group I WAC IO Notional Amount with respect to such Payment
Date. The "COMPONENT IA-1-3 NOTIONAL AMOUNT" with respect to any Payment Date
will equal 54.00% of the Group I WAC IO Notional Amount. The "GROUP I WAC IO
NOTIONAL AMOUNT" with respect to any Payment Date will equal the product of (x)
the aggregate Scheduled Principal Balance of the Group I Premium Rate Loans 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, and (y) a fraction, the
numerator of which is the weighted average of the Stripped Interest Rates for
the Group I Premium Rate Loans as of such Due Date and the denominator of which
is 7.250%. As of the Cut-Off Date, the Group I WAC IO Notional Amount, the
Class IX Notional Amount and the Component IA-1-3 Notional Amount will be
approximately $48,010,569, $22,084,861 and $25,925,707, respectively.
The "CLASS IIX NOTIONAL AMOUNT" with respect to any Payment Date will
equal the product of (x) the aggregate Scheduled Principal Balance of the Group
II Premium Rate Loans, 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,
S-59
<PAGE> 60
as of the Cut-Off Date, 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 Loans and the denominator of which is 7.250%. The Class
IIX Notional Amount as of the Cut-Off Date will be approximately $2,632,445.
The "STRIPPED INTEREST RATE" for each Premium Rate Loan is the excess
of the Net Mortgage Rate for such Mortgage Loan over 7.25% per annum.
Compensating Interest. Subject to the limitations described in this
Prospectus Supplement under "Certain Yield and Prepayment Considerations," on
each Payment Date, with respect to the PNC Mortgage Loans and the PHH Mortgage
Loans, PNC, as Master Servicer, is obligated to remit to the Certificate
Account an amount equal to the lesser of (i) any shortfall for the related
month in interest collections resulting from the timing of Payoffs 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 14th day of the
month in which such Payment Date occurs, and (ii) the sum of (x) the related
monthly Master Servicing Fee, (y) any reinvestment income realized by the
Master Servicer relating to Payoffs made during the related Prepayment Period,
and (z) interest payments on Payoffs received during the period from the second
day through the 14th day of the month of such Payment Date. In addition, on
each Payment Date, with respect to the IndyMac Mortgage Loans, IndyMac, as
Master Servicer, is obligated to remit to the Certificate Account an amount
equal to the lesser of (i) any shortfall for the related month in interest
collections resulting from the timing of Payoffs or Curtailments made during
the related Prepayment Period, and (ii) two-thirds of the related monthly
Master Servicing Fee. The amount so deposited will hereinafter be referred to
as "COMPENSATING INTEREST." With respect to a Payment Date and a Loan Group, a
"PREPAYMENT INTEREST SHORTFALL" for such Loan Group is an amount equal to
interest shortfalls resulting from Payoffs and Curtailments on the Mortgage
Loans in such Loan Group, to the extent not covered by Compensating Interest
allocated to such Loan Group, plus shortfalls in interest resulting from the
application of the Relief Act (as defined in the Prospectus). Prepayment
Interest Shortfalls for a Loan Group will be allocated pro rata among the
Senior Bonds and Subordinate Components of the related Bond Group, pro rata,
and will reduce the interest entitlement to which each such Class and
Components would otherwise be entitled to receive on such Payment Date. See
"Certain Legal Aspects of Mortgage Loans -- Soldiers' and Sailors' Civil Relief
Act" in the Prospectus.
LIBOR
The LIBOR Bonds will bear interest at their respective Bond Interest
Rates, which are based on the London Interbank Offered Rate for one-month U.S.
dollar deposits ("LIBOR") determined by the Bond Administrator on the basis of
quotations provided by certain reference banks meeting the criteria set forth
below (the "REFERENCE BANKS"). The Bond Administrator will determine LIBOR and
the Bond Interest Rates for the LIBOR Bonds for a given accrual period, other
than the initial accrual period, on the second business day prior to the day on
which such accrual period commences (a "LIBOR DETERMINATION DATE"). For this
purpose a "BUSINESS DAY" is any day on which banks in London and New York City
are open for the transaction of international business. The Bond Interest
Rates for the LIBOR Bonds, and the outstanding Class Principal Balances or
Class Notional Amounts, as applicable, for each Class of LIBOR Bonds (expressed
as percentages of the initial Class Principal Balances and as percentages of
the initial Class Notional Amounts, respectively) applicable to the then
current and the immediately preceding accrual period will appear on Telerate
(as defined below). The specific Telerate page number upon which such
information appears may be obtained from the Bond Administrator.
With respect to any Interest Accrual Period commencing on or after
November 25, 1997, the determination of LIBOR will be made in accordance with
the following provisions:
(i) On each LIBOR Determination Date, the Bond
Administrator will determine LIBOR on the basis of
LIBOR quotations provided by each of the Reference
Banks as of approximately 11:00 a.m. (London time) on
the LIBOR Determination Date in question, as such
quotations appear on the Telerate Page 3750 (each as
defined in the International Swap Dealers Association
Inc. Code of 1987 Interest Rate and Currency Exchange
Definitions).
(ii) If, on any LIBOR Determination Date, at least two of
the Reference Banks provide quotations, LIBOR will be
determined as the arithmetic mean (rounded upward, if
necessary, to the nearest multiple of 1/16 of 1%) of
such offered quotations.
S-60
<PAGE> 61
(iii) If, on any LIBOR Determination Date, only one or none
of the Reference Banks provides quotations, LIBOR
will be the higher of: (a) LIBOR as determined on the
previous LIBOR Determination Date (or, in the case of
the first LIBOR Determination Date, 5.6560%); or (b)
the Reserve Rate. The Reserve Rate will be the rate
per annum (rounded upward, if necessary, to the
nearest multiple of 1/16 of 1%) that the Bond
Administrator determines to be either (1) the
arithmetic mean of the offered quotations that the
leading banks in New York City selected by the Bond
Administrator are quoting on the relevant LIBOR
Determination Date for one-month United States dollar
deposits to the principal London office of each of
the Reference Banks or those of them (being at least
two in number) to which such offered quotations are,
in the opinion of the Bond Administrator, being so
made, or (2) in the event that the Bond Administrator
can determine no such arithmetic mean, the arithmetic
mean of the offered quotations that leading banks in
New York City selected by the Bond Administrator are
quoting on such LIBOR Determination Date to leading
European banks for one-month United States dollar
deposits; provided, however, that if the banks
selected by the Bond Administrator are not quoting as
mentioned above, LIBOR for the next accrual period
will be LIBOR as specified in (a) above. Each
Reference Bank (i) shall be a leading bank engaged in
transactions in Eurodollar deposits in the
international Eurocurrency market, (ii) shall not
control, be controlled by, or be under common control
with, the Bond Administrator and (iii) shall have an
established place of business in London. If any such
Reference Bank should be unwilling or unable to act
as such or if the Bond Administrator should terminate
the designation of any such Reference Bank, the Bond
Administrator will promptly designate another leading
bank meeting the criteria specified above.
The establishment of LIBOR on each LIBOR Determination Date by the
Bond Administrator and the Bond Administrator's calculation of the Bond
Interest Rate for the LIBOR Bonds for the related Interest Accrual Period
shall, in the absence of manifest error, be final and binding.
Listed below are some historical values of LIBOR since January 1992.
Such values were not determined in accordance with the provisions set forth
above and are intended only to provide a historical summary of the movement in
yields on LIBOR; the monthly figures set forth below are the value of LIBOR as
derived from various sources.
<TABLE>
<CAPTION>
YEAR
-------------------------------------------------------------------------
MONTH 1997 1996 1995 1994 1993 1992
----- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
January . . . . . . . . . . . . 5.43750% 5.43750% 6.09375% 3.12500% 3.18750% 4.18750%
February . . . . . . . . . . . 5.43750 5.31250 6.12500 3.56250 3.18750 4.25000
March . . . . . . . . . . . . . 5.68750 5.43750 6.12500 3.68750 3.18750 4.25000
April . . . . . . . . . . . . . 5.68750 5.43750 6.06250 4.00000 3.12500 3.93750
May . . . . . . . . . . . . . . 5.68750 5.43750 6.06250 4.37500 3.25000 4.00000
June . . . . . . . . . . . . . 5.68750 5.49609 6.12500 4.56250 3.18750 3.93750
July . . . . . . . . . . . . . 5.62500 5.46484 5.87500 4.50000 3.18750 3.37500
August . . . . . . . . . . . . 5.65625 5.43750 5.87500 4.87500 3.18750 3.50000
September . . . . . . . . . . . 5.65625 5.43359 5.87500 5.06250 3.18750 3.12500
October . . . . . . . . . . . . 5.37500 5.83203 5.06250 3.18750 3.25000
November . . . . . . . . . . . 5.56250 5.97656 6.06250 3.56250 4.25000
December . . . . . . . . . . . 5.50000 5.68750 6.00000 3.25000 3.31250
</TABLE>
PRINCIPAL PAYMENTS
General. On each Payment Date, Bondholders will be entitled to
receive principal payments from the Available Funds for the related Bond Group
to the extent and priority described herein. See "-- Priority of Payments"
herein. Except in the case of Sub-Component IA-1-4II of Component IA-1-4 of
the Class IA-1 Bonds, which receive principal collected from Group II Loans,
the Group I Bonds (other than the Class IX and Class IA-10 Bonds, and Component
IA-1-3 of the Class IA-1 Bonds, which are not entitled to receive principal
payments), the Residual Bonds and the Group I Subordinate Components will
receive principal collected from Group I Loans and the Group II Bonds (other
than the Class IIX and Class IIA-5 Bonds, which are not entitled to receive
principal payments) and the Group II Subordinate Components will receive
principal collected from Group II Loans.
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GROUP I BOND PRINCIPAL PAYMENTS
Sub-Component IA-1-4I Principal Payments. On each Payment Date,
Sub-Component IA-1-4I of the Class IA-1 Bonds will receive a portion of the
Available Funds for Group I attributable to principal received on or in respect
of any Group I Loan with a Net Mortgage Rate of less than 7.25% per annum (a
"GROUP I DISCOUNT LOAN"), in an amount equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 7.25% minus
the Net Mortgage Rate on such Group I Discount Loan and the denominator of
which is 7.25% (the "SUB-COMPONENT IA-1-4I FRACTION"). The aggregate amount to
be paid to Sub-Component IA-1-4I of the Class IA-1 Bonds on a Payment Date as
described in the preceding sentence is referred to herein as the "SUB-COMPONENT
IA-1-4I DISCOUNT MORTGAGE LOAN PRINCIPAL PAYMENT AMOUNT" for such Payment Date.
In addition, on each Payment Date for so long as the aggregate of the Component
Principal Balances of the Group I Subordinate Components has not been reduced
to zero, Sub-Component IA-1-4I will also receive principal, to the extent of
amounts available to pay the Group I Subordinate Principal Payment Amount
(without regard to clause (B) of such definition) on such Payment Date, in an
amount generally equal to the Sub-Component IA-1-4I Fraction of any loss on a
Group I Discount Loan other than Excess Losses, and such payments in respect of
losses shall not cause a further reduction of the outstanding Sub-Component
IA-1-4I Principal Balance.
Group I Senior Principal Payment Amount. On each Payment Date prior
to the Group I Credit Support Deletion Date and prior to the acceleration of
the Bonds, if any, an amount, up to the amount of the Group I Senior Principal
Payment Amount for such Payment Date, will be paid as principal to the
following Classes of Group IA Bonds in the following order of priority:
(i) first, concurrently to the Class IA-5, Class IA-6, Class IA-11 and
Class IA-12 Bonds, the respective Class IA Lockout Principal
Payment Amount for each such Class for such Payment Date, pro rata,
based on such respective amounts; provided, however, that all
amounts otherwise payable in respect of the Class IA Lockout
Principal Payment Amount to the Class IA-12 Bonds on any Payment
Date shall be paid first to the Class IA-11 Bonds, until the Class
Principal Balance thereof is reduced to zero, and then to the Class
IA-12 Bonds;
(ii) second, the portion of the Group I Senior Principal Payment Amount
remaining after payments as described above, concurrently, as
follows:
(A) 0.000033148% to the Residual Bonds, pro rata, the portion of
the Group I Senior Principal Payment Amount remaining after
payments as described above, until the Class Principal Balance
of each Class of the Residual Bonds has been reduced to zero;
(B) 2.027026429% to Component IA-1-1, until the Component IA-1-1
Principal Balance has been reduced to zero; and
(C) 97.972940423% sequentially as follows:
(1) first, concurrently as follows:
(a) 38.937770850% to the Class IA-8 Bonds, to the
extent necessary to reduce the Class IA- 8
Principal Balance to its Planned Principal
Balance for such Payment Date;
(b) 20.354078195% to Component IA-9-1, to the
extent necessary to reduce the Component IA-
9-1 Principal Balance to its Planned
Principal Balance for such Payment Date; and
(c) 40.708150955% sequentially, as follows:
(I) to the Class IA-13 Bonds, to the
extent necessary to reduce the Class IA-13 Principal
Balance to its Planned Principal Balance for such
Payment Date;
(II) to the Class IA-2 Bonds, to the
extent necessary to reduce the Class IA-2 Principal
Balance to its Planned Principal Balance for such
Payment Date;
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(III) to the Class IA-14 Bonds, to the
extent necessary to reduce the Class IA-14 Principal
Balance to its Planned Principal Balance for such
Payment Date; and
(2) second, to the extent necessary to reduce the
aggregate of the Class Principal Balances of the
Class IA-3, Class IA-7 and Class IA-15 Bonds and the
Component Principal Balances of Components IA-9-2 and
IA-9-3 of the Class IA-9 Bonds to the Combined
Targeted Principal Balance for such Payment Date,
sequentially as follows:
(a) concurrently as follows:
(i) 36.000000000% to Component IA-9-2,
to the extent necessary to reduce
the Component IA-9-2 Principal
Balance to its Planned Principal
Balance for such Payment Date; and
(ii) 64.000000000% as follows: (A)
concurrently, 51.186605982% to the
Class IA-3 Bonds to the extent
necessary to reduce the Class IA-3
Principal Balance to its Planned
Principal Balance for such Payment
Date and 48.813394018% to reduce the
Class IA-15 Principal Balance and
(B) the remainder to the Class IA-15
Bonds to the extent necessary to
reduce the Class IA-15 Principal
Balance to its Planned Principal
Balance for such Payment Date;
(b) concurrently, 79.999999822% to the Class IA-7
Bonds, until the Class IA-7 Principal Balance
has been reduced to zero, and 20.000000178%
to Component IA-9-3 until the Component
IA-9-3 Principal Balance has been reduced to
zero;
(c) concurrently,
(i) 36.000000000% to Component IA-9-2
until the Component IA-9-2 Principal Balance has been
reduced to zero; and
(ii) 64.000000000% as follows: (A)
concurrently, 51.186605982% to the Class IA-3 Bonds
until the Class IA-3 Principal Balance is reduced to
zero and 48.813394018% to reduce the Class IA-15
Principal Balance and (B) the remainder to the Class
IA-15 Bonds until the Class IA-15 Principal Balance
is reduced to zero;
(3) third, to Component IA-1-2, to the extent necessary
to reduce the Component IA-1-2 Principal Balance to
the Component IA-1-2 Targeted Principal Balance for
such Payment Date;
(4) fourth, to the Class IA-4 Bonds, until the Class IA-4
Principal Balance has been reduced to zero;
(5) fifth, concurrently, as follows:
(a) 90.000000000%, as provided in paragraphs
(C)(2)(a)-(c) above (but without regard to
the Combined Targeted Principal Balance, or
the Planned Principal Balance of any such
Class or Component and until the applicable
Class Principal Balances or Component
Principal Balances are reduced to zero); and
(b) 10.000000000% to Component IA-1-2 to reduce
the Component IA-1-2 Principal Balance to
zero without regard to the Component IA-1-2
Targeted Principal Balance; and
(6) sixth, to Component IA-1-2, until the Component
IA-1-2 Principal Balance has been reduced to zero;
and
(7) seventh, concurrently as follows:
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<PAGE> 64
(a) 38.937770850% to the Class IA-8 Bonds, until
the Class IA-8 Principal Balance has been
reduced to zero;
(b) 20.354078195% to Component IA-9-1, until the
Component IA-9-1 Principal Balance has been
reduced to zero; and
(c) 40.708150955% sequentially, as follows:
(I) to the Class IA-13 Bonds, until the
Class IA-13 Principal Balance has been reduced to
zero;
(II) to the Class IA-2 Bonds, until the
Class IA-2 Principal Balance has been reduced to
zero;
(III) to the Class IA-14 Bonds, until the
Class IA-14 Principal Balance has been reduced to
zero; and
(iii) third, to the Class IA-5, Class IA-6, Class IA-11 and Class IA-12
Bonds, the portion of the Group I Senior Principal Payment Amount
remaining, after payments as described above, pro rata (based on
Class Principal Balance), until the Class Principal Balances
thereof have been reduced to zero; provided, however, that the
portion thereof otherwise allocable to the Class IA-12 Bonds on any
Payment Date shall first be paid to the Class IA-11 Bonds until the
Class Principal Balance thereof is reduced to zero and then to the
Class IA-12 Bonds.
The "GROUP I SENIOR PRINCIPAL PAYMENT AMOUNT" for any Payment Date
will equal the sum of (i) the Group I Senior Percentage (as defined below) of
the Principal Payment Amount (as defined below) for Group I (exclusive of the
portion thereof attributable to the Sub-Component IA-1-4I Discount Mortgage
Loan Principal Payment Amount for such Payment Date), (ii) the Group I Senior
Prepayment Percentage (as defined below) of the Principal Prepayment Amount (as
defined below) for Group I (exclusive of the portion thereof attributable to
the Sub-Component IA-1-4I Discount Mortgage Loan Principal Payment Amount for
such Payment Date), and (iii) the Group I Senior Liquidation Amount (as defined
below).
The "GROUP I SENIOR LIQUIDATION AMOUNT" with respect to a Payment Date
is the aggregate of, for each Group I Loan which became a Liquidated Loan
during the calendar month preceding the month of such Payment Date, the lesser
of (i) the Group I Senior Percentage of the principal balance of such Mortgage
Loan (exclusive of the Sub-Component IA-1-4I Fraction thereof, with respect to
any Group I Discount Loan) and (ii) the Group I Senior Prepayment Percentage of
the Group I Liquidation Principal for such Payment Date with respect to such
Mortgage Loan.
As used herein, a "LIQUIDATED LOAN" is a Mortgage Loan as to which the
applicable Seller/Servicer or the related Master Servicer has determined in
accordance with its customary servicing practices that all amounts which it
expects to recover from or on account of such Mortgage Loan, whether from
Insurance Proceeds, Liquidation Proceeds or otherwise have been recovered.
"GROUP I LIQUIDATION PRINCIPAL" with respect to a Payment Date is the
principal portion of Liquidation Proceeds received with respect to a Group I
Loan which became a Liquidated Loan (but not in excess of the principal balance
thereof) during the during the calendar month preceding the month of such
Payment Date, exclusive of the portion thereof attributable to the
Sub-Component IA-1-4I Discount Mortgage Loan Principal Payment Amount for such
Payment Date.
The "GROUP I SENIOR PERCENTAGE" for any Payment Date will equal the
lesser of (i) 100% and (ii) the sum of the Class Principal Balances of the
Group IA Bonds and the Residual Bonds (less the Component IA-1-4 Principal
Balance), divided by the aggregate of the Class Principal Balances of the Group
I Bonds and Component Principal Balances of the Group I Subordinate Components
(less the Component IA-1-4 Principal Balance), in each case immediately prior
to such Payment Date. The "GROUP I SUBORDINATE PERCENTAGE" for any Payment
Date will equal the excess of 100% over the Group I Senior Percentage for such
Payment Date. The Group I Senior Percentage and the Group I Subordinate
Percentage as of the Cut-Off Date will be approximately 94.49% and 5.51%
respectively.
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The "CLASS IA LOCKOUT PRINCIPAL PAYMENT AMOUNT" for any Payment Date
and the Class IA-5, Class IA-6, Class IA- 11 or Class IA-12 Bonds
(collectively, the "CLASS IA LOCKOUT BONDS") will equal the sum of (i) the
Class IA Lockout Percentage (as defined below) for such Class of the applicable
Principal Payment Amount for Group I (exclusive of the portion thereof
attributable to the applicable Sub-Component IA-1-4I Discount Mortgage Loan
Principal Payment Amount), (ii) the Class IA Lockout Prepayment Percentage (as
defined herein) for such Class of the applicable Principal Prepayment Amount
for Group I (exclusive of the portion thereof attributable to the applicable
Sub-Component IA-1-4I Discount Mortgage Loan Principal Payment Amount) and
(iii) the Class IA Lockout Liquidation Amount (as defined below) for such
Class.
The "CLASS IA LOCKOUT PERCENTAGE" for any Payment Date will equal (i)
in the case of either the Class IA-5 Bonds or the Class IA-6 Bonds, the Class
Principal Balance of such Class of Bonds, divided by the aggregate of the Class
Principal Balance of the Group I Bonds and the Residual Bonds and the Component
Principal Balances of the Group I Subordinate Components (less the Component
IA-1-4 Principal Balance) in each case immediately prior to such Payment Date,
(ii) in the case of either the Class IA-11 or Class IA-12 Bonds (a) with
respect to any Payment Date occurring prior to the Payment Date in November
2002, 0% and (b) with respect to any Payment Date occurring in November 2002
and thereafter, the Class Principal Balance of such Class of Bonds divided by
the aggregate Class Principal Balance of the Group I Bonds and the Residual
Bonds and the Component Principal Balances of the Group I Subordinate
Components (less the Component IA-1-4 Principal Balance) in each case
immediately prior to such Payment Date. The "CLASS IA LOCKOUT LIQUIDATION
AMOUNT" with respect to a Class of the Class IA Lockout Bonds and a Payment
Date is the aggregate of, for each Group I Loan which became a Liquidated Loan
during the calendar month preceding the month of such Payment Date, the lesser
of (i) the Class IA Lockout Percentage for such Class of the principal balance
of such Mortgage Loan (exclusive of the Sub-Component IA-1-4I Fraction thereof,
if applicable) and (ii) the Class IA Lockout Percentage (as defined herein) for
such Class on any Payment Date occurring prior to November 2002, and the Class
IA Lockout Prepayment Percentage (as defined herein) on any Payment Date
thereafter, in each case of the Group I Liquidation Principal with respect to
such Mortgage Loan.
Group I Subordinate Principal Payment Amount. On each Payment Date,
an amount, up to the Group I Subordinate Principal Payment Amount (as defined
below) for such Payment Date, will be paid as principal to the Group I
Subordinate Components. On each Payment Date, except Payment Dates on which
the Subordination Level for any Group I Subordinate Component is less than such
Subordination Level as of the Cut-Off Date, each Group I Subordinate Component
will be entitled to receive its pro rata (by Component Principal Balance) share
of the Group I Subordinate Principal Payment Amount, to the extent of the
Available Funds for Group I remaining after payments of interest and principal
to the Group IA, Class IX and Residual Bonds, payments of interest and
principal to all Group I Subordinate Components senior to such Component and
payments of interest to such Component. See "-- Priority of Payments" herein.
The relative seniority, from highest to lowest, of the Group I Subordinate
Components shall be as follows: Component IB-1, IB-2, IB-3, IB-4, IB-5 and
IB-6.
The "GROUP I SUBORDINATE PRINCIPAL PAYMENT AMOUNT" for any Payment
Date will be equal to the sum of (I) the excess of (A) the sum of (i) the Group
I Subordinate Percentage of the Principal Payment Amount for Group I (exclusive
of the portion thereof attributable to the Sub-Component IA-1-4I Principal
Payment Amount), (ii) the Group I Subordinate Prepayment Percentage of the
Principal Prepayment Amount for Group I (exclusive of the portion thereof
attributable to the Sub-Component IA-1-4I Principal Payment Amount) and (iii)
the Group I Subordinate Liquidation Amount over (B) the amounts required to be
paid to Sub-Component IA-1-4I pursuant to clause (iv) of paragraph (a) under
"-- Priority of Payments" herein on such Payment Date.
The "GROUP I SUBORDINATE LIQUIDATION AMOUNT" for any Payment Date will
equal the excess, if any, of the aggregate Group I Liquidation Principal for
all Group I Loans which became Liquidated Loans during the calendar month
preceding the month of such Payment Date, over the Group I Senior Liquidation
Amount for such Payment Date.
The "GROUP I SUBORDINATE PREPAYMENT PERCENTAGE" for any Payment Date
will equal the excess of 100% over the Group I Senior Prepayment Percentage;
provided, however, that if the Class Principal Balances of the Group IA Bonds
(other than the Component IA-1-4 Principal Balance) and Residual Bonds have
been reduced to zero, then the Group I Subordinate Prepayment Percentage will
equal 100%.
The rights of the Group I Subordinate Components to receive payments
of interest and principal are subordinated to the rights of the holders of the
Group IA, Class IX and Residual Bonds to receive scheduled payments of interest
and principal. See "-- Subordination and Allocation of Losses" herein.
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GROUP II BOND PRINCIPAL PAYMENTS
Sub-Component IA-1-4II Principal Payments. On each Payment Date,
Sub-Component IA-1-4II of the Class IA-1 Bonds will receive a portion of the
Available Funds for Group II attributable to principal received on or in
respect of any Group II Loan with a Net Mortgage Rate of less than 7.25% per
annum (a "GROUP II DISCOUNT LOAN") in an amount equal to the amount of such
principal so attributable multiplied by a fraction, the numerator of which is
7.25% minus the Net Mortgage Rate on such Group II Discount Loan and the
denominator of which is 7.25% (the "SUB-COMPONENT IA-1-4II FRACTION"). The
aggregate amount to be paid to Sub-Component IA-1-4II of the Class IA-1 Bonds
on a Payment Date as described in the preceding sentence is referred to herein
as (the "SUB-COMPONENT IA-1-4II DISCOUNT MORTGAGE LOAN PRINCIPAL PAYMENT
AMOUNT" for such Payment Date. In addition, on each Payment Date for so long
as the aggregate of the Component Principal Balances of the Group II
Subordinate Components has not been reduced to zero, Sub-Component IA-1-4II of
the Class IA-1 Bonds will also receive principal, to the extent of amounts
available to pay the Group II Subordinate Principal Payment Amount (without
regard to clause (B) of such definition) on such Payment Date, in an amount
generally equal to the Sub-Component IA-1-4II Fraction of any loss on a Group
II Discount Loan other than Excess Losses, and such payments in respect of
losses shall not cause a further reduction of the outstanding Sub-Component
IA-1-4II Principal Balance.
Group II Senior Principal Payment Amount. On each Payment Date prior
to the Group II Credit Support Depletion Date and prior to the acceleration of
the Bonds, if any, an amount, up to the amount of the Group II Senior Principal
Payment Amount for such Payment Date, will be paid as principal to the
following Group IIA Bonds in the following order of priority:
(i) first, to the Class IIA-6 Bonds, an amount, up to the Class
IIA-6 Lockout Principal Payment Amount, (as defined herein),
if any, until the Class Principal Balance thereof has been
reduced to zero;
(ii) second, concurrently, until the Class Principal Balance of the
Class IIA-1 Bonds is reduced to zero, 87.500000672% to the
Class IIA-1 Bonds and 12.499999328% to the Class IIA-4 Bonds;
(iii) third, concurrently, until the Class Principal Balance of the
Class IIA-2 Bonds has been reduced to zero, 87.500000000% to
the Class IIA-2 Bonds and 12.500000000% to the Class IIA-4
Bonds;
(iv) fourth, to the Class IIA-3 Bonds, until the Class Principal
Balance of the Class IIA-3 Bonds has been reduced to zero; and
(v) fifth, to the Class IIA-6 Bonds, until the Class Principal
Balance of the Class IIA-6 Bonds has been reduced to zero.
The "GROUP II SENIOR PRINCIPAL PAYMENT AMOUNT" for any Payment Date
will equal the sum of (i) the Group II Senior Percentage (as defined below) of
the Principal Payment Amount for Group II (exclusive of the portion thereof
attributable to the Sub-Component IA-1-4II Discount Mortgage Loan Principal
Payment Amount for such Payment Date), (ii) the Group II Senior Prepayment
Percentage (as defined below) of the Principal Prepayment Amount for Group II
(exclusive of the portion thereof attributable to the Sub-Component IA-1-4II
Discount Mortgage Loan Principal Payment Amount for such Payment Date), and
(iii) the Group II Senior Liquidation Amount (as defined below).
The "GROUP II SENIOR LIQUIDATION AMOUNT" with respect to a Payment
Date is the aggregate of, for each Group II Loan which became a Liquidated Loan
during the calendar month preceding the month of such Payment Date, the lesser
of (i) the Group II Senior Percentage of the principal balance of such Mortgage
Loan (exclusive of the Sub-Component IA-1- 4II Fraction thereof, with respect
to any Group II Discount Loan) and (ii) the Group II Senior 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
Loan which became a Liquidated Loan (but not in excess of the principal balance
thereof) during the calendar month preceding the month of such Payment Date,
exclusive of the portion thereof attributable to the Sub-Component IA-1-4II
Discount Mortgage Loan Principal Payment Amount for such Payment Date.
The "GROUP II SENIOR PERCENTAGE" for any Payment Date will equal the
lesser of (i) 100% and (ii) the sum of the Class
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Principal Balances of the Group IIA Bonds immediately prior to such Payment
Date, divided by the aggregate of the Class Principal Balances of the Group II
Bonds and the Component Principal Balances of the Group II Subordinate
Components, in each case, immediately prior to such Payment Date. The "GROUP
II SUBORDINATE PERCENTAGE" for any Payment Date will equal the excess of 100%
over the Group II Senior Percentage for such Payment Date. The Group II Senior
Percentage and the Group II Subordinate Percentage as of the Cut-Off Date will
be 95.47% and 4.53% respectively. The Group I Subordinate Percentage and the
Group II Subordinate Percentage are each sometimes referred to herein as the
"SUBORDINATE PERCENTAGE".
The "CLASS IIA-6 LOCKOUT PRINCIPAL PAYMENT AMOUNT" for any Payment
Date will equal the sum of (i) the Class IIA- Lockout Percentage (as defined
below) of the applicable Principal Payment Amount for Group II (exclusive of
the portion thereof attributable to the applicable Sub-Component IA-1-4II
Discount Mortgage Loan Principal Payment Amount), (ii) the Class IIA-6 Lockout
Prepayment Percentage (as defined herein) of the applicable Principal
Prepayment Amount for Group II (exclusive of the portion thereof attributable
to the applicable Sub-Component IA-1-4II Discount Mortgage Loan Principal
Payment Amount) and (iii) the Class IIA-6 Lockout Liquidation Amount (as
defined below).
The "CLASS IIA-6 LOCKOUT PERCENTAGE" for any Payment Date will equal
the Class IIA-6 Principal Balance immediately prior to such payment Date
divided by the aggregate of the Class Principal Balances of the Group II Bonds
and the Component Principal Balances of the Group IIB Components, in each case
prior to such Payment Date. The "CLASS IIA-6 LOCKOUT LIQUIDATION AMOUNT" with
respect to a Payment Date is the aggregate of, for each Group II Loan which
became a Liquidated Loan during the calendar month preceding the month of such
Payment Date, the lesser of (i) the Class IIA-6 Lockout Percentage of the
principal balance of such Mortgage Loan (exclusive of the Sub-Component
IA-1-4II Fraction thereof, if applicable) and (ii) the Class IIA-6 Lockout
Percentage on any Payment Date occurring prior to November 2002, and the Class
IIA-6 Lockout Prepayment Percentage (as defined herein) on any Payment Date
thereafter, in each case of the Group II Liquidation Principal with respect to
such Mortgage Loan.
Group II Subordinate Payment Amount. On each Payment Date, an amount,
up to the Group II Subordinate Principal Payment Amount (as defined below) for
such Payment Date, will be paid as principal to the Group II Subordinate
Components. On each Payment Date, except Payment Dates on which the
Subordination Level for any Group II Subordinate Component is less than such
Subordination Level as of the Cut-Off Date, each Group II Subordinate Component
will be entitled to receive its pro rata (by Component Principal Balance) share
of the Group II Subordinate Principal Payment Amount, to the extent of the
Available Funds for Group II remaining after payments of principal to Component
IA-1-4II, payments of interest and principal to the Group IIA Bonds, payments
of interest to the Class IIX Bonds, payments of principal and interest to all
Group II Subordinate Components senior to such Component and payments of
interest to such Component. See "-- Priority of Payments" herein. The relative
seniority, from highest to lowest, of the Group II Subordinate Components shall
be as follows: Component IIB-1, IIB-2, IIB-3, IIB-4, IIB-5 and IIB-6.
The "GROUP II SUBORDINATE PRINCIPAL PAYMENT AMOUNT" for any Payment
Date will be equal to the excess of (A) the sum of (i) the Group II Subordinate
Percentage of the Principal Payment Amount for Group II (exclusive of the
portion thereof attributable to the Sub-Component IA-1-4II Principal Payment
Amount), (ii) the Group II Subordinate Prepayment Percentage of the Principal
Prepayment Amount for Group II (exclusive of the portion thereof attributable
to the Sub- Component IA-1-4II Principal Payment Amount) and (iii) the Group II
Subordinate Liquidation Amount over (B) the amounts required to be paid to
Sub-Component IA-1-4II of Component IA-1-4 of the Class IA-1 Bonds pursuant to
clause (iv) of paragraph (b) under "-- Priority of Payments" herein on such
Payment Date.
The "GROUP II SUBORDINATE LIQUIDATION AMOUNT" for any Payment Date
will equal the excess, if any, of the aggregate Liquidation Principal for all
Group II Loans which became Liquidated Loans during the calendar month
preceding the month of such Payment Date, over the Group II Senior Liquidation
Amount for such Payment Date.
The "GROUP II SUBORDINATE PREPAYMENT PERCENTAGE" for any Payment Date
will equal the excess of 100% over the Group IIA Prepayment Percentage;
provided, however, that if the Class Principal Balances of the Group IIA Bonds
have been reduced to zero, then the Group II Subordinate Prepayment Percentage
will equal 100%.
The rights of the Group II Subordinate Components to receive payments
of interest and principal are subordinated to the rights of the holders of the
Group IIA Bonds and Class IIX Bonds to receive scheduled payments of interest
and principal. See "-- Subordination and Allocation of Losses" herein.
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PRINCIPAL PAYMENT AMOUNT AND PRINCIPAL PREPAYMENT AMOUNT
The "PRINCIPAL PAYMENT AMOUNT" with respect to a Payment Date and a
Loan Group is the sum, with respect to the Mortgage Loans in such Loan Group,
of (i) scheduled principal payments on the Mortgage Loans due on the related
Due Date, (ii) the principal portion of repurchase proceeds received with
respect to any Mortgage Loan 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 (iii) any other unscheduled payments of principal
which were received during the preceding calendar month, other than Payoffs,
Curtailments or Liquidation Principal. For any Payment Date and a Loan Group,
the "PRINCIPAL PREPAYMENT AMOUNT" is the sum, with respect to the Mortgage
Loans in such Loan Group, of (i) all Curtailments which were received during
the calendar month preceding the month of such Payment Date and (ii) all
Payoffs received during the related Prepayment Period. Except as described
herein, principal payments to the Group IA Bonds (except for Sub- Component
IA-1-4II of Component IA-1-4 of the Class IA-1 Bonds) will be based on the
Principal Payment Amount, Principal Prepayment Amount and Group I Liquidation
Principal for the Group I Loans and principal payments to the Group IIA Bonds
and Sub-Component IA-1-4II of Component IA-1-4 of the Class IA-1 Bonds will be
based on the Principal Payment Amount, Principal Prepayment Amount and Group II
Liquidation Principal for the Group II Loans. Principal payments to the
Subordinate Bonds will be based on the Principal Payment Amount, Principal
Prepayment Amount and Liquidation Principal for both Loan Groups.
PRINCIPAL PREPAYMENTS
The "GROUP I SENIOR PREPAYMENT PERCENTAGE" and "GROUP II SENIOR
PREPAYMENT PERCENTAGE" for any Payment Date occurring will be as follows: for
any Payment Date occurring prior to November 2002, 100%; for any Payment Date
in November 2002 through and including October 2003, the Group I Senior or
Group II Senior Percentage, as the case may be, for such Payment Date plus 70%
of the Subordinate Percentage (as defined herein) for the related Loan Group
for such Payment Date; for any Payment Date occurring in November 2003 through
and including October 2004, the Group I Senior or Group II Senior Percentage,
as the case may be, for such Payment Date plus 60% of the Subordinate
Percentage for the related Loan Group for such Payment Date; for any Payment
Date occurring in November 2004 through and including October 2005, the Group I
Senior or Group II Senior Percentage, as the case may be, for such Payment Date
plus 40% of the Subordinate Percentage for the related Loan Group for such
Payment Date; for any Payment Date occurring in November 2005 through and
including October 2006, the Group I Senior or Group II Senior Percentage, as
the case may be, for such Payment Date plus 20% of the Subordinate Percentage
for the related Loan Group for such Payment Date; and for any Payment Date
occurring in or after November 2006, the Group I Senior or Group II Senior
Prepayment Percentage will be the Group I Senior or Group II Senior Percentage,
as the case may be, for such Payment Date. Any scheduled reduction to the
Group I Senior and Group II Senior Prepayment Percentage described above shall
not be made as of any Payment Date unless for the related Loan Group both
(i)(X) the average outstanding principal balance of the Mortgage Loans in the
related 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 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 Loan Group over the last six
months, does not exceed 2% and (ii) Realized Losses on the Mortgage Loans in
the related 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 Loan Group shall equal the then
outstanding aggregate Scheduled Principal Balance of the Mortgage Loans in such
Loan Group minus the aggregate of the then outstanding Class Principal Balances
of the Group IA Bonds (not including the Sub-Component IA-1-4II Principal
Balance), with respect to Group I, or minus the aggregate of the then
outstanding Class Principal Balances of the Group II Bonds and the Sub-
Component IA-1-4II Principal Balance of Component IA-1-4 with respect to Group
II. Upon reduction of the Class Principal Balances of the Group IA Bonds
(other than the Component IA-1-4 Principal Balance) or the Class Principal
Balances of the Group IIA Bonds, as applicable, to zero, the Group I Senior
Prepayment Percentage or the Group II Senior Prepayment Percentage, as
appropriate, will equal 0%. Notwithstanding the above, if on any Payment Date,
the delinquencies or Realized Losses with respect to the related Loan Group
exceed the limits described above such that no reduction may be made as
described above of the Group I or Group II Senior Prepayment Percentage, as
applicable, or if the Group I Senior Percentage or Group II Senior Percentage
exceeds the initial Group I Senior or Group II Senior Percentage, respectively,
then the Group I Senior or Group II Senior Prepayment Percentage, as
applicable, for such Payment Date will equal 100%.
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The "CLASS IA LOCKOUT PREPAYMENT PERCENTAGE" with respect to a Class
of Class IA Lockout Bonds will equal the product of (a) the Class IA Lockout
Percentage with respect to such Class and (b) the applicable Step Down
Percentage for such Payment Date (as defined below).
The "CLASS IIA-6 LOCKOUT PREPAYMENT PERCENTAGE" will equal the product
of (a) the Class IIA-6 Lockout Percentage and (b) the applicable Step Down
Percentage for such Payment Date.
The "STEP DOWN PERCENTAGE" for any Payment Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
PAYMENT DATE OCCURRING IN STEP DOWN PERCENTAGE
------------------------- --------------------
<S> <C>
November 1997 through October 2002 0%
November 2002 through October 2003 30%
November 2003 through October 2004 40%
November 2004 through October 2005 60%
November 2005 through October 2006 80%
November 2006 and thereafter 100%
</TABLE>
SUBORDINATION AND ALLOCATION OF LOSSES
The Subordinate Components of each Bond Group will be subordinate in
right of payment to and provide credit support to the Senior Bonds of such Bond
Group, the Junior Subordinate Components of each Bond Group will be subordinate
in right of payment to and provide credit support to the Senior Subordinate
Components of such Bond Group and each Senior Subordinate Component of each
Bond Group will be subordinate in right of payment to and provide credit
support to each Class of Senior Subordinate Components of such Bond Group with
a lower numerical Class designation. The support provided by the Subordinate
Components of each Bond Group is intended to enhance the likelihood of regular
receipt by the Senior Bonds of such Bond Group of the full amount of the
monthly payments of interest (except Components IA-1-1 and IA-1-4 of the Class
IA-1 Bonds which are not entitled to interest) and principal (except the
Notional Amount Bonds and Component IA-1-3 of the Class IA-1 Bonds, which are
not entitled to principal) to which they are entitled and to afford such Bonds
protection against certain losses. The protection afforded to the Senior Bonds
of each Bond Group by the Subordinate Components of such Bond Group will be
accomplished by the preferential right on each Payment Date of such Senior
Bonds to receive payments of interest (except Components IA-1-1 and IA-1-4 of
the Class IA-1 Bonds) and principal (except the Notional Amount Bonds and
Component IA-1-3 of the Class IA-1 Bonds) prior to payments of interest or
principal to such Subordinate Components. The support provided by the Junior
Subordinate Components of each Bond Group to the Senior Subordinate Components
of such Bond Group is intended to enhance the likelihood of regular receipt by
holders of the Bonds comprising such Senior Subordinate Components of the full
amount of monthly payments of interest and principal to which they are entitled
and to afford the related Bondholders protection against certain losses. The
protection afforded to the Senior Subordinate Components of each Bond Group by
the Junior Subordinate Components of such Bond Group will be accomplished by
the preferential right on each Payment Date of such Senior Subordinate
Components to receive payments of interest and principal, prior to payments of
interest and principal to such Junior Subordinate Components.
Except for all Excess Losses, any Realized Loss with respect to a
Group I Loan will be allocated among the Group I Subordinate Components, Group
I Bonds and the Residual Bonds (i) for Realized Losses allocable to principal
(a) first, to the Group I Junior Subordinate Components, until the aggregate of
the Component Principal Balances thereof has been reduced to zero, (b) second,
to Component IB-3, until the Component IB-3 Principal Balance has been reduced
to zero, (c) third, to Component IB-2, until the Component IB-2 Principal
Balance has been reduced to zero, (d) fourth, to the Component IB-1, until the
Component IB-1 Principal Balance has been reduced to zero and (e) fifth, to the
Group IA and Residual Bonds, pro rata, according to their Class Principal
Balances (or Component Principal Balances in the case of Component IA-1-1 and
IA-1-2 of the Class IA-1 Bonds and all Components of the Class IA-9 Bonds) in
reduction of their respective Class Principal or Component Balances, as
applicable, provided, however, that if the Realized Loss is recognized with
respect to a Group I Discount Loan, the Sub-Component IA-1-4I Fraction of such
loss will first be allocated to Sub-Component IA-1-4I and the remainder of such
loss will be allocated as described above in this clause (i) and provided
further, however, that any such losses otherwise allocable to the Class IA-1
Bonds (other than Component IA-1-4 of the Class IA-1 Bonds) or to the Class
IA-8 Bonds will first be allocated to the Senior Support Bonds until the Class
Principal Balance thereof has been reduced to zero; and (ii) for Realized
Losses allocable to interest (a) first, to the Group I Junior Subordinate
Components, in reduction of accrued but
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unpaid interest thereon and then in reduction of the Component Principal
Balances of the Classes of Group I Junior Subordinate Components, (b) second,
to Component IB-3, in reduction of accrued but unpaid interest thereon and then
in reduction of the Component IB-3 Principal Balance, (c) third, to the
Component IB-2, in reduction of accrued but unpaid interest thereon and then in
reduction of the Component IB-2 Principal Balance, (d) fourth, to the Component
IB-1, in reduction of accrued but unpaid interest thereon and then in reduction
of the Component IB-1 Principal Balance and (e) fifth, to the Group IA Bonds
(other than Components IA-1-1 and IA-1-4 of the Class IA-1 Bonds), Class IX and
Residual Bonds, pro rata, according to accrued but unpaid interest thereon and
then pro rata according to their Class Principal Balances (or Component
Principal Balances in the case of Component IA-1-2 of the Class IA-1 Bonds and
all Components of the Class IA-9 Bonds) in reduction of their respective Class
Principal or Component Balances, as applicable; provided, however, that any
such Realized Losses otherwise allocable to the Class IA-1 Bonds (other than
Components IA-1-1 and IA- 1-4 of the Class IA-1 Bonds) or to the Class IA-8
Bonds will first be allocated to the Senior Support Bonds in reduction of
accrued but unpaid interest thereon and then in reduction of the Class
Principal Balance of the Senior Support Bonds.
Except for all Excess Losses, any Realized Loss with respect to a
Group II Loan will be allocated among the Group II Subordinate Components and
the Group II Bonds (i) for Realized Losses allocable to principal (a) first, to
the Group II Junior Subordinate Components, until the aggregate of the
Component Principal Balances thereof has been reduced to zero, (b) second, to
Component IIB-3, until the Component IIB-3 Principal Balance has been reduced
to zero, (c) third, to Component IIB-2, until the Component IIB-2 Principal
Balance has been reduced to zero, (d) fourth, to the Component IIB-1, until the
Component IIB-1 Principal Balance has been reduced to zero and (e) fifth, to
the Group IIA Bonds, pro rata, according to their Class Principal Balances in
reduction of their respective Class Principal Balances, as applicable,
provided, however, that if the Realized Loss is recognized with respect to a
Group II Discount Loan, the Sub-Component IA-1-4II Fraction of such loss will
first be allocated to Sub-Component IA-1-4II 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 the Group II Junior Subordinate Components,
in reduction of accrued but unpaid interest thereon and then in reduction of
the Component Principal Balances of the Classes of Group II Junior Subordinate
Components, (b) second, to Component IIB- 3, in reduction of accrued but unpaid
interest thereon and then in reduction of the Component IIB-3 Principal
Balance, (c) third, to the Component IIB-2, in reduction of accrued but unpaid
interest thereon and then in reduction of the Component IIB-2 Principal
Balance, (d) fourth, to the Component IIB-1, in reduction of accrued but unpaid
interest thereon and then in reduction of the Component IIB-1 Principal Balance
and (e) fifth, to the Group IIA and Class IIX Bonds, pro rata according to
accrued but unpaid interest thereon and then pro rata according to their Class
Principal Balances in reduction of their respective Class Principal Balances,
as applicable.
As used herein, "PRO RATA ALLOCATION" means the allocation of the
principal portion of Realized Losses relating to a Mortgage Loan in a given
Loan Group to all Classes of Bonds and all Subordinate Components in the
related Bond Group (other than Sub-Component IA-1-4I in the case of a Group I
Loan and Sub-Component IA-1-4II in the case of a Group II Loan) pro rata
according to their respective Class Principal or Component Balances (except if
the loss is recognized with respect to a Group I Discount Loan or Group II
Discount Loan, in which event the Sub-Component IA-1-4I Fraction or
Sub-Component IA-1-4II Fraction of such loss will first be allocated to
Sub-Component IA-1-4I or Sub-Component IA-1-4II, as applicable, and the
remainder of such loss will be allocated as described above), and the
allocation of the interest portion of such Realized Losses to the Bonds and the
Subordinate Components in the related Bond Group (other than Sub- Component
IA-1-4I in the case of a Group I Loan and Sub-Component IA-1-4II in the case of
a Group II Loan) pro rata according to the amount of interest accrued on each
such Class or Component in reduction thereof and then in reduction of their
related Class Principal or Component Balances; provided, however, that (i) the
principal portion of any Realized Losses otherwise allocable to the Class IA-1
Bonds (other than Component IA-1-4 of the Class IA-1 Bonds) or to the Class
IA-8 Bonds shall first be allocated to the Senior Support Bonds until the Class
Principal Balance thereof has been reduced to zero and (ii) the interest
portion of any such Realized Loss otherwise allocable to the Class IA-1 Bonds
(other than Components IA-1-1 and IA-1-4 of the Class IA-1 Bonds) or to the
Class IA-8 Bonds shall first be allocated to the Senior Support Bonds in
reduction of accrued but unpaid interest thereon and then in reduction of the
Class Principal Balance of the Senior Support Bonds. For the purpose of
allocating losses in Loan Group I to the outstanding Classes of Group I Bonds
by Pro Rata Allocation, the Residual Bonds are deemed to be Group I Bonds.
On each Payment Date, after giving effect to the principal payments
and allocations of losses described above, if the aggregate of the Principal
Balances of all outstanding Bonds and of the Component Principal Balances of
the Subordinate Components in a Bond Group exceeds the aggregate principal
balance of the Mortgage Loans in the related Loan Group (giving effect for each
such Mortgage Loan to all amounts of principal in respect of such Mortgage Loan
that have been received or advanced and included in the Available Funds for
such Loan Group, and all losses in respect of such Mortgage Loans that have
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been allocated to Bonds, on Payment Dates on or before such Payment Date), that
excess will be deemed a principal loss and will be allocated to the most junior
Subordinate Components in such Bond Group.
Special Hazard Losses incurred on a Mortgage Loan in excess of the
Special Hazard Coverage for the related Loan Group ("EXCESS SPECIAL HAZARD
LOSSES") will be allocated to the outstanding Classes of Bonds and Subordinate
Components in the related Bond Group by Pro Rata Allocation. "GROUP I SPECIAL
HAZARD COVERAGE" is expected to equal approximately $8,083,028 as of the
Cut-Off Date. "GROUP II SPECIAL HAZARD COVERAGE" is expected to equal
approximately $2,249,276 as of the Cut-Off Date. On each anniversary of the
Cut-Off Date, the Special Hazard Coverage for a Loan Group 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 in such Loan Group located in
the single California zip code area containing the largest aggregate principal
balance of such Mortgage Loans, (b) 1% of the aggregate unpaid principal
balance of the Mortgage Loans in such Loan Group and (c) twice the unpaid
principal balance of the largest single Mortgage Loan in such Loan Group, 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 Bonds and Subordinate Components of the
related Bond Group (including Sub-Component IA-1-4II, in the case of Loan Group
II) since the Cut-Off Date.
Fraud Losses incurred on a Mortgage Loan in excess of the Fraud
Coverage for the related Loan Group ("EXCESS FRAUD LOSSES") will be allocated
to the outstanding Classes of Bonds and Subordinate Components in the related
Bond Group by Pro Rata Allocation. "GROUP I FRAUD COVERAGE" is expected to
equal approximately $16,006,734 as of the Cut-Off Date. "GROUP II FRAUD
COVERAGE" is expected to equal approximately $2,753,255 as of the Cut-Off Date.
Fraud Coverage for a Loan Group will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Bonds and Subordinate Components of the
related Bond Group (including Sub-Component IA-1-4II, in the case of Loan Group
II). On each anniversary of the Cut-Off Date, Fraud Coverage for a Loan Group
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 in the related Loan Group as of the Due Date in the
preceding month and (ii) the excess of the Fraud Coverage for such Loan Group
as of the Cut-Off Date over cumulative Fraud Losses allocated to the Bonds and
Subordinate Components in such Bond Group (including Sub-Component IA-1-4II,
in the case of Loan Group II) to date. On the fifth anniversary of the Cut-Off
Date, Fraud Coverage for each Loan Group will be reduced to zero.
Bankruptcy Losses incurred on a Mortgage Loan in excess of the
Bankruptcy Coverage for the related Loan Group ("EXCESS BANKRUPTCY LOSSES" and,
together with Excess Special Hazard Losses and Excess Fraud Losses, "EXCESS
LOSSES") will be allocated to the outstanding Classes of Bonds and Subordinate
Components in the related Bond Group by Pro Rata Allocation. "GROUP I
BANKRUPTCY COVERAGE" is expected to equal approximately $295,873 as of the
Cut-Off Date. "GROUP II BANKRUPTCY COVERAGE" is expected to equal approximately
$100,000 as of the Cut-Off Date. Bankruptcy Coverage for a Loan Group will be
reduced, from time to time, by the amount of Bankruptcy Losses allocated to the
Bonds and Subordinate Components in the related Bond Group (including
Sub-Component IA-1-4II, in the case of Loan Group II).
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage with
respect to a Loan Group 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 Bonds of the related Bond Group by the Rating
Agencies. Such a reduction with respect to a Loan Group, in the event of
Special Hazard Losses, Fraud Losses or Bankruptcy Losses with respect to the
Mortgage Loans in such Loan Group, could adversely affect the level of
protection afforded the Senior Bonds of the related Bond Group by subordination
of the related Subordinate Components or the level of protection afforded the
Senior Subordinate Components of such Bond Group by the Junior Subordinate
Components of such Bond Groups.
As used herein, a "REALIZED LOSS" is, for any Payment Date, with
respect to any Mortgage Loan which became a Liquidated Loan during the related
Due Period, the sum of (i) the principal balance of such Mortgage Loan
remaining outstanding and the principal portion of Nonrecoverable Advances
actually reimbursed with respect to such Mortgage Loan (the principal portion
of such Realized Loss), and (ii) the accrued interest on such Mortgage Loan
remaining unpaid and the interest portion of Nonrecoverable Advances actually
reimbursed with respect to such Mortgage Loan (the interest portion of such
Realized Loss). For any Payment Date, with respect to any Mortgage Loan which
is not a Liquidated Loan, the amount of the Bankruptcy Loss incurred with
respect to such Mortgage Loan as of the related Due Date. As used herein, a
"NONRECOVERABLE ADVANCE" is any advance previously made by the applicable
Seller/Servicer or by the related Master Servicer that such Seller/Servicer or
Master Servicer shall determine in its good faith judgment not to be ultimately
recoverable from
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Insurance Proceeds or Liquidation Proceeds or otherwise, or recoverable as late
monthly payments with respect to related Mortgage Loans.
As used herein, a "SPECIAL HAZARD LOSS" is, with respect to a
Mortgaged Property, the occurrence of any direct physical loss or damage to
such Mortgaged Property not covered by a standard hazard maintenance policy
with extended coverage which is caused by or results from any cause except: (i)
fire, lightning, windstorm, hail, explosion, riot, riot attending a strike,
civil commotion, vandalism, aircraft, vehicles, smoke, sprinkler leakage,
except to the extent of that portion of the loss which was uninsured because of
the application of a co-insurance clause of any insurance policy covering these
perils; (ii) normal wear and tear, gradual deterioration, inherent vice or
inadequate maintenance of all or part thereof; (iii) errors in design, faulty
workmanship or materials, unless the collapse of the property or a part thereof
ensues and then only for the ensuing loss; (iv) nuclear reaction or nuclear
radiation or radioactive contamination, all whether controlled or uncontrolled
and whether such loss be direct or indirect, proximate or remote or be in whole
or in part caused by, contributed to or aggravated by a peril covered by this
definition of Special Hazard Loss; (v) hostile or warlike action in time of
peace or war, including action in hindering, combating or defending against an
actual, impending or expected attack (a) by any government of sovereign power
(de jure or de facto), or by an authority maintaining or using military, naval
or air forces, (b) by military, naval or air forces, or (c) by an agent of any
such government, power, authority or forces; (vi) any weapon of war employing
atomic fission or radioactive force whether in time of peace or war; (vii)
insurrection, rebellion, revolution, civil war, usurped power or action taken
by governmental authority in hindering, combating or defending against such
occurrence; or (viii) seizure or destruction under quarantine or customs
regulations, or confiscation by order of any government or public authority.
As used herein, a "BANKRUPTCY LOSS" refers to a loss on a Mortgage
Loan arising out of (i) a Deficient Valuation, or (ii) a Debt Service
Reduction. As used herein, a "DEFICIENT VALUATION" is, with respect to any
Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage
Loan by a court of competent jurisdiction in a case under the United States
Bankruptcy Code, other than a Debt Service Reduction, including, without
limitation, any such reduction that results in a permanent forgiveness of
principal. As used herein, a "DEBT SERVICE REDUCTION" is, with respect to any
Mortgage Loan, a valuation, by a court of competent jurisdiction in a case
under such Bankruptcy Code, of the related Mortgaged Property in an amount less
than the then outstanding Scheduled Principal Balance of such Mortgage Loan.
As used herein, a "FRAUD LOSS" is, with respect to a Mortgage Loan,
the occurrence of a loss arising from any action, event or state of facts with
respect to such Mortgage Loan which, because it involved or arose out of any
dishonest, fraudulent, criminal, negligent or knowingly wrongful act, error or
omission by the Mortgagor, originator (or assignee thereof) of such Mortgage
Loan, the related Loan Seller, the lender from whom the related Loan Seller
purchased such Mortgage Loan, a servicer or the related Master Servicer, would
result in an exclusion from, denial of, or defense to coverage which otherwise
would be provided by a Primary Insurance Policy previously issued with respect
to such Mortgage Loan.
OPTIONAL REDEMPTION OF THE BONDS
At its option, the Bond Administrator may, upon giving written notice
to the Issuer, the Master Servicers, 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
Bonds, on any Payment Date when the aggregate outstanding principal balance of
the Mortgage Loans is equal to or less than 10% 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 Bond Administrator 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 Bond Administrator, the Master Servicers, 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 Bonds. Any such repurchase shall be at a price (the
"REDEMPTION PRICE") equal to the aggregate Class Principal Balances of the then
outstanding Bonds, 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 BONDS
The Bonds are not subject to special redemption as described in the
Prospectus.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity of any Offered Bond will be affected by the
timing and amount of payments of principal on the Mortgage Loans in the related
Loan Group (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 Bond offered at a discount
from its Parity Price (as defined below) calculates the anticipated yield to
maturity of such Bond based on an assumed rate of payment of principal that is
faster than that actually received on the related Mortgage Loans, the actual
yield to maturity will be lower than that so calculated. Conversely, if the
purchaser of a Bond offered at a premium over its Parity Price calculates the
anticipated yield to maturity of such Bond based on an assumed rate of payment
of principal that is slower than that actually received on the related Mortgage
Loans, the actual yield to maturity will be lower than that so calculated.
"PARITY PRICE" of a Bond is the price at which such Bond 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. 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 Offered
Bonds would not be fully offset by a subsequent like reduction (or increase) in
the rate of principal payments.
Payments of interest on the Offered Bonds (other than the LIBOR Bonds)
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 Bonds will be
lower than the yield otherwise produced by the applicable Bond Interest Rates
and purchase prices because (i) interest will not be paid on such Bonds 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 Bonds actually
outstanding because the principal payment, or allocation of losses, made (or
the reduction in the respective notional amount) on the Payment Date occurring
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 related Offered Bonds, 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 Offered Bond may be lower
than the interest rate borne by such Offered Bond. Conversely, slow rates of
prepayments on the Mortgage Loans, and therefore of principal payment on the
related Offered Bonds, 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 Offered Bonds, 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 Offered Bonds to
their investment objectives.
The Bonds are subject to various priorities for payment of principal,
as described herein. Payments of principal on the Classes of Group IA and
Group IIA Bonds entitled to receive principal having an earlier priority of
payment will be affected by the rates of prepayment of the Group I Loans and
Group II Loans, respectively, early in the life of the related Loan Pool. The
timing of commencement of principal payments and the weighted average lives of
the Classes of Group IA and Group IIA Bonds 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 Bonds -- Principal Payments" herein, during
certain periods all or a disproportionately large percentage of Principal
Prepayments on the Group I Loans and Group II Loans will be allocated among the
Class IA Bonds (other than the Group IA Lockout Bonds and other
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than Sub-Components IA-1-4I and IA-1-4II of Component IA-1-4 of the Class IA-1
Bonds) and Class IIA Bonds (other than the Class IIA-6 Bonds), respectively,
and, during certain periods, no Principal Prepayments or (relative to the
related Group I or Group II Subordinate Percentage) a disproportionately small
portion of Principal Prepayments on the Mortgage Loans will be allocated to the
Subordinate Bonds. The allocation of all or a disproportionately large
percentage of Principal Prepayments to the Senior Bonds (other than the Lockout
Bonds and other than Sub-Components IA-1-4I and IA-1- 4II of Component IA-1-4
of the Class IA-1 Bonds) will cause the Principal Balances of the Lockout Bonds
and the Subordinate Bonds, and the Component IA-1-4 Principal Balance to
decline more slowly than would be the case if the Lockout Bonds, the
Subordinate Bonds and Component IA-1-4 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 Bonds of a Bond Group during any period as described herein, the
percentage upon which future allocations of Principal Prepayments to the Group
IA or Group IIA Bonds, as applicable, would thereafter be based would, assuming
a high level of prepayments but a low level of losses on the related Mortgage
Loans, be significantly decreased, with the result that principal payments,
including Principal Prepayments subsequent to such periods, would be allocated
to the related Subordinate Components in a greater percentage than the
applicable Subordinate Percentage.
The Bond Interest Rates on the Classes of Offered Bonds (other than
the LIBOR Bonds) are fixed and will not change in response to changes in market
interest rates. While the Bond Interest Rates on the Class X Bonds are fixed,
the Class IX and Class IIX Notional Amounts are based on the weighted average
of the Stripped Interest Rates on the Group I Premium Rate Loans and Group II
Premium Rate Loans, respectively, which will not change in response to market
interest rates. Accordingly, if market interest rates or market yields for
securities similar to such Offered Bonds were to rise, the market value of such
Offered Bonds 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 Properties 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 Bonds -- Subordination and
Allocation of Losses" and "The Pooling and Servicing Agreement -- Advances,"
amounts otherwise payable to holders of the Senior Subordinate Bonds will be
made available to protect the holders of the Senior Bonds 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
Senior Subordinate Bonds to the extent not covered by the Junior Subordinate
Bonds, with the yield on the Class B-2 Bonds being relatively more sensitive
than the Class B-1 Bonds and the Class B-3 Bonds being the most sensitive class
of the Senior Subordinate Bonds. Even if subsequently cured, such
delinquencies may affect the timing of the receipt of payments by the holders
of Bonds because the entire amount (rather than a pro rata portion) thereof may
be borne by the applicable Class of Bonds. Furthermore, Sub-Component IA-1-4I
and IA-1-4II of Component IA-1-4 of the Class IA-1 Bonds will share in the
principal portions of Realized Losses on the Mortgage Loans only to the extent
they are incurred with respect to Group I or Group II Discount Loans, as
applicable, and only to the extent of the related Sub-Component IA-1- 4I and
Sub-Component IA-1-4II Fractions thereof, as appropriate. Thus, after the
Subordinate Components relating to a Bond Group are retired, or in the case of
Excess Losses in the related Loan Group, the Senior Bonds of a Bond Group may
be affected to a greater extent by losses on Mortgage Loans in such Loan Group
that are not Group I or Group II Discount Loans, as applicable, than by losses
on Group I or Group II Discount Loans, as applicable. In addition, a higher
than expected rate of delinquencies or losses will also affect the rate of
principal payments on the Subordinate Bonds if it delays the scheduled
reduction of the Group I Senior or Group II Senior Prepayment Percentage, as
applicable, or affects the allocation of prepayments among the Subordinate
Bonds.
When a Payoff 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.
Curtailments are generally applied as of the day of receipt, with a resulting
reduction in interest payable for the month during which the partial prepayment
is made. In the case of the PNC Mortgage Loans and the PHH Mortgage Loans,
Payoffs received after the 15th calendar day of any month will be paid to
Bondholders on the Payment Date in the month following the month of receipt.
In the case of the IndyMac Mortgage Loans, Payoffs received during any calendar
month will be paid to
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<PAGE> 75
Bondholders on the Payment Date in the month following the month of receipt.
Curtailments received in any calendar month will be paid to Bondholders on the
Payment Date in the month following the month of receipt. With respect to
Payoffs on a PNC Mortgage Loan or a PHH Mortgage Loan, PNC Mortgage, as Master
Servicer, is obligated to remit to the Certificate Account an amount equal to
the lesser of (a) any shortfall for the related month in interest collections
resulting from the timing of Payoffs made from the 15th day of the calendar
month preceding the month of the related Payment Date to the last day of such
preceding month, and (b) the sum of (i) the related monthly Master Servicing
Fee otherwise payable to such Master Servicer, (ii) any reinvestment income
realized by the Master Servicer relating to Payoffs made during the related
Prepayment Period, and (iii) interest payments on Payoffs received during the
period from the second day through the 14th day of the month of the related
Payment Date. With respect to Payoffs and Curtailments in respect of an
IndyMac Mortgage Loan, IndyMac, as Master Servicer, is obligated to remit to
the Certificate Account an amount equal to the lesser of (a) any shortfall for
the related month in interest collections resulting from the timing of Payoffs
and Curtailments made during the calendar month preceding the related Payment
Date, and (b) two-thirds of the related monthly Master Servicing Fee otherwise
payable to such Master Servicer. Accordingly, to the extent any such
shortfalls in interest collections resulting from the timing of Payoffs and
Curtailments and allocable to a Loan Group exceeds the amount that a Master
Servicer is obligated to fund in respect of Compensating Interest, the effect
of any such shortfall will be to reduce the aggregate amount of interest that
is available for payment to the Classes of Senior Bonds and Subordinate
Components of the related Bond Group, and will be allocated pro rata among such
Classes and Components in proportion to the interest otherwise payable or
accrued thereon.
In addition, the yield to maturity of the Offered Bonds will depend on
the prices paid by the holders of the Offered Bonds and the related Bond
Interest Rates. The extent to which the yield to maturity of an Offered Bond
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 BONDS WILL HAVE AN ADVERSE EFFECT ON THE YIELD
TO MATURITY OF ANY BONDS PURCHASED AT A PREMIUM, BECAUSE SUCH REDEMPTION WILL
HAVE THE SAME EFFECT AS A PREPAYMENT IN FULL OF THE MORTGAGE LOANS.
The Class RL and Class RU Bonds, which represent the residual
interests in the Lower REMIC and the Upper REMIC, respectively, may experience
a highly negative after-tax return. See "Special Tax Considerations" herein.
PACs. The Planned Principal Balances schedules set forth in Appendix
E hereto were prepared by calculating the amounts that would be available for
payments on the PAC Bonds 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 Group I. The Structuring Range for the Class IA-2, Class IA-8,
Class IA-13 and Class IA-14 Bonds and Component IA- 9-1 of the Class IA-9 Bonds
is 100% through 500% of the Basic Prepayment Assumption and, the Structuring
Range for the Class IA-3 and Class IA-15 Bonds and Component IA-9-2 of the
Class IA-9 Bonds is 0% through 250% of the Basic Prepayment Assumption.
However, because the actual characteristics of the Mortgage Loans included in
Group I may differ from those expected, and because the Mortgage Loans may not
prepay within the respective Structuring Ranges for the PACs or at any other
specified range of constant prepayment rates, it is not likely that the PACs
will consistently adhere to their Planned Principal Balances schedules set
forth in Appendix E hereto.
Principal payments on the PACs are likely to be relatively stable and
in accordance with their Planned Principal Balances schedules so long as
Mortgage Loan prepayments are neither too fast nor too slow to support such
schedules. Moreover, if the PACs fall behind their schedules, they will have
cumulative priority for future principal payments from amounts available for
payments of principal. There is a range of constant Mortgage prepayment rates
(a "TARGETED RANGE") at which the PACs would adhere to their Planned Principal
Balances schedules. The initial Targeted Range for the PAC Bonds may be wider
than the Structuring Range described above.
The Targeted Range for the PAC Bonds can narrow or "shift" upward or
downward over time as a result of the rates of principal payments actually
experienced on the Group I Loans. Moreover, the Group I Loans will not prepay
at any constant rate and there can be no assurance that the amount available
for principal payments on the PACs on any Payment Date will be sufficient to
reduce the Class Principal Balances or Component Principal Balances thereof to
their Planned Principal Balances for such Payment Date indicated on the
applicable Planned Principal Balances schedules. Non- constant prepayment
rates can cause the PACs not to adhere to their Planned Principal Balances
schedules, even if such rates remain within the initial Targeted Range.
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<PAGE> 76
If the Group I Loans prepay at rates that are generally below the
Targeted Range for the PACs, the amount available for principal payments
thereon on any Payment Date may be insufficient to reduce the Class Principal
Balances or Component Principal Balances thereof to their Planned Principal
Balances for such Payment Date indicated on the applicable Planned Principal
Balances schedules, and the weighted average life of the PACs may be extended,
perhaps significantly. Conversely, if the Mortgage Loans prepay at rates that
are generally above the Targeted Range of the PACs, the weighted average life
thereof may be shortened, perhaps significantly.
TACs and Class IA-4 Bonds. Principal payments on the TACs are
expected to be more stable than would be the case if the TACs were not entitled
to receive payments, to the extent of available principal, according to their
Targeted Principal Balances schedules. Based on the Modeling Assumptions, the
TACs would adhere to their Targeted Principal Balances schedules if the Group I
Loans were to prepay at a constant rate of 250% of the Basic Prepayment
Assumption until the Class Principal Balances thereof have been reduced to
zero. However, because the actual characteristics of the Mortgage Loans
included in the Group I may differ from those expected, and because the Group I
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 TACs will
consistently adhere to their Targeted Principal Balances schedules set forth in
Appendix F hereto.
If the Mortgage Loans prepay at rates that are generally below 250% of
the Basic Prepayment Assumption, the TACs will not be reduced to their Targeted
Principal Balances schedules and the weighted average lives of the TACs 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 TACs may be shortened, perhaps significantly.
The entire Available Funds for the Group I Bonds will be paid monthly
on each Payment Date and will not be retained for payment on subsequent Payment
Dates. Thus, the likelihood that the TACs will adhere to their Targeted
Principal Balances schedules will not be enhanced by averaging high and low
principal payments in different months.
Principal Prepayments on the Group I Loans and other unscheduled
payments of principal may result in principal available for payment to the PACs
and TACs on a Payment Date in an amount greater than the amount necessary to
reduce the applicable Class and Component Principal Balances of the PACs and
TACs to their scheduled amounts. Such excess will generally be paid first to
the Class IA-4 Bonds until the Class IA-4 Principal Balance has been reduced to
zero, then to the TACs, the Class IA-3 and Class IA-15 Bonds and Component
IA-9-2, and then to the other PACS as more fully described in "Description of
the Bonds -- Payments of Principal -- Senior Principal Payment Amount -- Group
I Bond Principal Payment Amount" herein. Accordingly, the rate of payments on
the Group I Loans is expected to have a greater effect on the weighted average
life of the Class IA-4 Bonds, and under certain prepayment scenarios, the TACs,
the Class IA-3 and Class IA-15 Bonds and Component IA-9-2, than on the weighted
average lives of the other PACs. If the rate of Principal Prepayments and other
unscheduled payments of principal on the Group I Loans causes the principal
available for payment on the Group I Bonds on any Payment Date to be less than
the amounts necessary to reduce the Class or Component Principal Balances of
the PACs then entitled to receive principal to their respective Planned
Principal Balances and to reduce the aggregate of the Class and Component
Principal Balances of the Class IA-3, Class IA-7 and Class IA-15 Bonds and
Components IA-9-2 and IA-9-3 to the applicable Combined Targeted Principal
Balance and to reduce the Component IA-1- 2 Principal Balance to the applicable
Component IA-1-2 Targeted Principal Balance, the Class IA-4 Bonds will not
receive any payment of principal.
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 Bonds 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 the Basic
Prepayment Assumption (the "BASIC PREPAYMENT ASSUMPTION") as described herein.
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 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
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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.
The Basic Prepayment Assumption does not purport 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 either Loan Group, and there is no assurance that the
Mortgage Loans will prepay at any given percentage of the Basic 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 Bonds.
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 decrement tables set forth in Appendices A, B, C
and D, it is assumed that (i) scheduled payments on all Mortgage Loans are
received on the first day of each month beginning November 1, 1997, (ii) any
payoff in full on the Mortgage Loans are received on the last day of each month
beginning in October 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 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 Basic Prepayment Assumption, (viii) the date of issuance for the
Bonds is October 29, 1997, (ix) cash payments are received by the Bondholders
on the 25th day of each month when due, beginning November 25, 1997 and (x) the
Monthly Payments for each Mortgage Loan are computed based upon its unpaid
Scheduled Principal Balance, Mortgage 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 Class Principal Balances set forth in the tables
and the weighted average lives of the Offered Bonds. In addition, to the
extent that the characteristics of the Mortgage Loans differ from those assumed
in preparing the decrement tables in Appendices A, B, C and D, the outstanding
Principal Balance of any Class of Offered Bonds may be reduced to zero earlier
or later than indicated by such tables.
Variations in actual prepayment experience may increase or decrease
the percentages of the original outstanding Class Principal Balances and the
weighted average lives shown in the decrement tables in Appendices A, B, C and
D. Such variations may occur even if the average prepayment experience of all
the Mortgage Loans equals the indicated percentage of the Basic Prepayment
Assumption. There is no assurance, however, that prepayment of the Mortgage
Loans will conform to any given percentage of the Basic Prepayment Assumption.
Based on the foregoing assumptions, the tables indicate the projected weighted
average lives of the Offered Bonds and set forth the percentages of the initial
outstanding Class Principal Balance of each such Class of Offered Bonds that
would be outstanding after each of the dates shown at various constant
percentages of the Basic Prepayment Assumption.
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YIELD CONSIDERATIONS WITH RESPECT TO THE NOTIONAL AMOUNT BONDS
The yield to investors in the LIBOR Bonds will be sensitive to
fluctuations in LIBOR. The yield to maturity on the Class IA-10 and Class
IIA-5 Bonds will be extremely sensitive to fluctuations in LIBOR, and the Bond
Interest Rates on such Bonds will vary inversely with LIBOR. Changes in LIBOR
may not correlate with changes in prevailing mortgage interest rates. It is
possible that lower prevailing mortgage interest rates, which might be expected
to result in faster prepayments, could occur concurrently with an increased
level of LIBOR. Conversely, higher prevailing mortgage interest rates (which
would be expected to result in slower prepayments) could occur concurrently
with a lower level of LIBOR.
The yields to maturity on the Class IX and Class IIX Bonds will be
extremely sensitive to the level of both the timing of and overall rate of
receipt of prepayments on the Premium Rate Loans in the related Loan Group.
The interest payable to the Class IX Bonds is based on the weighted average of
the Stripped Interest Rates of the Group I Premium Rate Loans. The interest
payable to the Class IIX Bonds is based on the weighted average of the Stripped
Interest Rates of the Group II Premium Rate Loans. Therefore the yield to
maturity on the Class IX and Class IIX Bonds will generally decrease as a
result of faster than expected prepayments on the Group I or Group II Premium
Rate Loans, respectively. Prospective investors should fully consider the
risks associated with an investment in the Class IX and Class IIX Bonds,
including the possibility that if the rate of prepayments on the Premium Rate
Loans in the related Loan Group is rapid, such investors may not fully recoup
their initial investments.
To illustrate the significance of different rates of prepayment and,
in the case of the Inverse Floater Bonds, different levels of LIBOR on the
payments on the Class X and Inverse Floater Bonds, 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 indicated. Because the rate of payment of interest on the Class X
and Inverse Floater Bonds will be directly related to the actual amortization
(including prepayments) of the Mortgage Loans in the related Loan Group, 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 X and Inverse Floater
Bonds are likely to differ from those shown in the following tables even if all
the Mortgage Loans in the related Loan Group prepay at the indicated constant
percentages of the Basic Prepayment Assumption and the weighted average
remaining terms to maturity of the Mortgage Loans in the related Loan Group are
as assumed. Any differences between such assumptions and the actual
characteristics and performance of the applicable Mortgage Loans and of the
Bonds may result in yields to maturity being different from those shown in such
tables. 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 and for the Inverse Floater Bonds and different
levels of LIBOR. In addition, it is highly unlikely that the Mortgage Loans
in the related Loan Group will prepay at a constant level of the Basic
Prepayment Assumption until maturity or that all of such Mortgage Loans will
prepay at the same rate or, for the Inverse Floater Bonds, that the levels of
LIBOR will remain constant. The timing of changes to the rate of prepayments or
rate of LIBOR may significantly affect the actual yield to maturity to an
investor, even if the average rate of Principal Prepayments or average rate of
LIBOR is consistent with an investors expectation. In general, the earlier a
payment of principal of the Mortgage Loans or change in LIBOR, the greater the
effect on an investor's yield to maturity. As a result, the effect on an
investor's yield to maturity 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 Bonds or changes in the level of
LIBOR, as applicable, occurring at a rate higher or lower than the rate
anticipated by the investor during the period immediately following the
issuance of the Bonds will not be equally offset by a subsequent like reduction
(or increase) in the rate of Principal Prepayments or level of LIBOR.
The yield to maturity on the Notional Amount Bonds may be adversely
affected if an optional redemption of the Bonds occurs.
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 Bonds are purchased at prices (which include
accrued interest in the case of the Notional Amount Bonds) 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 Bonds 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 Notional Amount Bonds 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,
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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 Bonds.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS IX BONDS TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
ASSUMED PRICE 0% 100% 250% 500% 600%
$6,308,295.44 25.4% 20.2% 12.2% -1.7% -7.5%
</TABLE>
On the basis of approximately 469% of the Basic Prepayment Assumption with a
purchase price of $6,308,295.44, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class IX
Bonds would be approximately 0%. If the actual prepayment rate were to exceed
such rate assumed in the preceding sentence, even for one month, while equaling
such rates for all other months, an investor in the Class IX Bonds would not
fully recoup the initial purchase price of such Bonds.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS IIX BONDS TO PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
ASSUMED PRICE 0% 100% 195% 250% 400%
$751,928.66 25.4% 20.2% 15.3% 12.4% 4.3%
</TABLE>
On the basis of approximately 479% of the Basic Prepayment Assumption with a
purchase price of $751,928.66, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class IIX
Bonds would be approximately 0%. If the actual prepayment rate were to exceed
such rate assumed in the preceding sentence, even for one month, while equaling
such rates for all other months, an investor in the Class IIX Bonds would not
fully recoup the initial purchase price of such Bonds.
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<PAGE> 80
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS IA-10 BONDS TO PREPAYMENTS AND LIBOR
AT AN ASSUMED PRICE OF 5.3750% OF THE CLASS IA-10 NOTIONAL AMOUNT
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
LIBOR 0% 100% 250% 500% 600%
3.6560% 98.9% 91.1% 78.3% 65.8% 60.2%
4.1560% 87.1% 78.8% 65.4% 52.6% 47.0%
4.6560% 75.4% 66.8% 52.6% 39.5% 33.9%
5.1560% 64.0% 54.8% 39.7% 26.4% 20.7%
5.6560% 52.9% 42.9% 26.6% 13.1% 7.4%
6.1560% 41.9% 30.9% 13.1% -0.5% -6.3%
6.6560% 30.9% 18.6% -1.0% -14.6% -20.5%
7.1560% 19.9% 5.8% -16.2% -29.7% -35.8%
7.6560% 8.2% -8.6% -33.7% -46.8% -53.2%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS IIA-5 BONDS TO PREPAYMENTS AND LIBOR AT
AN ASSUMED PRICE OF 6.6250% THE CLASS IIA-5 NOTIONAL AMOUNT
PERCENTAGE OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
LIBOR 0% 100% 195% 250% 400%
3.65620% 79.7% 73.8% 67.8% 64.1% 53.3%
4.15620% 70.4% 64.4% 58.1% 54.3% 42.9%
4.65620% 61.4% 55.1% 48.6% 44.5% 32.4%
5.15620% 52.4% 46.0% 39.1% 34.8% 21.8%
5.65620% 43.6% 37.0% 29.7% 25.0% 11.0%
6.15620% 35.0% 28.1% 20.3% 15.1% -0.3%
6.65620% 26.4% 19.2% 10.7% 4.8% -12.4%
7.15620% 17.9% 10.2% 0.8% -6.1% -25.8%
7.65620% 8.9% 0.7% -10.4% -18.7% -42.0%
</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 Notional
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Amount Bonds, 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 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 Notional Amount Bonds and
thus do not reflect the return on any investment in the Notional Amount Bonds
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 Bonds. 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 Bonds, 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 Bonds
to their investment objectives.
INDENTURE
GENERAL
The Bonds 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 Bonds
will be transferable and exchangeable at the Corporate Trust Office of the
Indenture Trustee. The Indenture Trustee will provide a prospective or actual
Bondholder 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 180 E. Fifth Street, St. Paul, Minnesota 55101.
INDENTURE EVENT OF DEFAULT
Under the Series Supplement and the Indenture, an Indenture Event of
Default will not occur solely by reason of the allocation of Realized Losses to
any Class of Subordinate Bonds or the Principal Balance of any Class of
Subordinate Bonds 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
Subordinated Bonds or the Group I or Group II Subordinate Principal Amount on
any Payment Date as long as all Available Funds are paid on the Bonds on such
Payment Date. In addition, an Indenture Event of Default will not occur solely
by the failure to pay the amount of accrued interest on the Senior Bonds or the
Group I or Group II Senior 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 Bonds on such Payment Date. For
purposes of determining whether an Indenture Event of Default occurs under the
Indenture, a default in the payment of principal of any Bonds, or a default for
five days or more in the payment of interest on any Bond will occur only if all
Available Funds for such Payment Date were not paid on the Bonds as required by
the Series Supplement and the Indenture.
For a description of payments on the Bonds after an acceleration of
the Bonds following the occurrence of an Indenture Event of Default, see
"Description of the Bonds -- Priority of Payments" herein.
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 Certificateholders in certain circumstances. The
Certificate Trustee will provide a prospective or actual Bondholder without
charge, on written request, a copy (without exhibits) of the
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Pooling and Servicing Agreement. Requests should be addressed to the Corporate
Trust Office of the Certificate Trustee at 180 East Fifth Street, Minneapolis,
Minnesota 55101.
ASSIGNMENT OF MORTGAGE LOANS
The Issuer will cause the Mortgage Loans to be assigned to the
Certificate Trustee, together with all principal and interest on the Mortgage
Loans other than principal and interest due on or before the Cut-Off Date. The
Certificate Trustee will, concurrently with such assignment, authenticate and
deliver the Certificates or cause the Certificates to be authenticated and
delivered to or upon the order of the Issuer. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the Pooling and Servicing
Agreement. Such schedule will include, among other things, information as of
the close of business on the Cut-Off Date as to the principal balance of each
Mortgage Loan, the Mortgage Rate and the maturity of each Mortgage Note, the
Servicing Fee, the Master Servicing Fee, the Bond Administration Fee, if any,
whether a Primary Insurance Policy has been obtained for each Mortgage Loan,
and the original value of each Mortgaged Property.
In addition, the Issuer will, as to each Mortgage Loan, deliver or
cause to be delivered to the Certificate Trustee the mortgage note, an
assignment to the Certificate Trustee of the Mortgage in a form for recording
or filing as may be appropriate in the state where the Mortgaged Property is
located, the original recorded Mortgage with evidence of recording or filing
indicated thereon, a copy of the title insurance policy or other evidence of
title, and the Buydown Agreement, if applicable; or, in the case of each
Cooperative Loan, the related mortgage note, the original security agreement,
the proprietary lease or occupancy agreement, the related stock certificate and
related blank stock powers, and a copy of the original filed financing
statement together with assignments thereof from the applicable Loan Seller to
the Certificate Trustee in a form sufficient for filing. In certain instances
where original documents respecting a Mortgage Loan may not be available prior
to execution of the Pooling and Servicing Agreement, the Issuer will deliver or
will cause to be delivered such documents to the Certificate Trustee within 270
days thereafter. In instances where, due to a delay on the part of the
recording office where any such original documents have been delivered for
recordation, the original recorded Mortgage or any intervening assignment
certified by the applicable recording office cannot be delivered to the
Certificate Trustee within 270 days after the Closing Date, the Issuer shall
cause the related Loan Seller to deliver to the Certificate Trustee within such
time period an officer's certificate stating the date by which the Loan Seller
expects to receive such original documents from the applicable recording
office.
In instances where, due to a delay on the part of the title insurer, a
copy of the title insurance policy for a particular Mortgage Loan cannot be
delivered to the Certificate Trustee prior to or concurrently with the
execution of the Pooling and Servicing Agreement, the Issuer will cause the
applicable Loan Seller to provide a copy of such title insurance policy to the
Certificate Trustee within 90 days after the applicable Loan Seller's receipt
of the original recorded Mortgage, intervening assignments with evidence of
recording thereon or other documents necessary to issue such title insurance
policy.
The Certificate Trustee will review the mortgage documents within 45
days of receipt thereof to ascertain that all required documents have been
properly executed and received. If any document is found by the Certificate
Trustee not to have been properly executed or received or to be unrelated to
the Mortgage Loans identified in the Pooling and Servicing Agreement, and the
Issuer cannot cure such defect, the Issuer shall, not later than 60 days after
the Certificate Trustee's notice to it respecting such defect, within the
three-month period commencing on the Closing Date, be required to cause the
related Loan Seller to (a) substitute a new mortgage loan meeting the
conditions set forth in the Pooling and Servicing Agreement or (b) repurchase
the related Mortgage Loan from the Certificate Trustee at a price equal to 100%
of the outstanding principal balance of such Mortgage Loan, plus accrued
interest thereon at the applicable Net Mortgage Rate through the last day of
the month of such repurchase. This substitution or repurchase obligation
constitutes the sole remedy available to the Indenture Trustee, as the sole
Certificateholder, for such a defect in a constituent document. An assignment
of each Mortgage Loan to the Certificate Trustee will be recorded or filed in
each state in which the related Mortgaged Property is located.
Buydown Funds provided by the Seller/Servicers or other parties for
any Buydown Loans included in a Mortgage Pool will be deposited on the Closing
Date into either (a) a separate account (the "BUYDOWN ACCOUNT") maintained (i)
with the Certificate Trustee or another financial institution approved by the
related Master Servicer, (ii) within FDIC insured accounts (or other insured
accounts acceptable to the Rating Agencies), created, maintained and monitored
by a Seller/Servicer or (iii) in a separate non-trust account without FDIC or
other insurance in an institution having (A) the highest short-term debt
rating, and one of the two highest long-term debt ratings of the Rating
Agencies, or (B) the highest unsecured long-term debt rating by the Rating
Agencies, or (b) held in a Custodial Account for P&I or a Custodial Account
for Reserves and monitored by a Seller/Servicer. Since Buydown Funds may be
funded at either the par values of future payment subsidies, or funded in an
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amount less than the par values of future payment subsidies, and determined by
discounting such par values in accordance with interest accruing on such
amounts, Buydown Accounts may be non-interest bearing or may bear interest. In
the event that Buydown Funds are deposited into an FDIC-insured account, the
amount held in such account shall not exceed the level of deposit insurance
covering such account. Accordingly, more than one such account may be
established.
SUBSTITUTION OF MORTGAGE LOANS
The Issuer may cause the related Loan Seller to substitute an eligible
mortgage loan for a defective Mortgage Loan in lieu of repurchasing such
defective Mortgage Loan or the related Mortgaged Property (a) within three
months after the Closing Date, or (b) within two years after such Closing Date,
if the related Mortgage Loan is a "defective obligation" within the meaning of
Section 860G(a)(4)(B)(ii) of the Code. Any mortgage loan, to be eligible for
substitution, must fit within the general description of the Mortgage Loans set
forth herein and must be a "qualified replacement mortgage" for purposes of the
REMIC Regulations.
REPRESENTATIONS AND WARRANTIES REGARDING THE MORTGAGE LOANS
Pursuant to the related Loan Sale Agreement, each Loan Seller will
make certain representations and warranties with respect to the Mortgage Loans.
Such representations and warranties will generally have included, among other
things, that: (i) the information set forth in the related schedule of
Mortgage Loans is true and correct in all material respects; (ii) each Mortgage
Loan is covered by a lender's title policy (or other satisfactory evidence of
title) and each such policy or other evidence of title is valid and remains in
full force and effect; (iii) if a Primary Insurance Policy is required with
respect to such Mortgage Loan, such policy is valid and remains in full force
and effect as of the Closing Date; (iv) at the time of sale, such Loan Seller
was the sole owner of each Mortgage Loan sold by it, free and clear of any lien
or encumbrance, and the mortgage notes are subject to no offsets, defenses or
counterclaims; (v) as of the Closing Date, each Mortgage is a valid first lien
on the related Mortgaged Property (subject only to (a) liens for current real
property taxes and special assessments, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally and set forth in
the title insurance policy covering such Mortgaged Property and (c) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
Mortgage); (vi) as of the Closing Date, to the Loan Seller's knowledge, each
Mortgaged Property is free of material damage and is in good repair, except for
ordinary wear and tear; (vii) as of the time each Mortgage Loan was originated,
the Mortgage Loan complies with all applicable state and federal laws,
including usury, equal credit opportunity, disclosure and recording laws;
(viii) as of the Closing Date, there are no delinquent tax or assessment liens
against any Mortgaged Property; and (ix) each Mortgage Loan was originated by a
savings association, savings bank, a commercial bank or similar institution
which is supervised and examined by a federal or state authority, or by a
mortgagee approved by the FHA or the Secretary of HUD. The benefit of such
representations and warranties will be assigned to the Certificate Trustee
pursuant to the Pooling and Servicing Agreement.
If the Mortgage Loans include Cooperative Loans, representations and
warranties with respect to title insurance or hazard insurance will not be
given. Generally, a cooperative itself is responsible for the maintenance of
hazard insurance for property owned by such cooperative, and the borrowers
(tenant stockholders) of such cooperative do not maintain hazard insurance on
their individual dwelling units. Title insurance is not obtained for
Cooperative Loans because such loans are not secured by real property.
In the event of the discovery by the Issuer, the related Loan Seller
or the related Master Servicer of a breach of any representation or warranty
which materially and adversely affects the interest of the Indenture Trustee,
as sole Certificateholder, in the related Mortgage Loan, or the receipt of
notice of such a breach from the Certificate Trustee, the Issuer will be
required to cause the related Loan Seller to cure the breach, substitute a new
mortgage loan for such Mortgage Loan or repurchase such Mortgage Loan, or any
Mortgaged Property acquired with respect thereto, on the terms set forth above
under "--Assignment of Mortgage Loans". The proceeds of any such repurchase
will be passed through to the Indenture Trustee, as sole Certificateholder, as
Liquidation Proceeds. This substitution or repurchase obligation constitutes
the sole remedy available to the Indenture Trustee, as sole Certificateholder,
for any such breach.
Under the Pooling and Servicing Agreement, each Master Servicer will
have the right, but not the obligation, to purchase any Mortgage Loan being
master serviced by it in the event that such Mortgage Loan becomes 90 days or
more
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delinquent; provided, that the aggregate purchase price of the Mortgage Loans
so repurchased (as set forth in the Pooling and Servicing Agreement) shall not
exceed one-half of one percent (0.50%) of the aggregate Scheduled Principal
Balance of the Mortgage Loans being master serviced by such Master Servicer as
of the Cut-Off Date.
None of the Issuer, the Master Servicers, 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 defective Mortgage Loan if
the related Loan Seller defaults on its obligation to repurchase such Mortgage
Loan, and no assurance can be given that a Loan Seller will carry out such
obligations with respect to a defective Mortgage Loan.
The obligation of PNC Mortgage to repurchase defective Mortgage Loans
will be limited to the PNC Mortgage Loans. Similarly, the obligation of PHH
and IndyMac to repurchase defective Mortgage Loans will be limited to the PHH
Mortgage Loans, in the case of PHH, and the IndyMac Mortgage Loans, in the case
of IndyMac.
THE MASTER SERVICERS
PNC Mortgage will act as Master Servicer with respect to the PNC
Mortgage Loans and the PHH Mortgage Loans under the Pooling and Servicing
Agreement and will be responsible for administering and servicing such Mortgage
Loans. IndyMac will act as Master Servicer with respect to the IndyMac
Mortgage Loans under the Pooling and Servicing Agreement and will be
responsible for administering and servicing such Mortgage Loans. PNC Mortgage
and IndyMac are referred to herein individually as a "MASTER SERVICER", and
collectively, as the "MASTER SERVICERS".
Each Master Servicer, has entered or will enter into a contract (each,
a "SERVICING CONTRACT") with each related Seller/Servicer to perform, as an
independent contractor, certain servicing functions for the Master Servicer
subject to its supervision and may enter into a contract with an independent
entity to perform administration functions for the related Mortgage Loans,
subject to the Master Servicer's supervision. The duties performed by the
Seller/Servicers include collection and remittance of principal and interest
payments, administration of mortgage escrow accounts, collection of insurance
claims and, if necessary, foreclosure. Under such contracts, each Master
Servicer will generally reserve the right to remove the Seller/ Servicer of any
Mortgage Loan at any time if such Master Servicer considers such removal to be
in the best interests of the Bondholders. In such event, such Master Servicer
would continue to be responsible for servicing such Mortgage Loan and will
designate a replacement Seller/Servicer (which may include a Master Servicer or
an affiliate of a Master Servicer).
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement will permit the Master Servicers
to enter into a special servicing agreement with an unaffiliated holder of
Subordinate Bonds. Pursuant to such an agreement, such holder may instruct the
related Master Servicer to commence or delay foreclosure proceedings with
respect to delinquent Mortgage Loans being master serviced by it. Such
commencement or delay at such holder's direction will be taken by the related
Master Servicer only after such holder deposits a specified amount of cash with
such Master Servicer. Such cash will be available for payment to Bondholders
if Liquidation Proceeds are less than they otherwise may have been had such
Master Servicer acted pursuant to its normal servicing procedures.
BOND ADMINISTRATOR
Pursuant to the Pooling and Servicing Agreement and the Indenture, PNC
Mortgage (in its capacity as Bond Administrator) will calculate LIBOR and
amounts payable to the Bondholders and provide certain other administrative
services as specified in the Pooling and Servicing Agreement and the Indenture.
The Bond Administrator will receive a fee (the "BOND ADMINISTRATOR FEE") for
its services as Bond Administrator under the Pooling and Servicing Agreement
and the Indenture. The Bond Administrator Fee with respect to the IndyMac
Mortgage Loans shall be 0.005% per annum. The Bond Administrator Fee with
respect to the PNC Mortgage Loans and the PHH Mortgage Loans shall be included
as part of PNC's Master Servicing Fee. PNC Mortgage, in its capacity as Bond
Administrator and Master Servicer, will be responsible for paying the fees of
the Certificate Trustee and the Indenture Trustee and will pay all expenses
incurred in connection with its activities as Bond Administrator under the
Pooling and Servicing Agreement and the Indenture.
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PAYMENTS ON MORTGAGE LOANS; CUSTODIAL ACCOUNTS FOR P&I, INVESTMENT ACCOUNT AND
CERTIFICATE ACCOUNT
Pursuant to the Pooling and Servicing Agreement, each Master Servicer
will cause each Seller/Servicer to establish and maintain a custodial account
for principal and interest (each, a "CUSTODIAL ACCOUNT FOR P&I"), Buydown
Accounts and a special custodial account for reserves (each, a "CUSTODIAL
ACCOUNT FOR RESERVES") and into which such Seller/Servicer shall deposit daily
the amounts related to the related Mortgage Loans required by the applicable
Servicing Contracts to be so deposited. Proceeds received with respect to
individual Mortgage Loans from any title insurance policy, Special Hazard
Policy or Primary Insurance Policy, or any other insurance policy covering such
Mortgage Loans shall be deposited first in the related Custodial Account for
Reserves, if required for the restoration or repair of the related Mortgaged
Property. Proceeds from such insurance policies not so deposited in the
related Custodial Account for Reserves shall be deposited in the related
Custodial Account for P&I, and shall be applied to the balances of the related
Mortgage Loans as payments of principal and interest.
Each Master Servicer will require that deposits in each Custodial
Account for P&I be held (a) in a trust account in the corporate trust
department of the Certificate Trustee or another financial institution approved
by the related Master Servicer so that the rights of the related Master
Servicer, the Certificate Trustee and the Indenture Trustee, as sole
Certificateholder, will be fully protected against the claims of any creditors
of the Seller/Servicer and of any creditors or depositors of the institution in
which such account is maintained, (b) within the Federal Deposit Insurance
Corporation ("FDIC") FDIC insured accounts (or other accounts with comparable
insurance coverage acceptable to the Rating Agencies) created, maintained and
monitored by a Seller or (c) in a separate non-trust account without FDIC or
other insurance in an Eligible Institution (as such term is defined in the
Pooling and Servicing Agreement). If a Custodial Account for P&I is insured
by the FDIC and at any time the amount in such account exceeds the limits of
insurance on such account, the Seller/Servicer shall be required to withdraw
such excess from such account and remit it to the related Master Servicer for
deposit in the Investment Account described below.
Not later than the 20th day of each month (or the preceding business
day if such 20th day is not a business day) (the "WITHDRAWAL DATE"), each
Master Servicer will withdraw or direct the withdrawal of funds in the related
Custodial Accounts for P&I for deposit in the Certificate Account or Investment
Account, at such Master Servicer's option, in an amount representing:
(i) Scheduled installments of principal and interest on the
related Mortgage Loans received or advanced by the applicable
Seller/Servicer which were due on the first day of the current
month, net of Servicing Fees due the applicable
Seller/Servicer and less any amounts to be withdrawn later by
the applicable Seller/Servicer from the applicable Buydown
Accounts;
(ii) Payoffs and proceeds of other types of liquidations of related
Mortgage Loans received or advanced by the applicable
Seller/Servicer during the related Prepayment Period, with
interest to the date of Payoff or liquidation, less any
amounts to be withdrawn later by the applicable
Seller/Servicer from the applicable Buydown Accounts; and
(iii) Curtailments received by the Seller/Servicer on such Mortgage
Loans during the related Prepayment Period.
All amounts withdrawn from the Custodial Accounts for P&I, together
with any Insurance Proceeds and Liquidation Proceeds previously received by
such Master Servicer (including amounts paid on behalf of a Loan Seller in
respect of repurchase obligations on defective Mortgage Loans or otherwise)
shall be immediately deposited into the Investment Account. As used herein,
"LIQUIDATION PROCEEDS" refers to all net proceeds received in connection with
the liquidation of defaulted Mortgage Loans, by foreclosure or otherwise, and
"INSURANCE PROCEEDS" refers to all amounts paid or payable by the applicable
insurer under any Primary Insurance Policy or any applicable title, hazard or
other insurance policy covering any Mortgage Loan, other than proceeds to be
applied to the restoration or repair of the related Mortgaged Property.
Under the Pooling and Servicing Agreement, each Master Servicer or the
related Seller/Servicer (if such Seller/Servicer holds and maintains a Buydown
Account) is authorized to make withdrawals from the Buydown Account or
Custodial Account for P&I, of the following amounts of Buydown Funds:
(i) to deposit in the Investment Account the amount necessary to
supplement payments received on Buydown Loans;
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(ii) in the event of a Payoff of any Mortgage Loan having a related
Buydown Fund, to apply amounts remaining in Buydown Accounts
to reduce the required amount of such principal Payoff (or,
if the Mortgagor has made a Payoff, to refund such remaining
Buydown Fund amounts to the person entitled thereto);
(iii) in the event of foreclosure or liquidation of any Mortgage
Loan having a related Buydown Fund, to deposit remaining
Buydown Fund amounts in the Investment Account as Liquidation
Proceeds; and
(iv) to clear and terminate the portion of any account representing
Buydown Funds.
Each Master Servicer may invest funds withdrawn from the Custodial
Accounts for P&I, as well as any Insurance Proceeds, Liquidation Proceeds and
Buydown Funds previously received by such Master Servicer, for its own account
and at its own risk, for the period from the Withdrawal Date to the next
Payment Date (the "INVESTMENT PERIOD"). Investment of such funds shall be made
through an account in the name of the related Master Servicer and the
Certificate Trustee (each, an "INVESTMENT ACCOUNT"), which shall be maintained
at Chemical Bank, New York, New York or at another bank or trust company
designated from time to time by the related Master Servicer and acceptable to
the Rating Agencies (the "INVESTMENT DEPOSITORY"); provided that such bank or
trust company must at all times be an Eligible Institution (as defined in the
Pooling and Servicing Agreement). Each Investment Account may be a commingled
account with other similar accounts maintained by the related Master Servicer
and invested for its own account; provided, that the maintenance of such a
commingled account has been approved by the Rating Agencies. The investment of
funds in the Investment Account shall be limited to one or more Eligible
Investments (as such term is defined in the Pooling and Servicing Agreement).
On the business day prior to the applicable Payment Date, each Master
Servicer will withdraw from the related Investment Account all funds due to be
distributed to the Indenture Trustee, as sole Certificateholder, and shall
deposit such funds, together with any Advances required to be made by it, into
a trust account (the "CERTIFICATE ACCOUNT") created and maintained with the
Certificate Trustee, the Investment Depository or any other bank or trust
company acceptable to the Rating Agencies.
Under the Pooling and Servicing Agreement, each Master Servicer is
authorized to make the following withdrawals from the Certificate Account:
(i) To reimburse itself or the applicable Seller/Servicer for
Advances made pursuant to the Pooling and Servicing Agreement
or a Servicing Contract, such Master Servicer's right to
reimburse itself or such servicer pursuant to this paragraph
(i) being limited to amounts received on particular Mortgage
Loans (including, for this purpose, Insurance Proceeds and
Liquidation Proceeds) which represent late recoveries of
principal and/or interest respecting which any such Advance
was made;
(ii) To reimburse itself or the applicable Seller/Servicer for
amounts expended by or for the account of the related Master
Servicer pursuant to the Pooling and Servicing Agreement or
amounts expended by such servicer pursuant to the related
Servicing Contract in connection with the restoration of
property damaged by an Uninsured Cause (as defined in the
Pooling and Servicing Agreement) or in connection with the
liquidation of a Mortgage Loan;
(iii) To pay to itself the related Master Servicing Fee, net of
Compensating Interest, reduced by Payoff Earnings and Payoff
Interest (each as defined in the Pooling and Servicing
Agreement), as to which no prior withdrawals from funds
deposited by such Master Servicer have been made;
(iv) To reimburse itself or the applicable Seller/Servicer for
advances which such Master Servicer has determined to be
Nonrecoverable Advances;
(v) To pay itself reinvestment earnings deposited or earned in the
Certificate Account (net of reinvestment losses) to which it
is entitled and to reimburse itself for expenses incurred by
and reimbursable to it pursuant to the Pooling and Servicing
Agreement;
(vi) To deposit amounts in the Investment Account representing
amounts in the Certificate Account not required to be on
deposit therein at the time of such withdrawal; and,
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after making or providing for the above withdrawals,
(vii) To clear and terminate the Certificate Account upon
liquidation of all Mortgage Loans or upon an optional
redemption of the Bonds.
ADVANCES
Each Master Servicer will be obligated under the Pooling and Servicing
Agreement to make Advances out of its own funds to the Certificate Account (to
the extent not previously advanced by the Seller/Servicers as described below)
in amounts sufficient to cover any shortfall between the funds scheduled to be
received in respect of the related Mortgage Loans, and the amounts actually
deposited in the Certificate Account on account of such payments; provided,
however, that a Master Servicer will be obligated to make such Advances only to
the extent any such Advance is, in the good faith judgment of such Master
Servicer made on or before the Business Day immediately following the
Withdrawal Date, reimbursable from Liquidation Proceeds or Insurance Proceeds
of the related Mortgage Loans or recoverable as late Monthly Payments with
respect to the related Mortgage Loans or otherwise.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Each Master Servicer will receive a fee (the "MASTER SERVICING FEE")
for its services as Master Servicer under the Pooling and Servicing Agreement.
Each Seller/Servicer will receive a fee (the "SERVICING FEE") for acting as
the primary servicer of the related Mortgage Loans under the related Servicing
Contract. The fees payable to each Master Servicer and the Seller/ Servicers
will be paid out of the spread between the Mortgage Rates on each Mortgage Loan
and the Net Mortgage Rate with respect to such Mortgage Loan. The Servicing
Fee will be equal to the difference between the Mortgage Rate and the
Remittance Rate. In addition, the Seller/Servicer will retain late charges,
assumption fees and similar charges to the extent collected from Mortgagors.
Each Master Servicer will retain as its Master Servicing Fee an amount which
will be calculated as a per annum percentage for each related Mortgage Loan.
Each Master Servicer will pay all expenses incurred in connection with
its activities as Master Servicer. The Master Servicers and the
Seller/Servicers, as applicable, are entitled to reimbursement for certain
expenses incurred by them in connection with the liquidation of defaulted
Mortgage Loans. In accordance with the subordination feature described herein,
Bondholders of the lowest priority Class will suffer a loss to the extent that
the proceeds of liquidation of a defaulted Mortgage Loan, after reimbursement
of the Master Servicers' and the Seller/Servicers' expenses, as applicable, are
less than the principal balance of such Mortgage Loan. In addition, the Master
Servicers and the Seller/Servicers, as applicable, are entitled to
reimbursement of expenditures incurred by them in connection with the
restoration of a damaged Mortgaged Property, such right of reimbursement being
prior to the rights of Bondholders to receive any related Insurance Proceeds or
Liquidation Proceeds.
The Servicing Fee with respect to each Group I Loan will range from a
minimum of 0.200% per annum to a maximum of 0.250% per annum, with a weighted
average of 0.240% per annum. The Servicing Fee with respect to each Group II
Loan ranges from a minimum of 0.200% per annum to a maximum of 0.250% per
annum, with a weighted average of 0.218% per annum. The Master Servicing Fee
with respect to each Group I Loan ranges from a minimum of 0.040% per annum to
a maximum of 0.050% per annum, with a weighted average of 0.043% per annum.
The Master Servicing Fee with respect to each Group II Loan ranges from a
minimum of 0.040% to a maximum of 0.050% per annum, with a weighted average of
0.044% per annum.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before April
30 of each year, beginning April 30, 1998, each Master Servicer, at its own
expense, shall cause a firm of independent public accountants to furnish a
statement to the Certificate Trustee to the effect that, in connection with the
firm's examination of the financial statements of the related Master Servicer,
as of the previous December 31, nothing came to their attention that indicated
that such Master Servicer was not in compliance with specified sections of the
Pooling and Servicing Agreement, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement.
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The Pooling and Servicing Agreement also provides that on or before
April 30 of each year, beginning April 30, 1998, each Master Servicer shall
deliver to the Certificate Trustee an annual statement signed by an officer of
the related Master Servicer to the effect that, based on a review of such
Master Servicer's activities during the preceding calendar year, to the best of
such officer's knowledge such Master Servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the preceding year or, if
there has been a default in the fulfillment of any such obligations, specifying
each such default known to such officer and the nature and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICERS, THE ISSUERS AND THE BOND
ADMINISTRATORS
The Pooling and Servicing Agreement provides that neither the Issuer
nor the Master Servicers may resign from its respective obligations and duties
thereunder, except upon a determination that its duties thereunder are no
longer permissible under applicable law. No such resignation will become
effective until the Certificate Trustee or a successor to the Issuer or the
Master Servicer has assumed the Issuer's or the applicable Master Servicer's
responsibilities and obligations and duties under the Pooling and Servicing
Agreement, as applicable.
The Pooling and Servicing Agreement provides that none of the Issuer,
the Master Servicers, the Bond Administrator or any of the directors, officers,
employees or agents of the Issuer, the Master Servicers or the Bond
Administrator (the "INDEMNIFIED PARTIES") shall be under any liability to the
trust fund created by the Pooling and Servicing Agreement (the "TRUST FUND")
or the Certificateholders for any action taken by such Person or by a servicer
or for such Person's or servicer's 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 Indemnified Parties 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 duties
or by reason of reckless disregard of duties and obligations under the Pooling
and Servicing Agreement. The Pooling and Servicing Agreement further provides
that the Indemnified Parties may rely in good faith on any document of any kind
properly executed and submitted by any person respecting any matters arising
hereunder. The Pooling and Servicing Agreement also provides that the
Indemnified Parties shall be indemnified by the Trust Fund and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling and Servicing Agreement or the Certificates,
other than any loss, liability or expense relating to any Mortgage Loan (other
than as otherwise permitted in the Pooling and Servicing Agreement) or incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties under the Pooling and Servicing Agreement or by reason
of reckless disregard of obligations and duties under the Pooling and Servicing
Agreement. In addition, the Pooling and Servicing Agreement provides that the
Issuer, the Master Servicers and the Bond Administrator shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the Mortgage Loans in accordance with the
Pooling and Servicing Agreement and which in its opinion may involve it in any
expense or liability; provided, however, that the Issuer, each Master Servicer
or the Bond Administrator may in its discretion undertake any such action which
it may deem necessary or desirable with respect to the Mortgage Loans, the
Pooling and Servicing Agreement, the Certificates or the rights and duties of
the parties hereto and the interests of the Certificateholders under the
Pooling and Servicing Agreement. In such event, the Pooling and Servicing
Agreement provides that the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust Fund and the Issuer, each Master Servicer and the Bond Administrator
shall be entitled to be reimbursed therefor out of the Certificate Account.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement will
include, without limitation, (i) any failure by a Master Servicer to deposit
with the Certificate Trustee any payment required to be made under the terms of
the Pooling and Servicing Agreement which continues unremedied for ten days
after the giving of written notice of such failure to a Master Servicer by the
Certificate Trustee, or to a Master Servicer and the Certificate Trustee by the
holders of Certificates of the affected Series evidencing Fractional Undivided
Interests (as defined in the Pooling and Servicing Agreement) aggregating not
less than 66 2/3% of the applicable
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Trust Fund for the affected Series, as determined in the manner set forth in
such Pooling and Servicing Agreement; (ii) any failure on the part of a Master
Servicer duly to observe or perform in any material respect any of the other
covenants or agreements on the part of such Master Servicer contained in the
Certificates of a Series or in the Pooling and Servicing Agreement which
continues unremedied for 60 days after the giving of written notice of such
failure to such Master Servicer by the Certificate Trustee, or to such Master
Servicer and the Certificate Trustee by the holders of Certificates of the
affected Series evidencing Fractional Undivided Interests aggregating not less
than 66 2/3% of the applicable Trust Fund for the affected Series, as
determined in the manner set forth in the Pooling and Servicing Agreement;
(iii) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain actions by a Master Servicer
indicating insolvency, reorganization or inability to pay its obligations and
(iv) any failure of a Master Servicer to make any Advance (other than a
Nonrecoverable Advance) which continues unremedied at the opening of business
on the Payment Date in respect of which such Advance was to have been made.
Notwithstanding the foregoing, if an Event of Default described in clause (iv)
above occurs, the Certificate Trustee shall, by written notice to the
defaulting Master Servicer (the "DEFAULTING MASTER SERVICER"), immediately
suspend all of the rights and obligations of the Defaulting Master Servicer
thereafter arising under the Pooling and Servicing Agreement, but without
prejudice to any rights it may have as a Certificateholder or to reimbursement
of Advances, and the Certificate Trustee will act to carry out the duties of
such Master Servicer, including the obligation to make any Advance the
nonpayment of which was an Event of Default described in clause (iv) above. The
Certificate Trustee will permit such Master Servicer to resume its rights and
obligations as Master Servicer under the Pooling and Servicing Agreement if
such Master Servicer, within two Business Days following its suspension, remits
to the Certificate Trustee the amount of any Advance the nonpayment of which
by the Defaulting Master Servicer was an Event of Default described in clause
(iv) above. If an Event of Default as described in clause (iv) above occurs
more than two times in any twelve month period, the Certificate Trustee will
not be obligated to permit such Defaulting Master Servicer to resume its rights
and obligations as Master Servicer under the Pooling and Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling and Servicing
Agreement remains unremedied, either the Certificate Trustee or holders of
Certificates of the affected Series evidencing Fractional Undivided Interests
aggregating not less than 66 2/3% of the Trust Fund for the affected Series, as
determined in the manner set forth in the Pooling and Servicing Agreement, may
terminate all of the rights and obligations of the Defaulting Master Servicer
under such Pooling and Servicing Agreement and under the related Servicing
Contracts with respect to the Mortgage Loans, whereupon the Certificate Trustee
will succeed to all the responsibilities, duties and liabilities of such Master
Servicer under the Pooling and Servicing Agreement and the related Servicing
Contracts and will be entitled to similar compensation arrangements and
limitations on liability. In the event that the Certificate Trustee is
unwilling or unable to so act, it may appoint or petition a court of competent
jurisdiction for the appointment of an established housing and home finance
institution with a net worth of at least $10,000,000 to act as successor to
such Master Servicer under such Pooling and Servicing Agreement, which may
include the non-defaulting Master Servicer. Pending any such appointment, the
Certificate Trustee is obligated to act in such capacity. In the event the
Certificate Trustee acts as successor to a Master Servicer, the Certificate
Trustee will be obligated to make Advances unless it is prohibited by law from
doing so. The Certificate Trustee and such successor may agree upon the
compensation to be paid, which in no event may be greater than the compensation
to the replaced Master Servicer under the Pooling and Servicing Agreement.
Subject to certain limitations, holders of Certificates of an affected Series
evidencing Fractional Undivided Interests aggregating not less than 66 2/3% of
the Trust Fund for such affected Series, as determined in the manner set forth
in the Pooling and Servicing Agreement, may direct the action of the
Certificate Trustee in pursuing remedies and exercising powers under the
Pooling and Servicing Agreement.
The Certificate Trustee is under no obligation to exercise any of the
extraordinary trusts or powers vested in it by the Pooling and Servicing
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the Certificateholders, unless
such Certificateholders have offered to the Certificate Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Master
Servicers, the Issuer and the Certificate Trustee without the consent of any of
the Certificateholders: (i) to cure any ambiguity; (ii) to correct or
supplement any provision therein which may be inconsistent with any other
provision therein; (iii) to comply with any requirements imposed by the
Internal Revenue Code of 1986, as amended (the "CODE"); and (iv) to correct the
description of any property at any time included in the Trust Fund, or to
assure conveyance to the Certificate Trustee of any property included in the
Trust Fund. The Pooling and Servicing Agreement may also be amended by the
Master Servicers, the Issuer and the Certificate Trustee with the consent of
the holders of Certificates of a Series evidencing Fractional Undivided
Interests aggregating not less than 66 2/3% of the Trust Fund for such Series,
as determined in the manner set forth in the Pooling and Servicing Agreement,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing
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Agreement or of modifying in any manner the rights of the holders of the
Certificates of the affected Series; provided, however, that no such amendment
may, without the consent of the holders of each Certificate of a Series
affected thereby: (i) reduce in any manner the amount of, or delay the timing
of, distributions of principal or interest required to be made under the
Pooling and Servicing Agreement or reduce such Certificateholder's Fractional
Undivided Interest in the Trust Fund of such Series, the Remittance Rate, the
Termination Payment or the Repurchase Price with respect to the Certificates of
such Series; (ii) reduce the percentage of Fractional Undivided Interests which
are required to amend the Pooling and Servicing Agreement with respect to the
Certificates of such Series; (iii) create or permit the creation of any lien
against any part of the Trust Fund for such Series; or (iv) modify any
provision in any way which would permit an earlier retirement of the
Certificates of such Series.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment to the Bondholders of all amounts required to be paid to
the Bondholders 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 Fund 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 Bond Administrator or the Issuer
when the aggregate principal balance of the Mortgage Loans equals 10% or less
of the aggregate Scheduled Principal Balance thereof as of the Cut-Off Date,
pursuant to a provision of the Pooling and Servicing Agreement giving the Bond
Administrator 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 Redemption
Price. The exercise of the right to repurchase the Mortgage Loans by the Bond
Administrator 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 Bonds.
THE CERTIFICATE TRUSTEE
U.S. Bank National Association will be the Certificate Trustee under
the Pooling and Servicing Agreement. The Issuer and each Master Servicer may
maintain other banking relationships in the ordinary course of business with
the Certificate Trustee. Offered Bonds may be surrendered at the Corporate
Trust Office of the Certificate Trustee located at 180 East Fifth Street,
Minneapolis, Minnesota 55101 or at such other addresses as the Certificate
Trustee may designate from time to time by notice to the Bondholders, the
Issuer and the Master Servicers.
The Certificate Trustee is eligible to serve as such under the Pooling
and Servicing Agreement only if it is (i) an institution insured by the FDIC,
(ii) a corporation or association organized and doing business under the laws
of the United States or of any state thereof, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of not
less than $50,000,000, and subject to supervision or examination by federal or
state authority, and (iii) acceptable to the Rating Agencies.
Under the Pooling and Servicing Agreement, the Certificate Trustee may
resign at any time upon giving written notice to the Bond Administrator. In
such event the Bond Administrator shall appoint a successor Certificate
Trustee. The Bond Administrator may also remove the Certificate Trustee if the
Certificate Trustee ceases to be eligible to continue as such under the Pooling
and Servicing Agreement or if the capital and surplus of the Certificate
Trustee is reduced below $50 million. Upon becoming aware of such
circumstances, the Bond Administrator will be obligated to appoint a successor
Certificate Trustee. The Certificate Trustee may also be removed at any time by
holders of Certificates of a Series evidencing more than 66 2/3% of the
aggregate Fractional Undivided Interests in the Trust Fund of such Series. Any
resignation or removal of the Certificate Trustee and appointment of a
successor Certificate Trustee will not become effective until acceptance of the
appointment by the successor Certificate Trustee.
SPECIAL TAX CONSIDERATIONS
RESIDUAL BONDHOLDERS
THE CLASS RU AND CLASS RL BONDS, 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
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TO CONSULT THEIR OWN TAX ADVISERS AND CONSIDER THE AFTER-TAX EFFECT OF
OWNERSHIP OF A RESIDUAL BOND AND THE SUITABILITY OF THE RESIDUAL BONDS TO THEIR
INVESTMENT OBJECTIVES.
Holders of Class RU and Class RL Bonds 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 Bondholders 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 Bonds, 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 Bondholders may exceed principal and interest payments received by
such Bondholders with respect to their Residual Bonds 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 Bondholders should have other sources of funds sufficient to pay any
federal or state income taxes due as a result of ownership of the Residual
Bonds.
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 RL or Class RU Bondholder, 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 Bondholders. Furthermore, Residual Bondholders 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.
Prospective purchasers of Residual Bonds 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 payments 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
Bond 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
RU Bonds would be treated as noneconomic residual interests for purposes of the
REMIC Regulations on the Closing Date. Each Class RU Bondholder considering
the transfer of such Bond 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
RL Bond 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 Bond 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 pay 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 Bond 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 payments with respect to the
Residual Bond will continue to be subject to 30% withholding as though the
foreign person still owed the Residual Bond. 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 RU Bonds would be treated as TAPRIs for purposes of the REMIC
Regulations on the Closing Date. A Class RU Bondholder should consult with its
tax counsel, before
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transferring a Residual Bond to a foreign person, to determine whether the
Class RU Bond 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
Bond.
The Taxpayer Relief Act of 1997 provides, for taxable years beginning
after December 31, 1997, that if an "electing large partnership" holds a Class
RL or Class RU Bond, 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 BONDHOLDERS
Under section 166 of the Code, both corporate holders of the Senior
Subordinate Bonds and noncorporate holders that acquire such Bonds 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 Senior
Subordinate Bonds become wholly or partially worthless as the result of one or
more Realized Losses. However, a noncorporate holder that does not acquire an
Senior Subordinate Bond in connection with its trade or business will not be
entitled to deduct a loss under Code section 166 until its Senior Subordinate
Bond becomes wholly worthless, and the loss will be characterized as a
short-term capital loss.
Each holder of a Senior Subordinate Bond will be required to accrue
interest and original issue discount income ("CURRENT INCOME") with respect to
such Bond without giving effect to any reduction in payments attributable to a
default or delinquency on the Mortgage Loans until a related Realized Loss is
allocated to such Bond 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 Senior
Subordinate Bond could exceed significantly the amount of economic income
actually realized by the holder in such period. Although the holder of an
Senior Subordinate Bond 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 Senior Subordinate Bonds 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 Bonds 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 Senior Subordinate
Bonds.
NON-U.S. HOLDERS
Final regulations dealing with withholding tax on income paid to
foreign persons and related matters (the "New Withholding Regulations") were
issued by the Treasury Department on October 6, 1997. The New Withholding
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective Non-U.S. Holders are
strong urged to consult their own tax advisors with respect to the New
Withholding Regulations.
RESTRICTIONS ON PURCHASE AND TRANSFER OF THE RESIDUAL BONDS
The Residual Bonds 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 Bond 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)
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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 Bonds 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 (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (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 persons have
the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in regulations,
certain trusts in existence on August 20, 1996 and treated as United States
persons prior to such date that elect to continue to be so treated also shall
be considered United States persons. 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 Bondholder 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 Bonds.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Bonds 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 Bonds 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 Bonds will be approximately
$785,180.099, plus accrued interest on the Offered Bonds from October 1, 1997,
before deducting issuance expenses payable by the Issuer. The Underwriter may
effect such transactions by selling the Offered Bonds 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 Bonds, 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 Bonds may be deemed to be
underwriters and any profit on the resale of the Offered Bonds 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
Bonds 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 Bonds 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 Bonds and the status of the
applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Offered Bonds will be available through
any other source. In addition, the Issuer is not aware of any source through
which price information about the Offered Bonds will be generally available on
an ongoing basis. The limited
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nature of such information regarding the Offered Bonds may adversely affect the
liquidity of the Offered Bonds, even if a secondary market for the Offered
Bonds becomes available.
USE OF PROCEEDS
The Issuer will apply the net proceeds from the sale of the Offered
Bonds against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Bonds will be passed upon for
the Issuer by Andrews & Kurth L.L.P., Dallas, Texas and for the Underwriter by
Brown & Wood LLP, New York, New York. Brown & Wood LLP serves as counsel to
IndyMac.
RATINGS
It is a condition to the issuance of the Offered Bonds that the Class
A Bonds (other than the Class IA-10 and Class IIA-5 Bonds) and the Residual
Bonds each be rated "AAA" by Standard & Poor's, a division of the McGraw Hill
Companies, Inc. ("S&P") and by Duff & Phelps Credit Rating Co. ("DCR"), that
the Notional Amount Bonds each be rated "AAAr" by S&P and "AAA" by DCR and that
the Class B-1 Bonds be rated not less than "AA" by DCR, the Class B-2 Bonds be
rated not less than "A" by DCR and the Class B-3 Bonds be rated not less 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.
The ratings assigned to the Residual Bonds do not assess the
likelihood of return to investors in the Residual Bonds, except to the extent
of the nominal initial principal amount of such Class and interest thereon at
the applicable Bond Interest Rate.
The Issuer has not requested ratings on the Offered Bonds 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 Bonds, or, if it does,
what ratings would be assigned by such other rating agency. Ratings on the
Offered Bonds by another rating agency, if assigned at all, may be lower than
the ratings assigned to the Offered Bonds 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 Bonds and the Class B-1 Bonds 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 BONDS 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
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review any applicable rules, guidelines and regulations prior to purchasing any
Bonds. 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 Bonds as
"mortgage related securities," no representations are made as to the proper
characterization of any Class of Offered Bonds for legal investment, financial
institution registry or other purposes, or as to the ability of particular
investors to purchase any Class of Offered Bonds under applicable legal
investment restrictions. These uncertainties may adversely affect the
liquidity of the Offered Bonds. 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 Bonds 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 Bonds could either give rise to a transaction that is prohibited
under ERISA or the Code or cause the collateral securing the Bonds 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 Bonds. 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 Bonds are not treated as equity interests in the Issuer for
purposes of the Plan Asset Regulation, a Plan's investment in the Bonds would
not cause the assets of the Issuer to be deemed Plan assets. However, the
Issuer, a 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 Bonds, the purchase of Bonds 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 Bonds may not be purchased with the assets of a Plan if the
Issuer, a Master Servicer, the Certificate Trustee, the Indenture Trustee, the
Underwriter or any of their respective affiliates (a) has investment or
administrative discretion with
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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 Bonds 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 Bonds. In such an event, the Master Servicers 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 Bonds are expected to have "substantial equity
characteristics." Accordingly, no Residual Bond 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 Bonds and the Notional Amount Bonds may have "substantial equity
characteristics." Consequently, no transfer of the Class B-3 Bonds or Notional
Amount Bonds 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, or is eligible for an
exemption from the applicable prohibited transaction provisions of ERISA and
the Code, or (ii) an opinion of counsel satisfactory to the Indenture Trustee
and the Issuer to the effect that the purchase and holding of such Bonds will
not constitute or result in a prohibited transaction under ERISA or the Code
and will not subject the Master Servicers, the Certificate 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 Bonds are considered to be
equity interests in the Issuer, certain affiliates of the Issuer or the Master
Servicers might be considered or might become Parties in Interest with respect
to a Plan. In either case, the acquisition or holding of Bonds 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 Bond, Class B-2 Bond or Senior Bond, other than the
Notional Amount Bonds, 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 Bonds 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 BONDS SHOULD CONSULT WITH
ITS COUNSEL TO CONFIRM THAT SUCH INVESTMENT WILL NOT RESULT IN A PROHIBITED
TRANSACTION THAT IS NOT SUBJECT TO AN EXEMPTION AND WILL SATISFY THE OTHER
REQUIREMENTS OF ERISA AND THE CODE APPLICABLE TO PLANS.
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<PAGE> 97
INDEX OF TERMS
<TABLE>
<S> <C>
"Accrual Directed" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Advances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
"Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Basic Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-76
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Benefit Plan Opinion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
"Bond Administrator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Bond Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
"Book-Entry Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Book-Entry Termination" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Buydown Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47, S-82
"Buydown Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"Buydown Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"CCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Certificate Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-86
"Certificate Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Class A Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Class B Loan Group Component Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
"Class IA Lockout Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class IA Lockout Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class IA Lockout Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class IA Lockout Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Class IA Lockout Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Class IA-10 Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Class IA-4 Accretion Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Class IA-4 Accrual Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Class IIA-5 Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Class IIA-6 Lockout Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Class IIA-6 Lockout Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Class IIA-6 Lockout Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Class IIA-6 Lockout Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Class IIX Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Class IX Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Class Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Class Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Class X Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"CMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CMCSC IV" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19, S-89
"Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"Combined Targeted Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Component IA-1-2 Accretion Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Component IA-1-2 Accrual Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Component IA-1-3 Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Component Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Component Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
</TABLE>
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<PAGE> 98
<TABLE>
<S> <C>
"Cooperative Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Current Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-92
"Curtailments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Custodial Account for P&I" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"Custodial Account for Reserves" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"Cut-Off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-28
"DCR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-22, S-94
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"DLJMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"DOL" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"Electing Large Partnership" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-92
"Equity Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Excess Bankruptcy Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Excess Fraud Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Excess Inclusion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20, S-91
"Excess Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Excess Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Excess Special Hazard Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"FHLMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Floater Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Flood Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Group I" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Group I Bankruptcy Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Group I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Group I Credit Support Depletion Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
"Group I Discount Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Group I Fraud Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Group I Liquidation Principal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Group I Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Group I Premium Rate Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Group I Senior Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Group I Senior Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Group I Senior Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
"Group I Senior Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Group I Subordinate Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Group I Subordinate Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Group I Subordinate Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Group I Subordinate Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
"Group I WAC IO Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Group IA Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Group II" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Group II Bankruptcy Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Group II Credit Support Depletion Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
"Group II Discount Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Group II Fraud Coverage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71
"Group II Liquidation Principal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Group II Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Group II Premium Rate Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Group II Senior Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Group II Senior Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Group II Senior Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
</TABLE>
S-98
<PAGE> 99
<TABLE>
<S> <C>
"Group II Senior Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Group II Subordinate Liquidation Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Group II Subordinate Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Group II Subordinate Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Group II Subordinate Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Group IIA Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Indemnified Parties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
"Indenture Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52, S-58
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-10, S-50
"Indenture Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"IndyMac" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9, S-50
"IndyMac Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"IndyMac Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"IndyMac Underwriting Standards" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
"Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"Interest Accrual Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Investment Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-86
"Investment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-86
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-9
"Junior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Junior Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Junior Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Junior Subordinate Components" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"LIBOR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16, S-60
"LIBOR Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Liquidated Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
"Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
"Loan Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Loan Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Loan Sellers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Loan-to-Value Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"Lower REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-84
"Master Servicing Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
"Modeling Assumptions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-77
"Monthly Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
"Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-3
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Mortgage Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"NERDs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
"Net Mortgage Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"No Asset, No Income Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
"Non-Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Non-U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
"Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Offered Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Optional Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17, S-72
"PACs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Parity Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
"Parties In Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-9
"Payoffs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
</TABLE>
S-99
<PAGE> 100
<TABLE>
<S> <C>
"PDU Seller/Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
"PHH" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-50
"PHH Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"PHH Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21, S-95
"Plan Asset Regulation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Plan Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93, S-95
"Plan Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-21, S-96
"Plan Investors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Planned Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-25
"PNC Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"PNC Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9, S-50
"PNC Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Pooling and Administration Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Pooling and Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-28
"Premium Rate Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Prepayment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"Primary Insurance Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-30
"Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
"Principal Prepayment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
"Principal Prepayments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Pro Rata Allocation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
"Prohibited Transaction Provisions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"PTCE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
"Rating Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Real estate Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
"Redemption Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18, S-72
"Reduced Documentation Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
"Reference Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"REITs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"REMIC Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
"Remittance Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
"Residual Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
"Residual Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
"Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
"S&P" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-22, S-94
"Scheduled Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Seller/Servicers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
"Senior Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Senior Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Senior Subordinate Components" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Servicing Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-87
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-22, S-94
"Standard Hazard Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
"Step Down Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
"Streamlined Documentation Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
"Stripped Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Structuring Range" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-75
</TABLE>
S-100
<PAGE> 101
<TABLE>
<S> <C>
"Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Subordinate Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
"Subordination Level" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Sub-Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Sub-Component IA-1-4I Discount Mortgage Loan Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . S-62
"Sub-Component IA-1-4II Discount Mortgage Loan Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . S-66
"Sub-Component IA-1-4II Losses Payable" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Super Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"TACs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"TAPRI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-91
"Targeted Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
"Targeted Range" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-75
"Title Insurance Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Trust Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-88
"UBTI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20, S-91
"Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-93
"Underwriting Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
"Upper REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-19
"Withdrawal Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
</TABLE>
S-101
<PAGE> 102
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-2 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 69 69 69 69
October 25, 2001 100 21 21 21 0
October 25, 2002 100 0 0 0 0
October 25, 2003 96 0 0 0 0
October 25, 2004 87 0 0 0 0
October 25, 2005 78 0 0 0 0
October 25, 2006 68 0 0 0 0
October 25, 2007 57 0 0 0 0
October 25, 2008 46 0 0 0 0
October 25, 2009 33 0 0 0 0
October 25, 2010 19 0 0 0 0
October 25, 2011 5 0 0 0 0
October 25, 2012 0 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 10.4 3.4 3.4 3.4 3.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-1
<PAGE> 103
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-3 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 65 65 65 65 65
October 25, 1999 30 30 30 30 30
October 25, 2000 4 4 4 0 0
October 25, 2001 0 0 0 0 0
October 25, 2002 0 0 0 0 0
October 25, 2003 0 0 0 0 0
October 25, 2004 0 0 0 0 0
October 25, 2005 0 0 0 0 0
October 25, 2006 0 0 0 0 0
October 25, 2007 0 0 0 0 0
October 25, 2008 0 0 0 0 0
October 25, 2009 0 0 0 0 0
October 25, 2010 0 0 0 0 0
October 25, 2011 0 0 0 0 0
October 25, 2012 0 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 1.5 1.5 1.5 1.4 1.4
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-2
<PAGE> 104
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-4 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 108 108 108 0 0
October 25, 1999 116 116 116 0 0
October 25, 2000 125 125 125 0 0
October 25, 2001 134 134 134 0 0
October 25, 2002 145 145 145 0 0
October 25, 2003 156 156 156 0 0
October 25, 2004 168 168 168 0 0
October 25, 2005 180 180 180 0 0
October 25, 2006 194 194 194 0 0
October 25, 2007 209 209 209 0 0
October 25, 2008 225 225 225 0 0
October 25, 2009 242 242 242 0 0
October 25, 2010 261 261 261 0 0
October 25, 2011 281 281 281 0 0
October 25, 2012 302 302 288 0 0
October 25, 2013 326 326 236 0 0
October 25, 2014 350 350 192 0 0
October 25, 2015 377 377 155 0 0
October 25, 2016 406 406 125 0 0
October 25, 2017 437 437 100 0 0
October 25, 2018 471 471 79 0 0
October 25, 2019 507 507 61 0 0
October 25, 2020 546 546 47 0 0
October 25, 2021 587 587 35 0 0
October 25, 2022 632 513 26 0 0
October 25, 2023 681 397 18 0 0
October 25, 2024 733 286 12 0 0
October 25, 2025 789 181 7 0 0
October 25, 2026 530 81 3 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 29.2 27.0 19.2 0.3 0.2
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-3
<PAGE> 105
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-5 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 61
October 25, 2003 94 92 89 61 32
October 25, 2004 92 88 82 38 16
October 25, 2005 91 84 74 24 7
October 25, 2006 89 78 63 16 4
October 25, 2007 87 72 53 11 2
October 25, 2008 85 66 44 7 2
October 25, 2009 83 61 36 5 1
October 25, 2010 81 56 30 3 1
October 25, 2011 79 51 25 2 *
October 25, 2012 76 46 20 2 *
October 25, 2013 73 42 17 1 *
October 25, 2014 70 38 14 1 *
October 25, 2015 67 34 11 * *
October 25, 2016 63 30 9 * *
October 25, 2017 59 26 7 * *
October 25, 2018 55 23 6 * *
October 25, 2019 51 20 4 * *
October 25, 2020 46 17 3 * *
October 25, 2021 40 14 3 * *
October 25, 2022 35 11 2 * *
October 25, 2023 29 9 1 * *
October 25, 2024 22 6 1 * *
October 25, 2025 15 4 * * *
October 25, 2026 7 2 * * *
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.3 15.1 11.3 7.1 5.7
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-4
<PAGE> 106
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-6 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 61
October 25, 2003 94 92 89 61 32
October 25, 2004 92 88 82 38 16
October 25, 2005 91 84 74 24 7
October 25, 2006 89 78 63 16 4
October 25, 2007 87 72 53 11 2
October 25, 2008 85 66 44 7 2
October 25, 2009 83 61 36 5 1
October 25, 2010 81 56 30 3 1
October 25, 2011 79 51 25 2 *
October 25, 2012 76 46 20 2 *
October 25, 2013 73 42 17 1 *
October 25, 2014 70 38 14 1 *
October 25, 2015 67 34 11 * *
October 25, 2016 63 30 9 * *
October 25, 2017 59 26 7 * *
October 25, 2018 55 23 6 * *
October 25, 2019 51 20 4 * *
October 25, 2020 46 17 3 * *
October 25, 2021 40 14 3 * *
October 25, 2022 35 11 2 * *
October 25, 2023 29 9 1 * *
October 25, 2024 22 6 1 * *
October 25, 2025 15 4 * * *
October 25, 2026 7 2 * * *
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.3 15.1 11.3 7.1 5.7
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-5
<PAGE> 107
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-7 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 94 85 76 71
October 25, 1999 100 83 54 23 7
October 25, 2000 100 83 31 0 0
October 25, 2001 100 83 12 0 0
October 25, 2002 99 82 0 0 0
October 25, 2003 92 60 0 0 0
October 25, 2004 84 37 0 0 0
October 25, 2005 76 16 0 0 0
October 25, 2006 67 0 0 0 0
October 25, 2007 57 0 0 0 0
October 25, 2008 47 0 0 0 0
October 25, 2009 36 0 0 0 0
October 25, 2010 24 0 0 0 0
October 25, 2011 11 0 0 0 0
October 25, 2012 0 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 10.4 5.9 2.4 1.5 1.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-6
<PAGE> 108
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-8 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 99 95 95 95 95
October 25, 2000 95 62 62 62 62
October 25, 2001 90 31 31 31 16
October 25, 2002 85 1 1 1 0
October 25, 2003 79 0 0 0 0
October 25, 2004 74 0 0 0 0
October 25, 2005 68 0 0 0 0
October 25, 2006 61 0 0 0 0
October 25, 2007 54 0 0 0 0
October 25, 2008 47 0 0 0 0
October 25, 2009 38 0 0 0 0
October 25, 2010 30 0 0 0 0
October 25, 2011 20 0 0 0 0
October 25, 2012 9 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 10.0 3.4 3.4 3.4 3.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-7
<PAGE> 109
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-9 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 94 91 87 84 81
October 25, 1999 88 79 66 52 46
October 25, 2000 82 65 42 18 18
October 25, 2001 76 51 19 9 5
October 25, 2002 69 37 * * 0
October 25, 2003 64 26 0 0 0
October 25, 2004 59 16 0 0 0
October 25, 2005 54 7 0 0 0
October 25, 2006 48 0 0 0 0
October 25, 2007 41 0 0 0 0
October 25, 2008 35 0 0 0 0
October 25, 2009 27 0 0 0 0
October 25, 2010 19 0 0 0 0
October 25, 2011 11 0 0 0 0
October 25, 2012 3 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 8.2 4.3 2.7 2.2 2.0
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-8
<PAGE> 110
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-11 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 100 100 100 100
October 25, 2001 100 100 100 100 100
October 25, 2002 100 100 100 100 20
October 25, 2003 97 93 87 21 0
October 25, 2004 94 85 71 0 0
October 25, 2005 90 74 50 0 0
October 25, 2006 87 61 27 0 0
October 25, 2007 82 47 2 0 0
October 25, 2008 78 34 0 0 0
October 25, 2009 73 21 0 0 0
October 25, 2010 68 9 0 0 0
October 25, 2011 62 0 0 0 0
October 25, 2012 56 0 0 0 0
October 25, 2013 50 0 0 0 0
October 25, 2014 43 0 0 0 0
October 25, 2015 35 0 0 0 0
October 25, 2016 26 0 0 0 0
October 25, 2017 17 0 0 0 0
October 25, 2018 8 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 15.2 9.7 7.9 5.7 4.7
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-9
<PAGE> 111
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-12 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 100 100 100 100
October 25, 2001 100 100 100 100 100
October 25, 2002 100 100 100 100 100
October 25, 2003 100 100 100 100 62
October 25, 2004 100 100 100 74 30
October 25, 2005 100 100 100 46 14
October 25, 2006 100 100 100 30 7
October 25, 2007 100 100 100 21 5
October 25, 2008 100 100 85 14 3
October 25, 2009 100 100 70 10 2
October 25, 2010 100 100 58 7 1
October 25, 2011 100 98 48 4 1
October 25, 2012 100 89 39 3 *
October 25, 2013 100 80 32 2 *
October 25, 2014 100 72 26 1 *
October 25, 2015 100 65 21 1 *
October 25, 2016 100 58 17 1 *
October 25, 2017 100 51 14 * *
October 25, 2018 100 44 11 * *
October 25, 2019 98 38 8 * *
October 25, 2020 88 33 6 * *
October 25, 2021 78 27 5 * *
October 25, 2022 67 22 4 * *
October 25, 2023 55 17 2 * *
October 25, 2024 42 12 2 * *
October 25, 2025 28 8 1 * *
October 25, 2026 13 3 * * *
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 26.2 20.7 15.0 8.7 6.8
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-10
<PAGE> 112
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-13 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 96 72 72 72 72
October 25, 2000 71 0 0 0 0
October 25, 2001 43 0 0 0 0
October 25, 2002 13 0 0 0 0
October 25, 2003 0 0 0 0 0
October 25, 2004 0 0 0 0 0
October 25, 2005 0 0 0 0 0
October 25, 2006 0 0 0 0 0
October 25, 2007 0 0 0 0 0
October 25, 2008 0 0 0 0 0
October 25, 2009 0 0 0 0 0
October 25, 2010 0 0 0 0 0
October 25, 2011 0 0 0 0 0
October 25, 2012 0 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 3.7 2.2 2.2 2.2 2.2
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-11
<PAGE> 113
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-14 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 100 100 100 100
October 25, 2001 100 100 100 100 97
October 25, 2002 100 7 7 7 0
October 25, 2003 100 0 0 0 0
October 25, 2004 100 0 0 0 0
October 25, 2005 100 0 0 0 0
October 25, 2006 100 0 0 0 0
October 25, 2007 100 0 0 0 0
October 25, 2008 100 0 0 0 0
October 25, 2009 100 0 0 0 0
October 25, 2010 100 0 0 0 0
October 25, 2011 100 0 0 0 0
October 25, 2012 56 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 15.1 4.8 4.8 4.8 4.2
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-12
<PAGE> 114
APPENDIX A
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IA-15 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 83 83 83 83 83
October 25, 1999 67 67 67 67 67
October 25, 2000 54 54 54 0 0
October 25, 2001 28 28 28 0 0
October 25, 2002 0 0 0 0 0
October 25, 2003 0 0 0 0 0
October 25, 2004 0 0 0 0 0
October 25, 2005 0 0 0 0 0
October 25, 2006 0 0 0 0 0
October 25, 2007 0 0 0 0 0
October 25, 2008 0 0 0 0 0
October 25, 2009 0 0 0 0 0
October 25, 2010 0 0 0 0 0
October 25, 2011 0 0 0 0 0
October 25, 2012 0 0 0 0 0
October 25, 2013 0 0 0 0 0
October 25, 2014 0 0 0 0 0
October 25, 2015 0 0 0 0 0
October 25, 2016 0 0 0 0 0
October 25, 2017 0 0 0 0 0
October 25, 2018 0 0 0 0 0
October 25, 2019 0 0 0 0 0
October 25, 2020 0 0 0 0 0
October 25, 2021 0 0 0 0 0
October 25, 2022 0 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 2.8 2.8 2.8 2.1 1.9
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
A-13
<PAGE> 115
APPENDIX B
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IIA-1 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 195% 250% 400%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 96 93 91 87
October 25, 1999 97 87 78 73 59
October 25, 2000 95 76 58 49 25
October 25, 2001 94 65 41 28 0
October 25, 2002 92 55 25 11 0
October 25, 2003 90 46 13 0 0
October 25, 2004 88 37 3 0 0
October 25, 2005 85 30 0 0 0
October 25, 2006 83 24 0 0 0
October 25, 2007 80 18 0 0 0
October 25, 2008 77 12 0 0 0
October 25, 2009 74 7 0 0 0
October 25, 2010 70 2 0 0 0
October 25, 2011 67 0 0 0 0
October 25, 2012 63 0 0 0 0
October 25, 2013 58 0 0 0 0
October 25, 2014 53 0 0 0 0
October 25, 2015 48 0 0 0 0
October 25, 2016 43 0 0 0 0
October 25, 2017 37 0 0 0 0
October 25, 2018 31 0 0 0 0
October 25, 2019 24 0 0 0 0
October 25, 2020 17 0 0 0 0
October 25, 2021 10 0 0 0 0
October 25, 2022 1 0 0 0 0
October 25, 2023 0 0 0 0 0
October 25, 2024 0 0 0 0 0
October 25, 2025 0 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 16.3 6.1 3.6 3.0 2.2
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
B-1
<PAGE> 116
APPENDIX B
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IIA-2 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 195% 250% 400%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 100 100 100 100
October 25, 2001 100 100 100 100 95
October 25, 2002 100 100 100 100 38
October 25, 2003 100 100 100 93 3
October 25, 2004 100 100 100 63 0
October 25, 2005 100 100 84 41 0
October 25, 2006 100 100 66 25 0
October 25, 2007 100 100 51 14 0
October 25, 2008 100 100 38 4 0
October 25, 2009 100 100 27 0 0
October 25, 2010 100 100 17 0 0
October 25, 2011 100 93 8 0 0
October 25, 2012 100 81 1 0 0
October 25, 2013 100 69 0 0 0
October 25, 2014 100 58 0 0 0
October 25, 2015 100 47 0 0 0
October 25, 2016 100 37 0 0 0
October 25, 2017 100 27 0 0 0
October 25, 2018 100 18 0 0 0
October 25, 2019 100 10 0 0 0
October 25, 2020 100 2 0 0 0
October 25, 2021 100 0 0 0 0
October 25, 2022 100 0 0 0 0
October 25, 2023 78 0 0 0 0
October 25, 2024 50 0 0 0 0
October 25, 2025 20 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 27.0 18.0 10.5 8.0 4.9
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
B-2
<PAGE> 117
APPENDIX B
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IIA-3 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 195% 250% 400%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 100 100 100 100 100
October 25, 1999 100 100 100 100 100
October 25, 2000 100 100 100 100 100
October 25, 2001 100 100 100 100 100
October 25, 2002 100 100 100 100 100
October 25, 2003 100 100 100 100 100
October 25, 2004 100 100 100 100 52
October 25, 2005 100 100 100 100 23
October 25, 2006 100 100 100 100 11
October 25, 2007 100 100 100 100 8
October 25, 2008 100 100 100 100 6
October 25, 2009 100 100 100 91 5
October 25, 2010 100 100 100 75 3
October 25, 2011 100 100 100 62 2
October 25, 2012 100 100 100 51 2
October 25, 2013 100 100 87 42 1
October 25, 2014 100 100 73 34 1
October 25, 2015 100 100 61 27 1
October 25, 2016 100 100 51 22 *
October 25, 2017 100 100 42 17 *
October 25, 2018 100 100 35 14 *
October 25, 2019 100 100 28 11 *
October 25, 2020 100 100 22 8 *
October 25, 2021 100 87 18 6 *
October 25, 2022 100 71 13 5 *
October 25, 2023 100 55 10 3 *
October 25, 2024 100 40 7 2 *
October 25, 2025 100 25 4 1 *
October 25, 2026 72 12 2 * *
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 29.3 26.4 20.1 16.3 7.7
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
B-3
<PAGE> 118
APPENDIX B
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IIA-4 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 195% 250% 400%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 97 95 94 90
October 25, 1999 98 91 84 80 69
October 25, 2000 97 82 69 62 44
October 25, 2001 95 74 56 47 24
October 25, 2002 94 66 45 34 10
October 25, 2003 92 60 35 24 1
October 25, 2004 91 54 28 16 0
October 25, 2005 89 48 22 11 0
October 25, 2006 87 43 17 7 0
October 25, 2007 85 39 13 4 0
October 25, 2008 83 35 10 1 0
October 25, 2009 80 31 7 0 0
October 25, 2010 78 27 4 0 0
October 25, 2011 75 24 2 0 0
October 25, 2012 72 21 * 0 0
October 25, 2013 69 18 0 0 0
October 25, 2014 65 15 0 0 0
October 25, 2015 62 12 0 0 0
October 25, 2016 58 9 0 0 0
October 25, 2017 53 7 0 0 0
October 25, 2018 49 5 0 0 0
October 25, 2019 44 3 0 0 0
October 25, 2020 39 1 0 0 0
October 25, 2021 33 0 0 0 0
October 25, 2022 27 0 0 0 0
October 25, 2023 20 0 0 0 0
October 25, 2024 13 0 0 0 0
October 25, 2025 5 0 0 0 0
October 25, 2026 0 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 19.0 9.1 5.4 4.3 2.9
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
B-4
<PAGE> 119
APPENDIX B
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS IIA-6 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 195% 250% 400%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 95
October 25, 2003 93 91 90 89 86
October 25, 2004 92 88 84 82 76
October 25, 2005 90 83 77 73 63
October 25, 2006 88 78 68 63 50
October 25, 2007 87 71 59 52 37
October 25, 2008 85 66 51 43 28
October 25, 2009 82 60 44 36 20
October 25, 2010 80 55 38 30 15
October 25, 2011 78 50 32 24 11
October 25, 2012 75 45 27 20 8
October 25, 2013 72 41 23 16 6
October 25, 2014 69 37 20 13 4
October 25, 2015 65 33 16 11 3
October 25, 2016 62 29 14 9 2
October 25, 2017 58 26 11 7 2
October 25, 2018 54 22 9 5 1
October 25, 2019 49 19 8 4 1
October 25, 2020 45 16 6 3 1
October 25, 2021 39 14 5 2 *
October 25, 2022 34 11 4 2 *
October 25, 2023 28 9 3 1 *
October 25, 2024 22 6 2 1 *
October 25, 2025 15 4 1 * *
October 25, 2026 7 2 * * *
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.1 14.9 12.3 11.3 9.5
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
B-5
<PAGE> 120
APPENDIX C
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS B1 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 95
October 25, 2003 94 92 89 84 82
October 25, 2004 92 88 82 72 68
October 25, 2005 91 84 73 57 51
October 25, 2006 89 78 63 42 35
October 25, 2007 87 72 53 29 22
October 25, 2008 85 66 44 20 14
October 25, 2009 83 61 36 14 9
October 25, 2010 81 56 30 9 5
October 25, 2011 79 51 25 6 3
October 25, 2012 76 46 20 4 2
October 25, 2013 73 42 17 3 1
October 25, 2014 70 38 14 2 1
October 25, 2015 67 34 11 1 0
October 25, 2016 63 30 9 1 0
October 25, 2017 59 26 7 1 0
October 25, 2018 55 23 6 0 0
October 25, 2019 51 20 4 0 0
October 25, 2020 46 17 3 0 0
October 25, 2021 40 14 3 0 0
October 25, 2022 35 11 2 0 0
October 25, 2023 29 9 1 0 0
October 25, 2024 22 6 1 0 0
October 25, 2025 15 4 0 0 0
October 25, 2026 7 2 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.3 15.1 11.3 8.8 8.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
C-1
<PAGE> 121
APPENDIX C
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS B2 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 95
October 25, 2003 94 92 89 84 82
October 25, 2004 92 88 82 72 68
October 25, 2005 91 84 73 57 51
October 25, 2006 89 78 63 42 35
October 25, 2007 87 72 53 29 22
October 25, 2008 85 66 44 20 14
October 25, 2009 83 61 36 14 9
October 25, 2010 81 56 30 9 5
October 25, 2011 79 51 25 6 3
October 25, 2012 76 46 20 4 2
October 25, 2013 73 42 17 3 1
October 25, 2014 70 37 14 2 1
October 25, 2015 67 34 11 1 0
October 25, 2016 63 30 9 1 0
October 25, 2017 59 26 7 1 0
October 25, 2018 55 23 6 0 0
October 25, 2019 50 20 4 0 0
October 25, 2020 46 17 3 0 0
October 25, 2021 40 14 3 0 0
October 25, 2022 35 11 2 0 0
October 25, 2023 28 9 1 0 0
October 25, 2024 22 6 1 0 0
October 25, 2025 15 4 0 0 0
October 25, 2026 7 2 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.3 15.1 11.3 8.8 8.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
C-2
<PAGE> 122
APPENDIX C
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS B3 BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 99 99 99 99
October 25, 1999 98 98 98 98 98
October 25, 2000 97 97 97 97 97
October 25, 2001 96 96 96 96 96
October 25, 2002 95 95 95 95 95
October 25, 2003 94 92 89 84 82
October 25, 2004 92 88 82 72 68
October 25, 2005 91 84 73 57 51
October 25, 2006 89 78 63 42 35
October 25, 2007 87 72 53 29 22
October 25, 2008 85 66 44 20 14
October 25, 2009 83 61 36 14 9
October 25, 2010 81 56 30 9 5
October 25, 2011 79 51 25 6 3
October 25, 2012 76 46 20 4 2
October 25, 2013 73 42 17 3 1
October 25, 2014 70 37 14 2 1
October 25, 2015 67 34 11 1 0
October 25, 2016 63 30 9 1 0
October 25, 2017 59 26 7 1 0
October 25, 2018 55 23 6 0 0
October 25, 2019 50 20 4 0 0
October 25, 2020 46 17 3 0 0
October 25, 2021 40 14 3 0 0
October 25, 2022 35 11 2 0 0
October 25, 2023 28 9 1 0 0
October 25, 2024 22 6 1 0 0
October 25, 2025 15 4 0 0 0
October 25, 2026 7 2 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 20.3 15.1 11.3 8.8 8.3
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
C-3
<PAGE> 123
APPENDIX D
PERCENTAGE OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
CLASS RL AND CLASS RU BONDS
<TABLE>
<CAPTION>
PAYMENT DATE 0% 100% 250% 500% 600%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage 100% 100% 100% 100% 100%
October 25, 1998 99 97 93 87 85
October 25, 1999 98 90 79 60 53
October 25, 2000 97 81 60 31 20
October 25, 2001 95 73 45 10 0
October 25, 2002 94 65 32 0 0
October 25, 2003 93 59 22 0 0
October 25, 2004 91 53 15 0 0
October 25, 2005 90 48 10 0 0
October 25, 2006 88 44 7 0 0
October 25, 2007 86 40 5 0 0
October 25, 2008 84 36 3 0 0
October 25, 2009 82 33 2 0 0
October 25, 2010 80 29 1 0 0
October 25, 2011 77 26 0 0 0
October 25, 2012 74 23 0 0 0
October 25, 2013 71 21 0 0 0
October 25, 2014 68 18 0 0 0
October 25, 2015 65 16 0 0 0
October 25, 2016 61 13 0 0 0
October 25, 2017 57 11 0 0 0
October 25, 2018 52 9 0 0 0
October 25, 2019 48 7 0 0 0
October 25, 2020 43 5 0 0 0
October 25, 2021 37 3 0 0 0
October 25, 2022 31 2 0 0 0
October 25, 2023 25 * 0 0 0
October 25, 2024 18 0 0 0 0
October 25, 2025 10 0 0 0 0
October 25, 2026 2 0 0 0 0
October 25, 2027 0 0 0 0 0
Weighted Average
Life In Years** 19.7 9.6 4.3 2.4 2.1
</TABLE>
_________________
*Indicates a number that is greater than zero but less than 0.5%.
**The weighted average life of a Bond is determined by (i) multiplying the
amount of each payment in reduction of the Principal Balance of such Bond by
the number of years from the date of issuance of the Bond to the related
Payment Date, (ii) adding the results and (iii) dividing the sum by the initial
Principal Balance of the Bond.
D-1
<PAGE> 124
APPENDIX E
PLANNED PRINCIPAL BALANCES TABLES
The Planned Principal Balances set forth in the tables below were
calculated on the basis of the initial Class Principal Balances or Component
Principal Balances of the PACs and the other assumptions described in "Certain
Yield and Prepayment Considerations--General" herein.
CLASS IA-2 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 39,100,200.00
November 25, 1997................................................................................. 39,100,200.00
December 25, 1997................................................................................. 39,100,200.00
January 25, 1998.................................................................................. 39,100,200.00
February 25, 1998................................................................................. 39,100,200.00
March 25, 1998.................................................................................... 39,100,200.00
April 25, 1998.................................................................................... 39,100,200.00
May 25, 1998...................................................................................... 39,100,200.00
June 25, 1998..................................................................................... 39,100,200.00
July 25, 1998..................................................................................... 39,100,200.00
August 25, 1998................................................................................... 39,100,200.00
September 25, 1998................................................................................ 39,100,200.00
October 25, 1998.................................................................................. 39,100,200.00
November 25, 1998................................................................................. 39,100,200.00
December 25, 1998................................................................................. 39,100,200.00
January 25, 1999.................................................................................. 39,100,200.00
February 25, 1999................................................................................. 39,100,200.00
March 25, 1999.................................................................................... 39,100,200.00
April 25, 1999.................................................................................... 39,100,200.00
May 25, 1999...................................................................................... 39,100,200.00
June 25, 1999..................................................................................... 39,100,200.00
July 25, 1999..................................................................................... 39,100,200.00
August 25, 1999................................................................................... 39,100,200.00
September 25, 1999................................................................................ 39,100,200.00
October 25, 1999.................................................................................. 39,100,200.00
November 25, 1999................................................................................. 39,100,200.00
December 25, 1999................................................................................. 39,100,200.00
January 25, 2000.................................................................................. 39,100,200.00
February 25, 2000................................................................................. 39,100,200.00
March 25, 2000.................................................................................... 38,696,299.33
April 25, 2000.................................................................................... 37,019,828.22
May 25, 2000...................................................................................... 35,352,122.49
June 25, 2000..................................................................................... 33,693,139.81
July 25, 2000..................................................................................... 32,042,838.09
August 25, 2000................................................................................... 30,401,175.47
September 25, 2000................................................................................ 28,768,110.34
October 25, 2000.................................................................................. 27,143,601.33
November 25, 2000................................................................................. 25,527,607.28
December 25, 2000................................................................................. 23,920,087.29
January 25, 2001.................................................................................. 22,321,000.67
February 25, 2001................................................................................. 20,730,306.97
March 25, 2001.................................................................................... 19,147,965.98
April 25, 2001.................................................................................... 17,573,937.71
May 25, 2001...................................................................................... 16,008,182.39
</TABLE>
E-1
<PAGE> 125
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
June 25, 2001..................................................................................... $ 14,450,660.49
July 25, 2001..................................................................................... 12,901,332.70
August 25, 2001................................................................................... 11,360,159.94
September 25, 2001................................................................................ 9,827,103.35
October 25, 2001.................................................................................. 8,302,124.28
November 25, 2001................................................................................. 6,785,184.34
December 25, 2001................................................................................. 5,276,245.32
January 25, 2002.................................................................................. 3,775,269.25
February 25, 2002................................................................................. 2,282,218.37
March 25, 2002.................................................................................... 797,055.16
April 25, 2002.................................................................................... 0.00
May 25, 2002...................................................................................... 0.00
June 25, 2002..................................................................................... 0.00
July 25, 2002..................................................................................... 0.00
August 25, 2002................................................................................... 0.00
September 25, 2002................................................................................ 0.00
October 25, 2002.................................................................................. 0.00
November 25, 2002................................................................................. 0.00
</TABLE>
E-2
<PAGE> 126
CLASS IA-3 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 15,745,000.00
November 25, 1997................................................................................. 15,305,604.19
December 25, 1997................................................................................. 14,863,432.87
January 25, 1998.................................................................................. 14,418,468.47
February 25, 1998................................................................................. 13,970,693.32
March 25, 1998.................................................................................... 13,520,089.63
April 25, 1998.................................................................................... 13,066,639.50
May 25, 1998...................................................................................... 12,610,324.92
June 25, 1998..................................................................................... 12,151,127.76
July 25, 1998..................................................................................... 11,689,029.77
August 25, 1998................................................................................... 11,224,012.61
September 25, 1998................................................................................ 10,756,057.78
October 25, 1998.................................................................................. 10,285,146.72
November 25, 1998................................................................................. 9,811,260.69
December 25, 1998................................................................................. 9,334,380.88
January 25, 1999.................................................................................. 8,854,488.34
February 25, 1999................................................................................. 8,371,563.99
March 25, 1999.................................................................................... 7,885,588.66
April 25, 1999.................................................................................... 7,396,543.03
May 25, 1999...................................................................................... 6,904,407.66
June 25, 1999..................................................................................... 6,409,163.01
July 25, 1999..................................................................................... 5,910,789.39
August 25, 1999................................................................................... 5,409,266.99
September 25, 1999................................................................................ 5,075,968.03
October 25, 1999.................................................................................. 4,740,613.72
November 25, 1999................................................................................. 4,403,191.40
December 25, 1999................................................................................. 4,063,688.30
January 25, 2000.................................................................................. 3,722,091.61
February 25, 2000................................................................................. 3,378,388.40
March 25, 2000.................................................................................... 3,032,565.69
April 25, 2000.................................................................................... 2,684,610.40
May 25, 2000...................................................................................... 2,334,509.39
June 25, 2000..................................................................................... 1,982,249.42
July 25, 2000..................................................................................... 1,627,817.19
August 25, 2000................................................................................... 1,271,199.28
September 25, 2000................................................................................ 912,382.24
October 25, 2000.................................................................................. 551,352.49
November 25, 2000................................................................................. 188,096.39
December 25, 2000................................................................................. 0.00
January 25, 2001.................................................................................. 0.00
February 25, 2001................................................................................. 0.00
March 25, 2001.................................................................................... 0.00
April 25, 2001.................................................................................... 0.00
May 25, 2001...................................................................................... 0.00
June 25, 2001..................................................................................... 0.00
July 25, 2001..................................................................................... 0.00
August 25, 2001................................................................................... 0.00
September 25, 2001................................................................................ 0.00
October 25, 2001.................................................................................. 0.00
November 25, 2001................................................................................. 0.00
</TABLE>
E-3
<PAGE> 127
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 0.00
January 25, 2002.................................................................................. 0.00
February 25, 2002................................................................................. 0.00
March 25, 2002.................................................................................... 0.00
April 25, 2002.................................................................................... 0.00
May 25, 2002...................................................................................... 0.00
June 25, 2002..................................................................................... 0.00
July 25, 2002..................................................................................... 0.00
August 25, 2002................................................................................... 0.00
September 25, 2002................................................................................ 0.00
October 25, 2002.................................................................................. 0.00
November 25, 2002................................................................................. 0.00
</TABLE>
E-4
<PAGE> 128
CLASS IA-8 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 57,324,965.00
November 25, 1997................................................................................. 57,324,965.00
December 25, 1997................................................................................. 57,324,965.00
January 25, 1998.................................................................................. 57,324,965.00
February 25, 1998................................................................................. 57,324,965.00
March 25, 1998.................................................................................... 57,324,965.00
April 25, 1998.................................................................................... 57,324,965.00
May 25, 1998...................................................................................... 57,324,965.00
June 25, 1998..................................................................................... 57,324,965.00
July 25, 1998..................................................................................... 57,324,965.00
August 25, 1998................................................................................... 57,324,965.00
September 25, 1998................................................................................ 57,324,965.00
October 25, 1998.................................................................................. 57,324,965.00
November 25, 1998................................................................................. 57,324,965.00
December 25, 1998................................................................................. 57,324,965.00
January 25, 1999.................................................................................. 57,324,965.00
February 25, 1999................................................................................. 57,324,965.00
March 25, 1999.................................................................................... 57,324,965.00
April 25, 1999.................................................................................... 57,324,965.00
May 25, 1999...................................................................................... 57,324,965.00
June 25, 1999..................................................................................... 57,324,965.00
July 25, 1999..................................................................................... 57,324,965.00
August 25, 1999................................................................................... 57,324,965.00
September 25, 1999................................................................................ 55,921,279.06
October 25, 1999.................................................................................. 54,476,001.34
November 25, 1999................................................................................. 52,990,725.83
December 25, 1999................................................................................. 51,467,277.53
January 25, 2000.................................................................................. 49,907,791.45
February 25, 2000................................................................................. 48,316,743.65
March 25, 2000.................................................................................... 46,707,316.02
April 25, 2000.................................................................................... 45,103,753.92
May 25, 2000...................................................................................... 43,508,576.00
June 25, 2000..................................................................................... 41,921,741.77
July 25, 2000..................................................................................... 40,343,210.96
August 25, 2000................................................................................... 38,772,943.55
September 25, 2000................................................................................ 37,210,899.73
October 25, 2000.................................................................................. 35,657,039.92
November 25, 2000................................................................................. 34,111,324.76
December 25, 2000................................................................................. 32,573,715.13
January 25, 2001.................................................................................. 31,044,172.10
February 25, 2001................................................................................. 29,522,657.00
March 25, 2001.................................................................................... 28,009,131.34
April 25, 2001.................................................................................... 26,503,556.89
May 25, 2001...................................................................................... 25,005,895.60
June 25, 2001..................................................................................... 23,516,109.66
July 25, 2001..................................................................................... 22,034,161.47
August 25, 2001................................................................................... 20,560,013.66
September 25, 2001................................................................................ 19,093,629.04
October 25, 2001.................................................................................. 17,634,970.67
November 25, 2001................................................................................. 16,184,001.79
</TABLE>
E-5
<PAGE> 129
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 14,740,685.89
January 25, 2002.................................................................................. 13,304,986.62
February 25, 2002................................................................................. 11,876,867.89
March 25, 2002.................................................................................... 10,456,293.79
April 25, 2002.................................................................................... 9,043,228.62
May 25, 2002...................................................................................... 7,637,636.90
June 25, 2002..................................................................................... 6,239,483.34
July 25, 2002..................................................................................... 4,848,732.86
August 25, 2002................................................................................... 3,465,350.59
September 25, 2002................................................................................ 2,089,301.85
October 25, 2002.................................................................................. 720,552.19
November 25, 2002................................................................................. 0.00
</TABLE>
E-6
<PAGE> 130
CLASS IA-13 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 10,696,500.00
November 25, 1997................................................................................. 10,696,500.00
December 25, 1997................................................................................. 10,696,500.00
January 25, 1998.................................................................................. 10,696,500.00
February 25, 1998................................................................................. 10,696,500.00
March 25, 1998.................................................................................... 10,696,500.00
April 25, 1998.................................................................................... 10,696,500.00
May 25, 1998...................................................................................... 10,696,500.00
June 25, 1998..................................................................................... 10,696,500.00
July 25, 1998..................................................................................... 10,696,500.00
August 25, 1998................................................................................... 10,696,500.00
September 25, 1998................................................................................ 10,696,500.00
October 25, 1998.................................................................................. 10,696,500.00
November 25, 1998................................................................................. 10,696,500.00
December 25, 1998................................................................................. 10,696,500.00
January 25, 1999.................................................................................. 10,696,500.00
February 25, 1999................................................................................. 10,696,500.00
March 25, 1999.................................................................................... 10,696,500.00
April 25, 1999.................................................................................... 10,696,500.00
May 25, 1999...................................................................................... 10,696,500.00
June 25, 1999..................................................................................... 10,696,500.00
July 25, 1999..................................................................................... 10,696,500.00
August 25, 1999................................................................................... 10,696,500.00
September 25, 1999................................................................................ 10,696,500.00
October 25, 1999.................................................................................. 9,228,992.80
November 25, 1999................................................................................. 7,718,002.76
December 25, 1999................................................................................. 6,165,196.37
January 25, 2000.................................................................................. 4,572,481.58
February 25, 2000................................................................................. 2,942,090.49
March 25, 2000.................................................................................... 1,278,702.66
April 25, 2000.................................................................................... 0.00
May 25, 2000...................................................................................... 0.00
June 25, 2000..................................................................................... 0.00
July 25, 2000..................................................................................... 0.00
August 25, 2000................................................................................... 0.00
September 25, 2000................................................................................ 0.00
October 25, 2000.................................................................................. 0.00
November 25, 2000................................................................................. 0.00
December 25, 2000................................................................................. 0.00
January 25, 2001.................................................................................. 0.00
February 25, 2001................................................................................. 0.00
March 25, 2001.................................................................................... 0.00
April 25, 2001.................................................................................... 0.00
May 25, 2001...................................................................................... 0.00
June 25, 2001..................................................................................... 0.00
July 25, 2001..................................................................................... 0.00
August 25, 2001................................................................................... 0.00
September 25, 2001................................................................................ 0.00
October 25, 2001.................................................................................. 0.00
November 25, 2001................................................................................. 0.00
</TABLE>
E-7
<PAGE> 131
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 0.00
January 25, 2002.................................................................................. 0.00
February 25, 2002................................................................................. 0.00
March 25, 2002.................................................................................... 0.00
April 25, 2002.................................................................................... 0.00
May 25, 2002...................................................................................... 0.00
June 25, 2002..................................................................................... 0.00
July 25, 2002..................................................................................... 0.00
August 25, 2002................................................................................... 0.00
September 25, 2002................................................................................ 0.00
October 25, 2002.................................................................................. 0.00
November 25, 2002................................................................................. 0.00
</TABLE>
E-8
<PAGE> 132
CLASS IA-14 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 10,134,654.00
November 25, 1997................................................................................. 10,134,654.00
December 25, 1997................................................................................. 10,134,654.00
January 25, 1998.................................................................................. 10,134,654.00
February 25, 1998................................................................................. 10,134,654.00
March 25, 1998.................................................................................... 10,134,654.00
April 25, 1998.................................................................................... 10,134,654.00
May 25, 1998...................................................................................... 10,134,654.00
June 25, 1998..................................................................................... 10,134,654.00
July 25, 1998..................................................................................... 10,134,654.00
August 25, 1998................................................................................... 10,134,654.00
September 25, 1998................................................................................ 10,134,654.00
October 25, 1998.................................................................................. 10,134,654.00
November 25, 1998................................................................................. 10,134,654.00
December 25, 1998................................................................................. 10,134,654.00
January 25, 1999.................................................................................. 10,134,654.00
February 25, 1999................................................................................. 10,134,654.00
March 25, 1999.................................................................................... 10,134,654.00
April 25, 1999.................................................................................... 10,134,654.00
May 25, 1999...................................................................................... 10,134,654.00
June 25, 1999..................................................................................... 10,134,654.00
July 25, 1999..................................................................................... 10,134,654.00
August 25, 1999................................................................................... 10,134,654.00
September 25, 1999................................................................................ 10,134,654.00
October 25, 1999.................................................................................. 10,134,654.00
November 25, 1999................................................................................. 10,134,654.00
December 25, 1999................................................................................. 10,134,654.00
January 25, 2000.................................................................................. 10,134,654.00
February 25, 2000................................................................................. 10,134,654.00
March 25, 2000.................................................................................... 10,134,654.00
April 25, 2000.................................................................................... 10,134,654.00
May 25, 2000...................................................................................... 10,134,654.00
June 25, 2000..................................................................................... 10,134,654.00
July 25, 2000..................................................................................... 10,134,654.00
August 25, 2000................................................................................... 10,134,654.00
September 25, 2000................................................................................ 10,134,654.00
October 25, 2000.................................................................................. 10,134,654.00
November 25, 2000................................................................................. 10,134,654.00
December 25, 2000................................................................................. 10,134,654.00
January 25, 2001.................................................................................. 10,134,654.00
February 25, 2001................................................................................. 10,134,654.00
March 25, 2001.................................................................................... 10,134,654.00
April 25, 2001.................................................................................... 10,134,654.00
May 25, 2001...................................................................................... 10,134,654.00
June 25, 2001..................................................................................... 10,134,654.00
July 25, 2001..................................................................................... 10,134,654.00
August 25, 2001................................................................................... 10,134,654.00
September 25, 2001................................................................................ 10,134,654.00
October 25, 2001.................................................................................. 10,134,654.00
November 25, 2001................................................................................. 10,134,654.00
</TABLE>
E-9
<PAGE> 133
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 10,134,654.00
January 25, 2002.................................................................................. 10,134,654.00
February 25, 2002................................................................................. 10,134,654.00
March 25, 2002.................................................................................... 10,134,654.00
April 25, 2002.................................................................................... 9,454,396.28
May 25, 2002...................................................................................... 7,984,896.65
June 25, 2002..................................................................................... 6,523,173.36
July 25, 2002..................................................................................... 5,069,189.76
August 25, 2002................................................................................... 3,622,909.37
September 25, 2002................................................................................ 2,184,295.95
October 25, 2002.................................................................................. 753,313.47
November 25, 2002................................................................................. 0.00
</TABLE>
E-10
<PAGE> 134
CLASS IA-15 BONDS
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 31,416,600.00
November 25, 1997................................................................................. 30,997,576.31
December 25, 1997................................................................................. 30,575,905.78
January 25, 1998.................................................................................. 30,151,571.68
February 25, 1998................................................................................. 29,724,557.14
March 25, 1998.................................................................................... 29,294,845.21
April 25, 1998.................................................................................... 28,862,418.81
May 25, 1998...................................................................................... 28,427,260.76
June 25, 1998..................................................................................... 27,989,353.78
July 25, 1998..................................................................................... 27,548,680.47
August 25, 1998................................................................................... 27,105,223.33
September 25, 1998................................................................................ 26,658,964.73
October 25, 1998.................................................................................. 26,209,886.94
November 25, 1998................................................................................. 25,757,972.14
December 25, 1998................................................................................. 25,303,202.35
January 25, 1999.................................................................................. 24,845,559.50
February 25, 1999................................................................................. 24,385,025.43
March 25, 1999.................................................................................... 23,921,581.82
April 25, 1999.................................................................................... 23,455,210.26
May 25, 1999...................................................................................... 22,985,892.22
June 25, 1999..................................................................................... 22,513,609.06
July 25, 1999..................................................................................... 22,038,341.99
August 25, 1999................................................................................... 21,560,072.14
September 25, 1999................................................................................ 21,242,226.23
October 25, 1999.................................................................................. 20,922,420.26
November 25, 1999................................................................................. 20,600,642.16
December 25, 1999................................................................................. 20,276,879.76
January 25, 2000.................................................................................. 19,951,120.83
February 25, 2000................................................................................. 19,623,353.05
March 25, 2000.................................................................................... 19,293,564.04
April 25, 2000.................................................................................... 18,961,741.32
May 25, 2000...................................................................................... 18,627,872.37
June 25, 2000..................................................................................... 18,291,944.56
July 25, 2000..................................................................................... 17,953,945.19
August 25, 2000................................................................................... 17,613,861.50
September 25, 2000................................................................................ 17,271,680.62
October 25, 2000.................................................................................. 16,927,389.62
November 25, 2000................................................................................. 16,580,975.50
December 25, 2000................................................................................. 16,055,025.37
January 25, 2001.................................................................................. 15,336,575.56
February 25, 2001................................................................................. 14,613,695.31
March 25, 2001.................................................................................... 13,886,357.30
April 25, 2001.................................................................................... 13,154,534.03
May 25, 2001...................................................................................... 12,418,197.86
June 25, 2001..................................................................................... 11,677,320.95
July 25, 2001..................................................................................... 10,931,875.29
August 25, 2001................................................................................... 10,181,832.73
September 25, 2001................................................................................ 9,427,164.90
October 25, 2001.................................................................................. 8,667,843.28
November 25, 2001................................................................................. 7,903,839.18
</TABLE>
E-11
<PAGE> 135
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 7,135,123.72
January 25, 2002.................................................................................. 6,361,667.85
February 25, 2002................................................................................. 5,583,442.34
March 25, 2002.................................................................................... 4,800,417.77
April 25, 2002.................................................................................... 4,012,564.54
May 25, 2002...................................................................................... 3,219,852.89
June 25, 2002..................................................................................... 2,422,252.85
July 25, 2002..................................................................................... 1,619,734.28
August 25, 2002................................................................................... 812,266.84
September 25, 2002................................................................................ 0.00
October 25, 2002.................................................................................. 0.00
November 25, 2002................................................................................. 0.00
</TABLE>
E-12
<PAGE> 136
COMPONENT IA-9-1
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance................................................................................... $ 29,965,681.00
November 25, 1997................................................................................. 29,965,681.00
December 25, 1997................................................................................. 29,965,681.00
January 25, 1998.................................................................................. 29,965,681.00
February 25, 1998................................................................................. 29,965,681.00
March 25, 1998.................................................................................... 29,965,681.00
April 25, 1998.................................................................................... 29,965,681.00
May 25, 1998...................................................................................... 29,965,681.00
June 25, 1998..................................................................................... 29,965,681.00
July 25, 1998..................................................................................... 29,965,681.00
August 25, 1998................................................................................... 29,965,681.00
September 25, 1998................................................................................ 29,965,681.00
October 25, 1998.................................................................................. 29,965,681.00
November 25, 1998................................................................................. 29,965,681.00
December 25, 1998................................................................................. 29,965,681.00
January 25, 1999.................................................................................. 29,965,681.00
February 25, 1999................................................................................. 29,965,681.00
March 25, 1999.................................................................................... 29,965,681.00
April 25, 1999.................................................................................... 29,965,681.00
May 25, 1999...................................................................................... 29,965,681.00
June 25, 1999..................................................................................... 29,965,681.00
July 25, 1999..................................................................................... 29,965,681.00
August 25, 1999................................................................................... 29,965,681.00
September 25, 1999................................................................................ 29,231,927.30
October 25, 1999.................................................................................. 28,476,432.18
November 25, 1999................................................................................. 27,700,028.88
December 25, 1999................................................................................. 26,903,671.38
January 25, 2000.................................................................................. 26,088,475.73
February 25, 2000................................................................................. 25,256,781.70
March 25, 2000.................................................................................... 24,415,479.92
April 25, 2000.................................................................................... 23,577,244.26
May 25, 2000...................................................................................... 22,743,391.28
June 25, 2000..................................................................................... 21,913,899.83
July 25, 2000..................................................................................... 21,088,748.86
August 25, 2000................................................................................... 20,267,917.44
September 25, 2000................................................................................ 19,451,384.77
October 25, 2000.................................................................................. 18,639,130.15
November 25, 2000................................................................................. 17,831,133.02
December 25, 2000................................................................................. 17,027,372.92
January 25, 2001.................................................................................. 16,227,829.50
February 25, 2001................................................................................. 15,432,482.55
March 25, 2001.................................................................................... 14,641,311.95
April 25, 2001.................................................................................... 13,854,297.70
May 25, 2001...................................................................................... 13,071,419.94
June 25, 2001..................................................................................... 12,292,658.89
July 25, 2001..................................................................................... 11,517,994.89
August 25, 2001................................................................................... 10,747,408.40
September 25, 2001................................................................................ 9,980,880.01
October 25, 2001.................................................................................. 9,218,390.37
November 25, 2001................................................................................. 8,459,920.30
</TABLE>
E-13
<PAGE> 137
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001................................................................................. $ 7,705,450.69
January 25, 2002.................................................................................. 6,954,962.55
February 25, 2002................................................................................. 6,208,437.01
March 25, 2002.................................................................................... 5,465,855.31
April 25, 2002.................................................................................... 4,727,198.77
May 25, 2002...................................................................................... 3,992,448.86
June 25, 2002..................................................................................... 3,261,587.12
July 25, 2002..................................................................................... 2,534,595.22
August 25, 2002................................................................................... 1,811,454.93
September 25, 2002................................................................................ 1,092,148.12
October 25, 2002.................................................................................. 376,656.79
November 25, 2002................................................................................. 0.00
</TABLE>
E-14
<PAGE> 138
COMPONENT IA-9-2
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
Initial Balance.................................................................................... $ 26,528,400.00
November 25, 1997.................................................................................. 26,045,539.03
December 25, 1997.................................................................................. 25,559,627.99
January 25, 1998................................................................................... 25,070,647.58
February 25, 1998.................................................................................. 24,578,578.38
March 25, 1998..................................................................................... 24,083,400.85
April 25, 1998..................................................................................... 23,585,095.30
May 25, 1998....................................................................................... 23,083,641.94
June 25, 1998...................................................................................... 22,579,020.86
July 25, 1998...................................................................................... 22,071,212.01
August 25, 1998.................................................................................... 21,560,195.21
September 25, 1998................................................................................. 21,045,950.16
October 25, 1998................................................................................... 20,528,456.43
November 25, 1998.................................................................................. 20,007,693.47
December 25, 1998.................................................................................. 19,483,640.56
January 25, 1999................................................................................... 18,956,276.91
February 25, 1999.................................................................................. 18,425,581.55
March 25, 1999..................................................................................... 17,891,533.40
April 25, 1999..................................................................................... 17,354,111.23
May 25, 1999....................................................................................... 16,813,293.69
June 25, 1999...................................................................................... 16,269,059.29
July 25, 1999...................................................................................... 15,721,386.40
August 25, 1999.................................................................................... 15,170,253.26
September 25, 1999................................................................................. 14,803,984.27
October 25, 1999................................................................................... 14,435,456.62
November 25, 1999.................................................................................. 14,064,656.38
December 25, 1999.................................................................................. 13,691,569.54
January 25, 2000................................................................................... 13,316,182.00
February 25, 2000.................................................................................. 12,938,479.57
March 25, 2000..................................................................................... 12,558,447.97
April 25, 2000..................................................................................... 12,176,072.84
May 25, 2000....................................................................................... 11,791,339.74
June 25, 2000...................................................................................... 11,404,234.11
July 25, 2000...................................................................................... 11,014,741.34
August 25, 2000.................................................................................... 10,622,846.69
September 25, 2000................................................................................. 10,228,535.36
October 25, 2000................................................................................... 9,831,792.44
November 25, 2000.................................................................................. 9,432,602.94
December 25, 2000.................................................................................. 9,030,951.77
January 25, 2001................................................................................... 8,626,823.75
February 25, 2001.................................................................................. 8,220,203.61
March 25, 2001..................................................................................... 7,811,075.98
April 25, 2001..................................................................................... 7,399,425.39
May 25, 2001....................................................................................... 6,985,236.30
June 25, 2001...................................................................................... 6,568,493.03
July 25, 2001...................................................................................... 6,149,179.85
August 25, 2001.................................................................................... 5,727,280.91
September 25, 2001................................................................................. 5,302,780.25
October 25, 2001................................................................................... 4,875,661.84
November 25, 2001.................................................................................. 4,445,909.54
</TABLE>
E-15
<PAGE> 139
<TABLE>
<CAPTION>
PLANNED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------
<S> <C>
December 25, 2001.................................................................................. $ 4,013,507.09
January 25, 2002................................................................................... 3,578,438.17
February 25, 2002.................................................................................. 3,140,686.32
March 25, 2002..................................................................................... 2,700,234.99
April 25, 2002..................................................................................... 2,257,067.56
May 25, 2002....................................................................................... 1,811,167.25
June 25, 2002...................................................................................... 1,362,517.23
July 25, 2002...................................................................................... 911,100.53
August 25, 2002.................................................................................... 456,900.10
September 25, 2002................................................................................. 0.00
October 25, 2002................................................................................... 0.00
November 25, 2002.................................................................................. 0.00
</TABLE>
E-16
<PAGE> 140
APPENDIX F
TARGETED PRINCIPAL BALANCES TABLE
The Targeted Principal Balances set forth in the table below were
calculated on the basis of the initial Class Principal Balances or Component
Principal Balances of the Class IA-3, IA-7 and IA-15 Bonds and Components
IA-1-2, IA-9-2 and IA-9-3 and the other assumptions described in "Certain Yield
and Prepayment Considerations -- General" herein.
COMBINED TARGETED PRINCIPAL BALANCE SCHEDULE
<TABLE>
<CAPTION>
COMBINED TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------------
<S> <C>
Initial Balance ................................................................ $ 298,445,713.00
November 25, 1997 .............................................................. 296,051,868.78
December 25, 1997 .............................................................. 293,324,925.64
January 25, 1998 ............................................................... 290,265,500.49
February 25, 1998 .............................................................. 286,874,627.85
March 25, 1998 ................................................................. 283,153,761.16
April 25, 1998 ................................................................. 279,104,773.18
May 25, 1998 ................................................................... 274,729,955.50
June 25, 1998 .................................................................. 270,032,176.95
July 25, 1998 .................................................................. 265,014,555.71
August 25, 1998 ................................................................ 259,681,028.72
September 25, 1998 ............................................................. 254,035,518.35
October 25, 1998 ............................................................... 248,082,349.83
November 25, 1998 .............................................................. 241,826,780.60
December 25, 1998 .............................................................. 235,273,902.52
January 25, 1999 ............................................................... 228,429,305.40
February 25, 1999 .............................................................. 221,298,833.43
March 25, 1999 ................................................................. 213,888,695.72
April 25, 1999 ................................................................. 206,205,810.77
May 25, 1999 ................................................................... 198,257,171.71
June 25, 1999 .................................................................. 190,050,351.64
July 25, 1999 .................................................................. 181,594,594.37
August 25, 1999 ................................................................ 172,900,144.11
September 25, 1999 ............................................................. 167,582,081.94
October 25, 1999 ............................................................... 162,153,622.35
November 25, 1999 .............................................................. 156,625,074.17
December 25, 1999 .............................................................. 151,007,566.19
January 25, 2000 ............................................................... 145,313,290.92
February 25, 2000 .............................................................. 139,562,887.92
March 25, 2000 ................................................................. 133,808,376.21
April 25, 2000 ................................................................. 128,140,505.86
May 25, 2000 ................................................................... 122,567,350.83
June 25, 2000 .................................................................. 117,087,309.87
July 25, 2000 .................................................................. 111,698,803.53
August 25, 2000 ................................................................ 106,400,273.89
September 25, 2000 ............................................................. 101,190,184.24
October 25, 2000 ............................................................... 96,067,018.76
November 25, 2000 .............................................................. 91,029,282.29
December 25, 2000 .............................................................. 86,075,499.99
January 25, 2001 ............................................................... 81,204,217.06
February 25, 2001 .............................................................. 76,413,998.49
March 25, 2001 ................................................................. 71,703,428.74
April 25, 2001 ................................................................. 67,071,111.52
May 25, 2001 ................................................................... 62,515,669.46
June 25, 2001 .................................................................. 58,035,743.91
</TABLE>
F-1
<PAGE> 141
<TABLE>
<CAPTION>
COMBINED TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------------
<S> <C>
July 25, 2001 .................................................................. $ 53,629,994.62
August 25, 2001 ................................................................ 49,297,099.50
September 25, 2001 ............................................................. 45,035,754.40
October 25, 2001 ............................................................... 40,844,672.79
November 25, 2001 .............................................................. 36,722,585.58
December 25, 2001 .............................................................. 32,668,240.83
January 25, 2002 ............................................................... 28,680,403.52
February 25, 2002 .............................................................. 24,757,855.34
March 25, 2002 ................................................................. 20,899,394.39
April 25, 2002 ................................................................. 17,103,835.02
May 25, 2002 ................................................................... 13,370,007.56
June 25, 2002 .................................................................. 9,696,758.08
July 25, 2002 .................................................................. 6,082,948.23
August 25, 2002 ................................................................ 2,527,454.94
September 25, 2002 ............................................................. 0.00
October 25, 2002 ............................................................... 0.00
November 25, 2002 .............................................................. 0.00
December 25, 2002 .............................................................. 0.00
January 25, 2003 ............................................................... 0.00
February 25, 2003 .............................................................. 0.00
March 25, 2003 ................................................................. 0.00
April 25, 2003 ................................................................. 0.00
May 25, 2003 ................................................................... 0.00
June 25, 2003 .................................................................. 0.00
July 25, 2003 .................................................................. 0.00
August 25, 2003 ................................................................ 0.00
September 25, 2003 ............................................................. 0.00
October 25, 2003 ............................................................... 0.00
November 25, 2003 .............................................................. 0.00
December 25, 2003 .............................................................. 0.00
January 25, 2004 ............................................................... 0.00
February 25, 2004 .............................................................. 0.00
March 25, 2004 ................................................................. 0.00
April 25, 2004 ................................................................. 0.00
May 25, 2004 ................................................................... 0.00
June 25, 2004 .................................................................. 0.00
July 25, 2004 .................................................................. 0.00
August 25, 2004 ................................................................ 0.00
September 25, 2004 ............................................................. 0.00
October 25, 2004 ............................................................... 0.00
November 25, 2004 .............................................................. 0.00
December 25, 2004 .............................................................. 0.00
January 25, 2005 ............................................................... 0.00
February 25, 2005 .............................................................. 0.00
March 25, 2005 ................................................................. 0.00
April 25, 2005 ................................................................. 0.00
May 25, 2005 ................................................................... 0.00
June 25, 2005 .................................................................. 0.00
July 25, 2005 .................................................................. 0.00
August 25, 2005 ................................................................ 0.00
September 25, 2005 ............................................................. 0.00
October 25, 2005 ............................................................... 0.00
November 25, 2005 .............................................................. 0.00
</TABLE>
F-2
<PAGE> 142
<TABLE>
<CAPTION>
COMBINED TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------------
<S> <C>
December 25, 2005 .............................................................. $ 0.00
January 25, 2006 ............................................................... 0.00
February 25, 2006 .............................................................. 0.00
March 25, 2006 ................................................................. 0.00
April 25, 2006 ................................................................. 0.00
May 25, 2006 ................................................................... 0.00
June 25, 2006 .................................................................. 0.00
July 25, 2006 .................................................................. 0.00
August 25, 2006 ................................................................ 0.00
September 25, 2006 ............................................................. 0.00
October 25, 2006 ............................................................... 0.00
November 25, 2006 .............................................................. 0.00
December 25, 2006 .............................................................. 0.00
January 25, 2007 ............................................................... 0.00
February 25, 2007 .............................................................. 0.00
March 25, 2007 ................................................................. 0.00
April 25, 2007 ................................................................. 0.00
May 25, 2007 ................................................................... 0.00
June 25, 2007 .................................................................. 0.00
July 25, 2007 .................................................................. 0.00
August 25, 2007 ................................................................ 0.00
September 25, 2007 ............................................................. 0.00
October 25, 2007 ............................................................... 0.00
November 25, 2007 .............................................................. 0.00
December 25, 2007 .............................................................. 0.00
January 25, 2008 ............................................................... 0.00
February 25, 2008 .............................................................. 0.00
March 25, 2008 ................................................................. 0.00
April 25, 2008 ................................................................. 0.00
May 25, 2008 ................................................................... 0.00
June 25, 2008 .................................................................. 0.00
July 25, 2008 .................................................................. 0.00
August 25, 2008 ................................................................ 0.00
September 25, 2008 ............................................................. 0.00
October 25, 2008 ............................................................... 0.00
November 25, 2008 .............................................................. 0.00
December 25, 2008 .............................................................. 0.00
January 25, 2009 ............................................................... 0.00
February 25, 2009 .............................................................. 0.00
March 25, 2009 ................................................................. 0.00
April 25, 2009 ................................................................. 0.00
May 25, 2009 ................................................................... 0.00
June 25, 2009 .................................................................. 0.00
July 25, 2009 .................................................................. 0.00
August 25, 2009 ................................................................ 0.00
September 25, 2009 ............................................................. 0.00
October 25, 2009 ............................................................... 0.00
November 25, 2009 .............................................................. 0.00
December 25, 2009 .............................................................. 0.00
January 25, 2010 ............................................................... 0.00
February 25, 2010 .............................................................. 0.00
March 25, 2010 ................................................................. 0.00
April 25, 2010 ................................................................. 0.00
</TABLE>
F-3
<PAGE> 143
<TABLE>
<CAPTION>
COMBINED TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -----------------------
<S> <C>
May 25, 2010 ................................................................... $ 0.00
June 25, 2010 .................................................................. 0.00
July 25, 2010 .................................................................. 0.00
August 25, 2010 ................................................................ 0.00
September 25, 2010 ............................................................. 0.00
October 25, 2010 ............................................................... 0.00
November 25, 2010 .............................................................. 0.00
December 25, 2010 .............................................................. 0.00
January 25, 2011 ............................................................... 0.00
February 25, 2011 .............................................................. 0.00
March 25, 2011 ................................................................. 0.00
April 25, 2011 ................................................................. 0.00
May 25, 2011 ................................................................... 0.00
June 25, 2011 .................................................................. 0.00
July 25, 2011 .................................................................. 0.00
August 25, 2011 ................................................................ 0.00
September 25, 2011 ............................................................. 0.00
October 25, 2011 ............................................................... 0.00
November 25, 2011 .............................................................. 0.00
December 25, 2011 .............................................................. 0.00
January 25, 2012 ............................................................... 0.00
February 25, 2012 .............................................................. 0.00
March 25, 2012 ................................................................. 0.00
April 25, 2012 ................................................................. 0.00
May 25, 2012 ................................................................... 0.00
June 25, 2012 .................................................................. 0.00
July 25, 2012 .................................................................. 0.00
August 25, 2012 ................................................................ 0.00
</TABLE>
F-4
<PAGE> 144
COMPONENT IA-1-2
<TABLE>
<CAPTION>
COMPONENT IA-1-2 TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -------------------------
<S> <C>
Initial Balance ................................................................ $ 138,125,000.00
November 25, 1997 .............................................................. 138,976,770.83
December 25, 1997 .............................................................. 139,833,794.25
January 25, 1998 ............................................................... 140,696,102.65
February 25, 1998 .............................................................. 141,563,728.62
March 25, 1998 ................................................................. 142,436,704.94
April 25, 1998 ................................................................. 143,315,064.62
May 25, 1998 ................................................................... 144,198,840.86
June 25, 1998 .................................................................. 145,088,067.04
July 25, 1998 .................................................................. 145,982,776.79
August 25, 1998 ................................................................ 146,883,003.91
September 25, 1998 ............................................................. 147,788,782.44
October 25, 1998 ............................................................... 148,700,146.59
November 25, 1998 .............................................................. 149,617,130.83
December 25, 1998 .............................................................. 150,539,769.81
January 25, 1999 ............................................................... 151,468,098.39
February 25, 1999 .............................................................. 152,402,151.66
March 25, 1999 ................................................................. 153,341,964.93
April 25, 1999 ................................................................. 154,287,573.71
May 25, 1999 ................................................................... 155,239,013.75
June 25, 1999 .................................................................. 156,196,321.00
July 25, 1999 .................................................................. 157,159,531.65
August 25, 1999 ................................................................ 158,128,682.09
September 25, 1999 ............................................................. 159,103,808.97
October 25, 1999 ............................................................... 160,084,949.12
November 25, 1999 .............................................................. 161,072,139.64
December 25, 1999 .............................................................. 162,065,417.83
January 25, 2000 ............................................................... 163,064,821.24
February 25, 2000 .............................................................. 164,070,387.64
March 25, 2000 ................................................................. 165,082,155.03
April 25, 2000 ................................................................. 166,100,161.66
May 25, 2000 ................................................................... 167,124,445.99
June 25, 2000 .................................................................. 168,155,046.74
July 25, 2000 .................................................................. 169,192,002.86
August 25, 2000 ................................................................ 170,235,353.54
September 25, 2000 ............................................................. 171,285,138.22
October 25, 2000 ............................................................... 172,341,396.57
November 25, 2000 .............................................................. 173,404,168.52
December 25, 2000 .............................................................. 174,473,494.23
January 25, 2001 ............................................................... 175,549,414.11
February 25, 2001 .............................................................. 176,631,968.83
March 25, 2001 ................................................................. 177,721,199.30
April 25, 2001 ................................................................. 178,817,146.70
May 25, 2001 ................................................................... 179,919,852.43
June 25, 2001 .................................................................. 181,029,358.19
</TABLE>
F-5
<PAGE> 145
<TABLE>
<CAPTION>
COMPONENT IA-1-2 TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -------------------------
<S> <C>
July 25, 2001 .................................................................. $ 182,145,705.90
August 25, 2001 ................................................................ 183,268,937.75
September 25, 2001 ............................................................. 184,399,096.20
October 25, 2001 ............................................................... 185,536,223.96
November 25, 2001 .............................................................. 186,680,364.01
December 25, 2001 .............................................................. 187,831,559.59
January 25, 2002 ............................................................... 188,989,854.21
February 25, 2002 .............................................................. 190,155,291.64
March 25, 2002 ................................................................. 191,327,915.94
April 25, 2002 ................................................................. 192,507,771.42
May 25, 2002 ................................................................... 193,694,902.68
June 25, 2002 .................................................................. 194,889,354.58
July 25, 2002 .................................................................. 196,091,172.26
August 25, 2002 ................................................................ 197,300,401.16
September 25, 2002 ............................................................. 197,546,257.25
October 25, 2002 ............................................................... 195,328,276.84
November 25, 2002 .............................................................. 192,345,405.91
December 25, 2002 .............................................................. 187,588,006.89
January 25, 2003 ............................................................... 182,905,521.54
February 25, 2003 .............................................................. 178,296,883.94
March 25, 2003 ................................................................. 173,761,042.72
April 25, 2003 ................................................................. 169,296,960.91
May 25, 2003 ................................................................... 164,903,615.71
June 25, 2003 .................................................................. 160,579,998.26
July 25, 2003 .................................................................. 156,325,113.56
August 25, 2003 ................................................................ 152,137,980.16
September 25, 2003 ............................................................. 148,017,630.05
October 25, 2003 ............................................................... 143,963,108.46
November 25, 2003 .............................................................. 140,206,739.14
December 25, 2003 .............................................................. 136,511,573.44
January 25, 2004 ............................................................... 132,876,713.24
February 25, 2004 .............................................................. 129,301,272.81
March 25, 2004 ................................................................. 125,784,378.67
April 25, 2004 ................................................................. 122,325,169.40
May 25, 2004 ................................................................... 118,922,795.54
June 25, 2004 .................................................................. 115,576,419.32
July 25, 2004 .................................................................. 112,285,214.59
August 25, 2004 ................................................................ 109,048,366.64
September 25, 2004 ............................................................. 105,865,072.01
October 25, 2004 ............................................................... 102,734,538.38
November 25, 2004 .............................................................. 100,086,728.90
December 25, 2004 .............................................................. 97,483,204.63
January 25, 2005 ............................................................... 94,923,276.59
February 25, 2005 .............................................................. 92,406,265.66
March 25, 2005 ................................................................. 89,931,502.48
April 25, 2005 ................................................................. 87,498,327.24
May 25, 2005 ................................................................... 85,106,089.63
</TABLE>
F-6
<PAGE> 146
<TABLE>
<CAPTION>
COMPONENT IA-1-2 TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -------------------------
<S> <C>
June 25, 2005 .................................................................. $ 82,754,148.64
July 25, 2005 .................................................................. 80,441,872.48
August 25, 2005 ................................................................ 78,168,638.41
September 25, 2005 ............................................................. 75,933,832.63
October 25, 2005 ............................................................... 73,736,850.17
November 25, 2005 .............................................................. 71,961,501.85
December 25, 2005 .............................................................. 70,214,447.16
January 25, 2006 ............................................................... 68,495,230.13
February 25, 2006 .............................................................. 66,803,401.55
March 25, 2006 ................................................................. 65,138,518.86
April 25, 2006 ................................................................. 63,500,146.03
May 25, 2006 ................................................................... 61,887,853.49
June 25, 2006 .................................................................. 60,301,218.03
July 25, 2006 .................................................................. 58,739,822.70
August 25, 2006 ................................................................ 57,203,256.72
September 25, 2006 ............................................................. 55,691,115.41
October 25, 2006 ............................................................... 54,203,000.06
November 25, 2006 .............................................................. 53,070,014.80
December 25, 2006 .............................................................. 51,951,200.33
January 25, 2007 ............................................................... 50,846,349.57
February 25, 2007 .............................................................. 49,755,258.22
March 25, 2007 ................................................................. 48,677,724.67
April 25, 2007 ................................................................. 47,613,550.00
May 25, 2007 ................................................................... 46,562,537.94
June 25, 2007 .................................................................. 45,524,494.82
July 25, 2007 .................................................................. 44,499,229.51
August 25, 2007 ................................................................ 43,486,553.46
September 25, 2007 ............................................................. 42,486,280.59
October 25, 2007 ............................................................... 41,498,227.28
November 25, 2007 .............................................................. 40,522,212.37
December 25, 2007 .............................................................. 39,558,057.06
January 25, 2008 ............................................................... 38,605,584.95
February 25, 2008 .............................................................. 37,664,621.94
March 25, 2008 ................................................................. 36,734,996.25
April 25, 2008 ................................................................. 35,816,538.37
May 25, 2008 ................................................................... 34,909,081.01
June 25, 2008 .................................................................. 34,012,459.10
July 25, 2008 .................................................................. 33,126,509.75
August 25, 2008 ................................................................ 32,251,072.19
September 25, 2008 ............................................................. 31,385,987.80
October 25, 2008 ............................................................... 30,531,100.02
November 25, 2008 .............................................................. 29,686,254.37
December 25, 2008 .............................................................. 28,851,298.38
January 25, 2009 ............................................................... 28,026,081.59
February 25, 2009 .............................................................. 27,210,455.53
March 25, 2009 ................................................................. 26,404,273.65
April 25, 2009 ................................................................. 25,607,391.33
</TABLE>
F-7
<PAGE> 147
<TABLE>
<CAPTION>
COMPONENT IA-1-2 TARGETED
PAYMENT DATE PRINCIPAL BALANCE
- ------------ -------------------------
<S> <C>
May 25, 2009 ................................................................... $ 24,819,665.86
June 25, 2009 .................................................................. 24,040,956.37
July 25, 2009 .................................................................. 23,271,123.86
August 25, 2009 ................................................................ 22,510,031.11
September 25, 2009 ............................................................. 21,757,542.74
October 25, 2009 ............................................................... 21,013,525.08
November 25, 2009 .............................................................. 20,277,846.25
December 25, 2009 .............................................................. 19,550,376.06
January 25, 2010 ............................................................... 18,830,986.02
February 25, 2010 .............................................................. 18,119,549.32
March 25, 2010 ................................................................. 17,415,940.78
April 25, 2010 ................................................................. 16,720,036.85
May 25, 2010 ................................................................... 16,031,715.59
June 25, 2010 .................................................................. 15,350,856.63
July 25, 2010 .................................................................. 14,677,341.16
August 25, 2010 ................................................................ 14,011,051.91
September 25, 2010 ............................................................. 13,351,873.12
October 25, 2010 ............................................................... 12,699,690.52
November 25, 2010 .............................................................. 12,054,391.31
December 25, 2010 .............................................................. 11,415,864.16
January 25, 2011 ............................................................... 10,783,999.15
February 25, 2011 .............................................................. 10,158,687.78
March 25, 2011 ................................................................. 9,539,822.94
April 25, 2011 ................................................................. 8,927,298.90
May 25, 2011 ................................................................... 8,321,011.27
June 25, 2011 .................................................................. 7,720,857.00
July 25, 2011 .................................................................. 7,126,734.36
August 25, 2011 ................................................................ 6,538,542.91
September 25, 2011 ............................................................. 5,956,183.49
October 25, 2011 ............................................................... 5,379,558.21
November 25, 2011 .............................................................. 4,808,570.40
December 25, 2011 .............................................................. 4,243,124.65
January 25, 2012 ............................................................... 3,683,126.72
February 25, 2012 .............................................................. 3,128,483.58
March 25, 2012 ................................................................. 2,579,103.39
April 25, 2012 ................................................................. 2,034,895.44
May 25, 2012 ................................................................... 1,495,770.17
June 25, 2012 .................................................................. 961,639.15
July 25, 2012 .................................................................. 432,415.06
August 25, 2012 ................................................................ 0.00
</TABLE>
F-8
<PAGE> 148
PROSPECTUS
$947,866,191
CMC SECURITIES CORPORATION IV
COLLATERALIZED MORTGAGE OBLIGATIONS (ISSUABLE IN SERIES)
----------------------
This Prospectus relates to $947,866,191 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> 149
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> 150
(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> 151
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).
4
<PAGE> 152
GLOSSARY OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
"Administrator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8
"Assumed Reinvestment Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Basic Principal Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 24
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 27
"Bond Value Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Bond Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 24
"Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8
"Book Entry Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 27
"Certificate Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Claim Ceiling" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Clearing Agency Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 27
"Clearing Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 27
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 43
"Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Committee Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
"Compound Interest Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Conventional Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 24
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"FHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"FHLMC Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"FHLMC Certificate Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"FHLMC Certificate Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"FHLMC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8
"FHLMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Final REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
"Floating Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"FmHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"FNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Garn-St Germain Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"GNMA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 8
"GNMA Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"GNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"GPM Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Guaranty Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Housing Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Indenture Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Interest Accrual Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Inverse Floating Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9
</TABLE>
5
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<TABLE>
<S> <C>
"Maximum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 24
"Minimum Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 49
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"Non-Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Non-Priority Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Non-REMIC Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
"Optional Variable Interest Rate Bond Redemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 27
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Participating Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Pass-Through Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Pooling and Administration Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Premium REMIC Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
"Principal Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Priority Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"PTCE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"PTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 42
"Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"REIT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"REMIC Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 42
"REMIC Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"REMIC Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Requisite Amount of the Special Hazard and Bankruptcy Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Reserve Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Residual Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Residual Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Retail Class Bond" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
"Scheduled Amortization Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Scheduled Amortization Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 22
"Scheduled Principal" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Series Supplement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Servicers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 59
"Special Allocation Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Special Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 26
"Spread" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Startup Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Tax-Exempt Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"TIA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"Time-Out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 27
"TMP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
"Underlying Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Underwriters" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"VA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Variable Interest Rate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Variable Interest Rate Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Variable Interest Rate Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 24
"Variable Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 24
</TABLE>
6
<PAGE> 154
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
7
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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> 156
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.
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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> 158
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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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
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<PAGE> 160
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
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<PAGE> 161
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> 162
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> 163
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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<PAGE> 164
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
----
<S> <C>
Table of Contents................................ S-7
Summary of Prospectus Supplement................. S-9
Risk Factors..................................... S-24
Description of the Certificates.................. S-27
Description of the Mortgage Pool................. S-28
Description of Insurance......................... S-49
The Loan Sellers................................. S-50
Description of the Bonds......................... S-50
Certain Yield and Prepayment Considerations...... S-73
Indenture........................................ S-81
Pooling and Servicing Agreement.................. S-81
Special Tax Considerations....................... S-90
Restrictions on Purchase and Transfer of the
Residual Securities............................ S-92
Underwriting..................................... S-93
Use of Proceeds.................................. S-94
Legal Opinions................................... S-94
Ratings.......................................... S-94
Legal Investment................................. S-94
ERISA Considerations............................. S-95
Index of Terms................................... S-97
Appendix A....................................... A-1
Appendix B....................................... B-1
Appendix C....................................... C-1
Appendix D....................................... D-1
Appendix E....................................... E-1
Appendix F....................................... F-1
PROSPECTUS
Available Information............................ 3
Incorporation of Certain Documents by
Reference...................................... 3
Summary of Prospectus............................ 8
Risk Factors..................................... 17
Use of Proceeds.................................. 22
Description of the Bonds......................... 22
Security for the Bonds........................... 28
Certain Legal Aspects of the Mortgage Loans...... 35
The Issuer....................................... 42
Certain Federal Income Tax Consequences.......... 42
Legal Investment................................. 59
ERISA Matters.................................... 60
The Indenture.................................... 61
Plan of Distribution............................. 65
Legal Matters.................................... 65
Experts.......................................... 65
Additional Information........................... 65
</TABLE>
UNTIL JANUARY 28, 1998 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.
======================================================
======================================================
$776,776,738
(APPROXIMATE)
CMC SECURITIES
CORPORATION IV
COLLATERALIZED MORTGAGE OBLIGATIONS,
SERIES 1997 - 2
CMC SECURITIES CORPORATION IV
ISSUER
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OCTOBER 28, 1997
======================================================
