<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-47913
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 27, 1998)
$589,490,892
(APPROXIMATE)
CMC SECURITIES CORPORATION III
ISSUER
BANK OF AMERICA, FSB AND CENDANT MORTGAGE CORPORATION
MASTER SERVICERS
COLLATERALIZED MORTGAGE OBLIGATIONS, SERIES 1998-1
The Collateralized Mortgage Obligations, Series 1998-1 (collectively, the
"BONDS"), consist of all Classes identified in the chart below (the "OFFERED
BONDS") as well as certain additional Classes of Other Subordinate Bonds (as
hereinafter defined) which are not being offered for sale hereunder. The
original principal amount of one or more Classes of Bonds may be increased or
decreased by up to 10% prior to their issuance, depending on the Mortgage Loans
actually included in the Mortgage Pool (as defined below), and may be adjusted
as necessary to obtain the required ratings on the Offered Bonds. It is a
condition to their issuance that each Class of Offered Bonds receive from
Moody's Investors Service, Inc. ("MOODY'S") and Duff & Phelps Credit Rating Co.
("DCR") the respective ratings set forth under "Summary of Terms -- Rating".
(cover continued on next page)
------------------------------
THE BONDS WILL BE NONRECOURSE OBLIGATIONS SOLELY OF THE ISSUER AND DO NOT
REPRESENT AN OBLIGATION OF OR INTEREST IN 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 ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE ISSUER,
THE LOAN SELLERS, THE MASTER SERVICERS, THE CERTIFICATE TRUSTEE, THE INDENTURE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY OTHER
PERSON.
------------------------------
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 S-32 OF THIS PROSPECTUS SUPPLEMENT
AND AT PAGE 15 OF THE PROSPECTUS.
<TABLE>
<CAPTION>
APPROX. INITIAL BOND INTEREST
PRINCIPAL BALANCE RATE CLASS
- ----------------- ------------- -----
<C> <C> <S>
$ 335,906 (1) Class P Bonds
$11,738,000 6.15% Class A-1 Bonds
$13,947,904 6.15% Class A-2 Bonds
$24,555,000 6.25% Class A-3 Bonds
$40,938,000 6.45% Class A-4 Bonds
$24,875,000 6.75% Class A-5 Bonds
$ 7,610,000 6.50% Class A-6 Bonds
$ (2) 6.75% Class A-7 Bonds
$75,183,096 6.75% Class A-8 Bonds
$ (2) 6.75% Class A-9 Bonds
$25,000,000 6.75% Class A-10 Bonds
$50,378,029 (3) Class A-11 Bonds
$13,060,971 (4) Class A-12 Bonds
$ 3,054,625 7.00% Class A-13 Bonds
$ 7,614,250 7.00% Class A-14 Bonds
$ 3,500,000 (5) Class A-15 Bonds
$ 2,024,125 5.00% Class A-16 Bonds
$26,000,000 6.40% Class A-17 Bonds
</TABLE>
<TABLE>
<CAPTION>
APPROX. INITIAL BOND INTEREST
PRINCIPAL BALANCE RATE CLASS
- ----------------- ------------- -----
<C> <C> <S>
$26,000,000 6.40% Class A-18 Bonds
$41,592,353 6.75% Class A-19 Bonds
$ (6) (6) Class X Bonds
$ 9,774,163 6.75% Class B-1 Bonds
$ 3,743,297 6.75% Class B-2 Bonds
$ 1,871,649 6.75% Class B-3 Bonds
$85,476,274 6.50% Class 2-A Bonds
$ (6) (6) Class 2-X Bonds
$ 1,457,300 6.50% Class 2-B-1 Bonds
$ 441,600 6.50% Class 2-B-2 Bonds
$ 264,900 6.50% Class 2-B-3 Bonds
$86,188,450 (7) Class 3-A Bonds
$ 2,104,500 (7) Class 3-B-1 Bonds
$ 492,600 (7) Class 3-B-2 Bonds
$ 268,700 (7) Class 3-B-3 Bonds
$ 100 6.75% Class R-1 Bonds
$ 50 6.50% Class R-2 Bonds
$ 50 (7) Class R-3 Bonds
</TABLE>
(footnotes on next page)
The Offered Bonds will be purchased by Bear, Stearns & Co. Inc. (the
"UNDERWRITER") from the Issuer and will be offered by the Underwriter from time
to time in negotiated transactions at varying prices to be determined at the
time of sale. Proceeds to the Issuer are expected to be approximately 100.48% of
the aggregate principal balance of the Offered Bonds plus accrued interest
thereon, but before deducting expenses payable by the Issuer in connection with
the Offered Bonds estimated to be $230,000.
The Offered Bonds are offered by the Underwriter when, as and if issued,
delivered to and accepted by the Underwriter and subject to certain other
conditions. It is expected that delivery of the Class R-1, Class R-2 and Class
R-3 Bonds will be made against payment therefor at the offices of Bear, Stearns
& Co. Inc., 245 Park Avenue, New York, New York 10167 and that delivery of the
other Offered Bonds will be made in book entry form only, through the Same Day
Funds Settlement System of The Depository Trust Company, in each case on or
about March 31, 1998.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 27, 1998
<PAGE> 2
(1) The Class P Bonds are principal only bonds and will not bear interest.
The Current Principal Balance of the Class P Bonds initially will be
the amount shown above and is composed of three components ("COMPONENT
P-1", "COMPONENT P-2" and "COMPONENT P-3") equal to (i) in the case of
Component P-1 and Component P-2, the PO Percentage (as defined herein)
of each Discount Mortgage Loan in Mortgage Loan Groups 1 and 2,
respectively, or $133,931 and $191,975, respectively, and in the case
of Component P-3, $10,000 of principal payable from all Group 3
Mortgage Loans.
(2) The Class A-7 and Class A-9 Bonds are interest only bonds. The Class
Notional Balance of the Class A-7 Bonds (the "CLASS A-7 NOTIONAL
BALANCE") on any Payment Date will be equal to the sum of (i) the
product of (A) 8.8888888889% and (B) the Class Current Principal
Balance of the Class A-1 Bonds, (ii) the product of (A) 14.9544582575%
and (B) the Class Current Principal Balance of the Class A-2 Bonds,
(iii) the product of (A) 7.4074074074% and (B) the Class Current
Principal Balance of the Class A-3 Bonds, (iv) the product of (A)
4.4444444444% and (B) the Class Current Principal Balance of the Class
A-4 Bonds, and (v) the product of (A) 3.7037037037% and (B) the Class
Current Principal Balance of the Class A-6 Bonds. The Class A-7
Notional Balance as of the Cut-off Date will equal approximately
$7,049,419. The Class Notional Balance of the Class A- 9 Bonds (the
"CLASS A-9 NOTIONAL BALANCE") on any Payment Date will be equal to the
product of (A) 2.4610272767% and (B) the Class Current Principal
Balance of the Class A-8 Bonds. The Class A-9 Notional Balance as of
the Cut-off Date will equal approximately $1,850,276.
(3) During the initial Interest Accrual Period, interest will accrue on
the Class A-11 Bonds at the rate of 6.5375% per annum. During each
Interest Accrual Period thereafter, interest will accrue on the Class
A-11 Bonds at a per annum rate of LIBOR plus 0.85%, determined monthly
as described herein, subject to a maximum rate of 8.50% per annum and
a minimum rate of 0.85% per annum.
(4) During the initial Interest Accrual Period, interest will accrue on
the Class A-12 Bonds at the rate of 7.5696% per annum. During each
Interest Accrual Period thereafter, interest will accrue on the Class
A-12 Bonds at a per annum rate equal to 29.50714% -- (3.857143 x
LIBOR), determined monthly as described herein, subject to a maximum
rate of 29.50714% per annum and a minimum rate of 0.00% per annum.
(5) During the initial twelve Interest Accrual Periods, interest will
accrue on the Class A-15 Bonds at the rate of 7.75% per annum. During
the next twelve Interest Accrual Periods, interest will accrue on the
Class A-15 Bonds at the rate of 7.25% per annum. During each Interest
Accrual Period thereafter, interest will accrue on the Class A-15
Bonds at a per annum rate of 7.00%.
(6) The Class X Bonds and the Class 2-X Bonds are interest only bonds.
The Class Notional Balance of the Class X Bonds (the "CLASS X NOTIONAL
BALANCE") immediately prior to a Payment Date will be equal to the
aggregate Scheduled Principal Balances of the Group 1 Mortgage Loans,
which will equal approximately $415,921,869 as of the Cut-off Date,
and the Class Notional Balance of the Class 2-X Bonds (the "CLASS 2-X
NOTIONAL BALANCE") immediately prior to a Payment Date will be equal
to the aggregate Scheduled Principal Balances of the Group 2 Mortgage
Loans, which will equal approximately $88,317,906 as of the Cut-off
Date. The Class X and Class 2-X Bonds will bear interest on their
respective Class Notional Balances at variable Bond Interest Rates
equal, in the case of the Class X Bonds, to the weighted average of
the excess, if any, of (a) the Net Rates on each Group 1 Mortgage Loan
over (b) 6.75% per annum, and in the case of the Class 2-X Bonds, to
the weighted average of the excess, if any, of (a) the Net Rates on
each Group 2 Mortgage Loan over (b) 6.50% per annum. The Bond
Interest Rates for the Class X Bonds and the Class 2-X Bonds for the
initial Interest Accrual Period are expected to be approximately
0.5247% and 0.4265% per annum, respectively.
(7) The Group 3 Bonds (as defined herein) will bear interest at a variable
rate equal to the weighted average of the Net Rates of the Group 3
Mortgage Loans.
___________________________
S-2
<PAGE> 3
(cover continued from previous page)
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 first lien, fixed rate mortgage loans secured by one- to four-family
residences and individual condominium units located primarily in California and
having original terms to stated maturity ranging from 15 to 30 years (the
"MORTGAGE LOANS") originated or acquired by (i) Bank of America, FSB ("BAFSB"),
(ii) Bank of America National Trust and Savings Association ("BANTSA") or (iii)
Cendant Mortgage Corporation ("CENDANT") (each, a "LOAN SELLER" and
collectively, the "LOAN SELLERS"). The Mortgage Loans will have an aggregate
principal balance as of March 1, 1998, (the "CUT-OFF DATE") of $593,796,661,
subject to adjustment as described herein. The Mortgage Loans are separated
into three mortgage loan groups ("MORTGAGE LOAN GROUP 1", "MORTGAGE LOAN GROUP
2" and "MORTGAGE LOAN GROUP 3" and each, a "MORTGAGE LOAN GROUP"). Mortgage
Loan Group 1 consists of Mortgage Loans having original terms to maturity of 20
to 30 years and having an aggregate principal balance as of the Cut-off Date of
$415,921,869, subject to adjustment as described herein; Mortgage Loan Group 2
consists of Mortgage Loans having original terms to maturity of 15 years and
having an aggregate principal balance as of the Cut-off Date of $88,317,906,
subject to adjustment as described herein; and Mortgage Loan Group 3 consists
of Mortgage Loans having original terms to maturity of 15 to 30 years and
having an aggregate principal balance as of the Cut-off Date of $89,556,886,
subject to adjustment as described herein. The characteristics of the Mortgage
Loans included in all three Mortgage Loan Groups are described herein under
"Description of the Mortgage Loans" and in Annex A hereto.
Prior to the date of initial issuance of the Bonds (the "CLOSING
DATE"), (i) BAFSB and BANTSA will have sold certain of the Mortgage Loans (the
"BA MORTGAGE LOANS") to Bear Stearns Mortgage Capital Corporation ("BSMCC"), an
affiliate of the Underwriter, pursuant to one or more loan sale agreements
between BAFSB, BANTSA and BSMCC (collectively, the "BA LOAN SALE AGREEMENT")
and (ii) Cendant will have sold certain of the Mortgage Loans (the "CENDANT
MORTGAGE LOANS") to BSMCC pursuant to one or more loan sale agreements between
Cendant and BSMCC (collectively, the "CENDANT LOAN SALE AGREEMENT" and together
with the BA Loan Sale Agreement, the "LOAN SALE AGREEMENTS"). On the Closing
Date, BSMCC will sell the Mortgage Loans to Capstead Capital Corporation
("CCC"), a Delaware corporation that is a wholly-owned limited purpose finance
subsidiary of Capstead Mortgage Corporation ("CMC"), a Maryland corporation,
pursuant to the terms of a purchase agreement between BSMCC and CCC (the
"PURCHASE AGREEMENT"). CCC will, in turn, simultaneously sell the Mortgage
Loans to CMC Securities Corporation III (the "ISSUER"), a Delaware corporation
that is a wholly-owned limited purpose finance subsidiary of CMC, pursuant to
an assignment and assumption agreement between CCC and the Issuer (the "CCC
ASSIGNMENT AGREEMENT"). The Issuer will deposit Mortgage Loan Group 1,
Mortgage Loan Group 2 and Mortgage Loan Group 3 into three separate trusts
(each, a "TRUST") pursuant to the terms of a pooling and servicing agreement
(the "POOLING AND SERVICING AGREEMENT") among the Issuer, as depositor, BAFSB
and Cendant, as master servicers (each, a "MASTER SERVICER"), and The First
National Bank of Chicago, a national bank, as trustee (the "CERTIFICATE
TRUSTEE"). Each Trust will create a separate series of Certificates for the
benefit of the Issuer in exchange for the Mortgage Loans. The Issuer will
pledge the Certificates to The First National Bank of Chicago, as indenture
trustee (the "INDENTURE TRUSTEE") under the terms of an indenture (the
"INDENTURE") between the Issuer and the Indenture Trustee. The Certificates
constitute a series of "Non-Agency Certificates" as described in the
Prospectus. The Pooling and Servicing Agreement constitutes a "Pooling and
Administration Agreement" as described in the Prospectus.
The Bonds constitute a Series of "Bonds" that are "Special Allocation
Bonds", as such terms are described in the Prospectus, and will be non-recourse
obligations of the Issuer. Proceeds from the Certificates and the other assets
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, BSMCC, the
Certificate Trustee, the Indenture Trustee, the Underwriter or any other
person or entity.
Each Class of Senior Bonds (as defined herein) constitutes a "Senior
Class" of "Senior Bonds" as described in the Prospectus and each Class of
Subordinate Bonds (as defined herein) 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 Bonds
of such Bond Group to such Senior Bonds. In addition, the Senior Bonds of each
Bond Group, other than the Class A-19 Bonds, will be allocated all or a
disproportionately large share of the principal payments and prepayments
received on the related Mortgage Loan Group for a period of time, as described
S-3
<PAGE> 4
herein. The primary credit support for each Class of Offered Subordinate Bonds
(as defined herein) of a Bond Group is the subordination of the Other
Subordinate Bonds (as defined herein) relating to such Bond Group with higher
numerical designations. The rights of Classes B-2, 2-B-2 and 3-B-2 to receive
payments of principal and interest will be subordinate to such rights of
Classes B-1, 2-B-1 and 3-B-1, respectively, and such rights of Classes B-3,
2-B-3 and 3-B- 3 will be similarly subordinate to such rights of Classes B-1
and B-2, Classes 2-B-1 and 2-B-2 , and Classes 3-B-1 and 3-B-2, respectively,
in each case as and to the extent described herein. Except for Excess Special
Hazard Losses (as defined herein), Realized Losses (as defined herein) on the
Mortgage Loans in a given Mortgage Loan Group will be allocated first to the
Other Subordinate Bonds of the related Bond Group in reverse numerical order,
second to the Offered Subordinate Bonds 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
Current Principal Balance of the Other Subordinate Bonds of a Bond Group to
zero, the yield to maturity on each Class of Offered Subordinate Bonds of such
Bond Group, in increasing order of numerical Class designation, will be
extremely sensitive to such Realized Losses on the related Mortgage Loans
because all or a disproportionately large amount of such losses (rather than a
pro rata portion thereof) will be allocable to the Offered Subordinate Bonds
with the highest numerical designation then outstanding of the related Bond
Group. Similarly, following the reduction of the aggregate Current Principal
Balance of the Offered Subordinate Bonds 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 Mortgage Loan Group.
See "Description of the Bonds -- Allocation of Losses; Subordination" herein.
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 April 1998 (each, a "PAYMENT DATE"). As more fully
described herein under "Description of the Bonds -- Payments on the Bonds --
Interest", interest payments on the Offered Bonds will be based on the Current
Principal Balance thereof (or on the applicable Class Notional Balance, in the
case of the Interest Only Bonds) and the related Bond Interest Rates. Interest
accruing on each Class of Bonds during each Interest Accrual Period 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 on the last day of the preceding Interest Accrual Period, and not on the
following Payment Date when actually made. 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 -- Payments on the Bonds
- -- Principal" herein.
There is currently no secondary market for the Bonds and there can be
no assurance that one will develop. The Underwriter intends to establish a
market in the Offered Bonds but is not obligated to do so. There is no
assurance that any such market, if established, will continue or will provide
investors with a sufficient level of liquidity.
The Mortgage Loans generally may be prepaid in full or in part at any
time without penalty. Mortgage Loan prepayment rates may fluctuate
significantly. Prospective investors should consider the following:
o THE YIELD TO INVESTORS IN EACH CLASS OF BONDS, PARTICULARLY THE CLASS
P BONDS, CLASS A-7 BONDS, CLASS A-9 BONDS, CLASS X BONDS AND CLASS 2-X
BONDS, WILL BE SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS IN THE RELATED MORTGAGE
LOAN GROUP OR IN THE CASE OF THE CLASS P BONDS, ALL OF THE DISCOUNT
MORTGAGE LOANS (AS DEFINED HEREIN) IN MORTGAGE LOAN GROUP 1 AND
MORTGAGE LOAN GROUP 2 AND ALL OF THE MORTGAGE LOANS IN MORTGAGE LOAN
GROUP 3. IN ADDITION, AS A RESULT OF THE METHOD OF CALCULATION OF THE
BOND INTEREST RATES WITH RESPECT TO THE CLASS X AND CLASS 2-X BONDS
AND EACH CLASS OF THE GROUP 3 BONDS, THE YIELD TO MATURITY OF SUCH
CLASSES WILL BE ADVERSELY AFFECTED BY PRINCIPAL PREPAYMENTS (AS
DEFINED HEREIN) OF THE MORTGAGE LOANS IN THE RELATED MORTGAGE LOAN
GROUP WITH RELATIVELY HIGH NET RATES. INVESTORS IN THE BONDS REFERRED
TO ABOVE SHOULD CONSIDER THE ASSOCIATED RISKS, INCLUDING, IN THE CASE
OF THE CLASS A-7, CLASS A-9, CLASS X AND CLASS 2-X BONDS, THE RISK
THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS IN
THE RELATED MORTGAGE LOAN GROUP COULD RESULT IN THE FAILURE OF
INVESTORS IN SUCH BONDS TO RECOVER FULLY THEIR INITIAL INVESTMENTS.
THE CLASS A-7, CLASS A-9, CLASS X AND CLASS 2-X BONDS MAY BE SUBJECT
TO SIGNIFICANT AND RAPID FLUCTUATIONS IN VALUE.
o THE WEIGHTED AVERAGE LIVES OF THE CLASS A-11 AND CLASS A-12 BONDS WILL
BE RELATIVELY MORE SENSITIVE TO FLUCTUATIONS IN RATES OF PRINCIPAL
PREPAYMENTS ON THE MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1 THAN THE
WEIGHTED AVERAGE LIVES OF THE PAC BONDS (AS DEFINED HEREIN).
S-4
<PAGE> 5
o LOW LEVELS OF LIBOR WILL SIGNIFICANTLY REDUCE THE YIELD OF THE CLASS
A-11 BONDS, WHICH WILL BEAR INTEREST AT A RATE THAT VARIES DIRECTLY
WITH LIBOR.
o HIGH LEVELS OF LIBOR WILL SIGNIFICANTLY REDUCE THE YIELD OF THE CLASS
A-12 BONDS, WHICH WILL BEAR INTEREST AT A RATE THAT VARIES AT A
MULTIPLE OF AND INVERSELY WITH LIBOR.
o THE YIELD TO MATURITY OF A CLASS OF OFFERED BONDS PURCHASED AT A
DISCOUNT OR PREMIUM WILL BE MORE SENSITIVE TO THE RATE AND TIMING OF
PAYMENTS THEREON. HOLDERS OF THE OFFERED BONDS SHOULD CONSIDER, IN
THE CASE OF ANY SUCH BONDS PURCHASED AT A DISCOUNT, THE RISK THAT A
SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE
OF ANY OFFERED BONDS PURCHASED AT A PREMIUM THE RISK THAT A FASTER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL
YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD.
o BECAUSE THE MAJORITY OF THE PAYMENTS ON THE CLASS P BONDS ARE DERIVED
FROM PRINCIPAL PAYMENTS ON THE DISCOUNT MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 1 AND MORTGAGE LOAN GROUP 2, THE YIELD TO MATURITY OF THE
CLASS P BONDS WILL BE ADVERSELY AFFECTED IF THE DISCOUNT MORTGAGE
LOANS IN SUCH MORTGAGE LOAN GROUPS PREPAY MORE SLOWLY THAN
ANTICIPATED.
o THE YIELD TO INVESTORS ON THE BONDS, AND PARTICULARLY THE CLASS B-1,
CLASS B-2, CLASS B-3, CLASS 2-B-1, CLASS 2-B-2, CLASS 2-B-3, CLASS
3-B-1, CLASS 3-B-2 AND CLASS 3-B-3 BONDS, WILL BE ADVERSELY AFFECTED
BY REALIZED LOSSES AND NET INTEREST SHORTFALLS (EACH, AS DEFINED
HEREIN) WITH RESPECT TO THE MORTGAGE LOANS OF THE RELATED MORTGAGE
LOAN GROUP.
o NO REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON
THE MORTGAGE LOANS, THE AMOUNT AND TIMING OF REALIZED LOSSES OR NET
INTEREST SHORTFALLS, OR AS TO THE RESULTING YIELD TO MATURITY OF ANY
CLASS OF BONDS.
o THE OFFERED BONDS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
DUE TO THEIR COMPLEX NATURE. NO INVESTOR SHOULD PURCHASE ANY OFFERED
BONDS UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE
PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH AN
INVESTMENT IN SUCH OFFERED BONDS.
See "Summary of Terms -- Yield and Prepayment Considerations" and "Yield and
Prepayment Considerations" herein.
As described herein, multiple real estate mortgage investment conduit
("REMIC" ) elections will be made in connection with the Bonds for federal
income tax purposes. As described more fully herein and in the Prospectus, all
of the Bonds other than the Class R-1, Class R-2 and Class R-3 Bonds will be
designated as "regular interests" in a REMIC and the Class R-1, Class R-2 and
Class R-3 Bonds will each represent a "residual interest" in a REMIC. See
"Special Tax Considerations" herein and "Certain Federal Income Tax
Consequences" in the Prospectus. The Class R-1, Class R-2 and Class R-3 Bonds
will be subject to certain restrictions on transfer and may have tax
liabilities during the early years of the REMICs that substantially exceed the
principal and interest paid thereon during such period. See "Restrictions on
Purchase and Transfer of the Residual Bonds" herein.
The Class B-2, Class B-3, Class 2-B-2, Class 2-B-3, Class 3-B-2 and
Class 3-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.
The Residual Bonds may not be purchased by Plans (as defined herein),
persons acting on behalf of Plans, or persons using assets of Plans (each of
the foregoing, a "PLAN INVESTOR") and the Interest Only Bonds, the Class B-3,
Class 2-B-3 and Class 3-B-3 Bonds may not be transferred to a Plan Investor,
except as described herein. Each purchaser of an Interest Only Bond or of a
Class B-3, Class 2-B-3 or Class 3-B-3 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.
S-5
<PAGE> 6
The information set forth herein under "Summary of Terms -- The
Mortgage Pool", "Description of the Mortgage Loans" and "The Master Servicers"
is based on information that has been provided by the Master Servicers. No
representation is made by the Issuer, BSMCC, 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 Master Servicers.
_______________
No person is authorized in connection with this offering to give any
information or to make any representation about the Issuer, the Loan Sellers,
BSMCC, 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, BSMCC, 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.
_______________
To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Actual results could differ materially from those contained
in such statements as a result of the matters set forth herein under "Summary
of Terms -- Yield and Prepayment Considerations" and "Yield and Prepayment
Considerations" and elsewhere in this Prospectus Supplement.
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 MARCH 27, 1998, 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 Interest Only 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
Interest Only 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 TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Limited Obligations . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Yield and Prepayment Considerations . . . . . . . . . . . . . . . . . S-32
Residual Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Geographic Concentration of the
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . S-32
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . S-33
DESCRIPTION OF THE MORTGAGE
LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
THE MASTER SERVICERS . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
BAFSB and BANTSA . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
BAFSB and BANTSA Underwriting
Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Cendant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Cendant Underwriting Standards . . . . . . . . . . . . . . . . . . . S-39
DESCRIPTION OF INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . S-42
Primary Mortgage Insurance Policies . . . . . . . . . . . . . . . . . S-42
Standard Hazard Insurance Policies
and Flood Insurance Policies . . . . . . . . . . . . . . . . . . S-42
Title Insurance Policies . . . . . . . . . . . . . . . . . . . . . . S-43
DESCRIPTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . S-43
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . S-44
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Payments on the Bonds . . . . . . . . . . . . . . . . . . . . . . . . S-46
Allocation of Losses; Subordination . . . . . . . . . . . . . . . . . S-61
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
YIELD AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Weighted Average Lives . . . . . . . . . . . . . . . . . . . . . . . S-65
Interest Only Bonds; Group 3 Bonds . . . . . . . . . . . . . . . . . S-65
Class A-19 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Class P Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Prepayment Model . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Relocation Loans . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Pricing Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Decrement Tables . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Yield on Class P Bonds . . . . . . . . . . . . . . . . . . . . . . . S-92
Yield on Interest Only Bonds . . . . . . . . . . . . . . . . . . . . S-92
Yield on Class A-12 Bonds . . . . . . . . . . . . . . . . . . . . . . S-93
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
Indenture Event of Default . . . . . . . . . . . . . . . . . . . . . S-94
Reports to Bondholders . . . . . . . . . . . . . . . . . . . . . . . S-95
POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . . S-95
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
Assignment of Mortgage Loans . . . . . . . . . . . . . . . . . . . . S-95
Substitution of Mortgage Loans . . . . . . . . . . . . . . . . . . . S-96
Representations and Warranties . . . . . . . . . . . . . . . . . . . S-96
Collection and Other Servicing Procedures . . . . . . . . . . . . . . S-98
Hazard Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . S-99
Realization Upon Defaulted Mortgage
Loans; Purchases of Defaulted
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . S-100
Servicing Compensation and Payment
of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
Protected Accounts . . . . . . . . . . . . . . . . . . . . . . . . . S-101
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . S-101
Certain Matters Regarding the
Master Servicers . . . . . . . . . . . . . . . . . . . . . . . . S-104
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . S-105
Monthly Advances . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
The Certificate Trustee . . . . . . . . . . . . . . . . . . . . . . . S-107
SPECIAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . S-107
Residual Bondholders . . . . . . . . . . . . . . . . . . . . . . . . S-107
Regular Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . S-109
Non-U.S. Holders . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
RESTRICTIONS ON PURCHASE AND
TRANSFER OF THE RESIDUAL BONDS . . . . . . . . . . . . . . . . . . . S-109
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . S-110
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-113
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-113
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-113
PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-115
</TABLE>
S-7
<PAGE> 8
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used but not defined in this
summary shall have the meaning assigned elsewhere in the Prospectus Supplement.
See "Principal Definitions" herein.
Title of Bonds . . . . . . . . . . . . . Collateralized Mortgage
Obligations, Series 1998-1
(the "BONDS").
Issuer. . . . . . . . . . . . . . . . . . CMC Securities Corporation III
(the "ISSUER"). See "The
Issuer" in the Prospectus.
Offered Bonds . . . . . . . . . . . . . .
<TABLE>
<CAPTION>
Bond Interest Approximate Initial
Class Rate Principal Balance
----- ------------- -------------------
<S> <C> <C>
Class P Bonds (1) $ 335,906
Class A-1 Bonds 6.15% $ 11,738,000
Class A-2 Bonds 6.15% $ 13,947,904
Class A-3 Bonds 6.25% $ 24,555,000
Class A-4 Bonds 6.45% $ 40,938,000
Class A-5 Bonds 6.75% $ 24,875,000
Class A-6 Bonds 6.50% $ 7,610,000
Class A-7 Bonds 6.75% (2)
Class A-8 Bonds 6.75% $ 75,183,096
Class A-9 Bonds 6.75% (2)
Class A-10 Bonds 6.75% $ 25,000,000
Class A-11 Bonds (3) $ 50,378,029
Class A-12 Bonds (4) $ 13,060,971
Class A-13 Bonds 7.00% $ 3,054,625
Class A-14 Bonds 7.00% $ 7,614,250
Class A-15 Bonds (5) $ 3,500,000
Class A-16 Bonds 5.00% $ 2,024,125
Class A-17 Bonds 6.40% $ 26,000,000
Class A-18 Bonds 6.40% $ 26,000,000
Class A-19 Bonds 6.75% $ 41,592,353
Class X Bonds (6) (6)
Class B-1 Bonds 6.75% $ 9,774,163
Class B-2 Bonds 6.75% $ 3,743,297
Class B-3 Bonds 6.75% $ 1,871,649
Class 2-A Bonds 6.50% $ 85,476,274
Class 2-X Bonds (6) (6)
Class 2-B-1 Bonds 6.50% $ 1,457,300
Class 2-B-2 Bonds 6.50% $ 441,600
Class 2-B-3 Bonds 6.50% $ 264,900
Class 3-A Bonds (7) $ 86,188,450
Class 3-B-1 Bonds (7) $ 2,104,500
Class 3-B-2 Bonds (7) $ 492,600
Class 3-B-3 Bonds (7) $ 268,700
Class R-1 Bonds 6.75% $ 100
Class R-2 Bonds 6.50% $ 50
Class R-3 Bonds (7) $ 50
</TABLE>
S-8
<PAGE> 9
(1) The Class P Bonds are principal
only bonds and will not bear
interest. The Current Principal
Balance of the Class P Bonds
initially will be the amount
shown above and is composed of
three components ("COMPONENT
P-1", "COMPONENT P-2" and
"COMPONENT P-3") equal to (i) in
the case of Component P-1 and
Component P-2, the PO Percentage
(as defined herein) of each
Discount Mortgage Loan in
Mortgage Loan Groups 1 and 2,
respectively, or $133,931 and
$191,975, respectively, and in
the case of Component P-3,
$10,000 of principal payable
from all Group 3 Mortgage Loans.
(2) The Class A-7 and Class A-9 Bonds
are interest only bonds. The
Class Notional Balance of the
Class A-7 Bonds (the "CLASS A-7
NOTIONAL BALANCE") on any
Payment Date will be equal to
the sum of (i) the product of
(A) 8.8888888889% and (B) the
Class Current Principal Balance
of the Class A-1 Bonds, (ii) the
product of (A) 14.9544582575%
and (B) the Class Current
Principal Balance of the Class
A-2 Bonds, (iii) the product of
(A) 7.4074074074% and (B) the
Class Current Principal Balance
of the Class A-3 Bonds, (iv) the
product of (A) 4.4444444444%,
and (B) the Class Current
Principal Balance of the Class
A-4 Bonds, and (v) the product
of (A) 3.7037037037% and (B) the
Class Current Principal Balance
of the Class A-6 Bonds. The
Class A-7 Notional Balance as of
the Cut-off Date will equal
approximately $7,049,419. The
Class Notional Balance of the
Class A-9 Bonds (the "CLASS A-9
NOTIONAL BALANCE") on any
Payment Date will be equal to
the product of (A) 2.4610272767%
and (B) the Class Current
Principal Balance of the Class
A-8 Bonds. The Class A-9
Notional Balance as of the
Cut-off Date will equal
approximately $1,850,276.
(3) During the initial Interest
Accrual Period, interest will
accrue on the Class A-11 Bonds at
the rate of 6.5375% per annum.
During each Interest Accrual
Period thereafter, interest will
accrue on the Class A-11 Bonds at
a per annum rate of LIBOR plus
0.85%, determined monthly as
described herein, subject to a
maximum rate of 8.50% per annum
and a minimum rate of 0.85% per
annum.
(4) During the initial Interest
Accrual Period, interest will
accrue on the Class A-12 Bonds at
the rate of 7.5696% per annum.
During each Interest Accrual
Period thereafter, interest will
accrue on the Class A-12 Bonds at
a per annum rate equal to
29.50714% -- (3.857143 x LIBOR),
determined monthly as described
herein, subject to a maximum rate
of 29.50714% per annum and a
minimum rate of 0.00% per annum.
(5) During the initial twelve
Interest Accrual Periods,
interest will accrue on the Class
A-15 Bonds at the rate of 7.75%
per annum. During the next twelve
Interest Accrual Periods,
interest will accrue on the Class
A-15 Bonds at the rate of 7.25%
per annum. During each Interest
Accrual Period thereafter,
interest will accrue on the Class
A-15 Bonds at a per annum rate of
7.00%.
(6) The Class X Bonds and the Class
2-X Bonds are interest only
bonds. The Class Notional Balance
of the Class X Bonds (the "CLASS
X NOTIONAL BALANCE") on any
Payment Date will be equal to the
S-9
<PAGE> 10
aggregate Scheduled Principal
Balances of the Group 1 Mortgage
Loans, which will equal
approximately $415,921,869 as of
the Cut-off Date, and the Class
Notional Balance of the Class 2-X
Bonds (the "CLASS 2-X NOTIONAL
BALANCE") on any Payment Date
will be equal to the aggregate
Scheduled Principal Balances of
the Group 2 Mortgage Loans, which
will equal approximately
$88,317,906 as of the Cut-off
Date. The Class X and Class 2-X
Bonds will bear interest on their
respective Class Notional
Balances at variable Bond
Interest Rates equal, in the case
of the Class X Bonds, to the
weighted average of the excess,
if any, of (a) the Net Rates on
each Group 1 Mortgage Loan over
(b) 6.75% per annum, and in the
case of the Class 2-X Bonds, to
the weighted average of the
excess, if any, of (a) the Net
Rates on each Group 2 Mortgage
Loan over (b) 6.50% per annum.
The Bond Interest Rates for the
Class X Bonds and the Class 2-X
Bonds for the initial Interest
Accrual Period are expected to be
approximately 0.5247% and 0.4265%
per annum, respectively.
(7) The Group 3 Bonds (as defined
herein) will bear interest at a
variable rate equal to the
weighted average of the Net
Rates of the Group 3 Mortgage
Loans.
The original principal amount of
one or more Classes of Bonds
may be increased or decreased
by the Issuer by up to 10%,
depending upon the Mortgage
Loans actually acquired by the
Issuer and included in the
Mortgage Pool. In addition,
the original principal amount
of any Class of Bonds may be
adjusted, as necessary, to
obtain the required ratings on
the Bonds from the Rating
Agencies. Accordingly, any
investor's commitments with
respect to the Bonds may be
correspondingly decreased or
increased.
Other Subordinate Bonds . . . . . . . . . In addition to the Offered
Bonds, the Issuer will issue
the following Classes of
"OTHER SUBORDINATE BONDS", in
the indicated approximate
original principal amounts,
which will provide credit
support to the Offered Bonds,
but which are not offered
hereby:
<TABLE>
<CAPTION>
Approximate
Bond Interest Initial Principal
Class Rate Balance
----- ------------- -----------------
<S> <C> <C>
Class B-4 Bonds 6.75% $ 1,455,726
Class B-5 Bonds 6.75% $ 831,844
Class B-6 Bonds 6.75% $ 1,039,805
Class 2-B-4 Bonds 6.50% $ 220,800
Class 2-B-5 Bonds 6.50% $ 132,500
Class 2-B-6 Bonds 6.50% $ 132,506
Class 3-B-4 Bonds (1) $ 223,900
Class 3-B-5 Bonds (1) $ 134,300
Class 3-B-6 Bonds (1) $ 134,386
----------
(1) Interest accrues at the same rate as interest
accrues on the Class 3-B-1, Class 3-B-2 and
Class 3-B-3 Bonds.
</TABLE>
Any information contained herein
with respect to the Other
Subordinate Bonds is provided
only to permit a better
understanding of the Offered
Bonds.
S-10
<PAGE> 11
Designations
Bonds . . . . . . . . . . . . . . . Offered Bonds and Other
Subordinate Bonds.
Offered Bonds . . . . . . . . . . . The Class P, Class A-1, Class
A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class
A-7, Class A-8, Class A-9,
Class A-10, Class A-11, Class
A- 12, Class A-13, Class
A-14, Class A-15, Class A-16,
Class A-17, Class A-18, Class
A-19, Class X, Class B-1,
Class B-2, Class B-3, Class
2-A, Class 2-X, Class 2-B-1,
Class 2-B-2, Class 2-B-3,
Class 3-A, Class 3- B-1,
Class 3-B-2, Class 3-B-3,
Class R-1, Class R-2 and
Class R-3 Bonds.
Group 1 Bonds . . . . . . . . . . . The Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5,
Class A-6, Class A-7, Class
A-8, Class A-9, Class A-10,
Class A-11, Class A-12, Class
A-13, Class A-14, Class A-15,
Class A-16, Class A-17, Class
A- 18, Class A-19, Class X,
Class R-1, Class B-1, Class
B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Bonds
and Component P-1.
Group 2 Bonds . . . . . . . . . . . The Class 2-A, Class 2-X, Class
R-2, Class 2-B-1, Class
2-B-2, Class-2-B- 3, Class
2-B-4, Class 2-B-5 and Class
2-B-6 Bonds and Component
P-2.
Group 3 Bonds . . . . . . . . . . . The Class 3-A, Class R-3, Class
3-B-1, Class 3-B-2, Class
3-B-3, Class 3- B-4, Class
3-B-5 and Class 3-B-6 Bonds
and Component P-3.
Bond Group . . . . . . . . . . . . . Each of the Group 1 Bonds, the
Group 2 Bonds and the Group
3 Bonds.
Group 1 Senior Bonds . . . . . . . . The Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5,
Class A-6, Class A-7, Class
A-8, Class A-9, Class A-10,
Class A-11, Class A-12, Class
A-13, Class A-14, Class A-15,
Class A-16, Class A-17, Class
A- 18, Class A-19, Class X
and Class R-1 Bonds and
Component P-1.
Group 2 Senior Bonds . . . . . . . . The Class 2-A, Class 2-X and
Class R-2 Bonds and Component
P-2.
Group 3 Senior Bonds . . . . . . . . The Class 3-A and Class R-3
Bonds and Component P-3.
Senior Bonds . . . . . . . . . . . The Group 1 Senior Bonds, Group
2 Senior Bonds and Group 3
Senior Bonds.
P Components . . . . . . . . . . . . Component P-1, Component P-2 and
Component P-3.
Stripped P Components . . . . . . . Component P-1 and Component P-2.
Interest Only Bonds . . . . . . . . The Class A-7, Class A-9, Class
X and Class 2-X Bonds.
Group 1 Subordinate Bonds . . . . . The Class B-1, Class B-2, Class
B-3, Class B-4, Class B-5 and
Class B-6 Bonds.
Group 2 Subordinate Bonds . . . . . The Class 2-B-1, Class 2-B-2,
Class 2-B-3, Class 2-B-4,
Class 2-B-5 and Class 2-B-6
Bonds.
S-11
<PAGE> 12
Group 3 Subordinate Bonds . . . . . The Class 3-B-1, Class 3-B-2,
Class 3-B-3, Class 3-B-4,
Class 3-B-5 and Class 3-B-6
Bonds.
Subordinate Bonds . . . . . . . . . The Group 1 Subordinate Bonds,
Group 2 Subordinate Bonds and
Group 3 Subordinate Bonds.
Offered Subordinate Bonds . . . . . The Class B-1, Class B-2, Class
B-3, Class 2-B-1, Class
2-B-2, Class 2-B- 3, Class
3-B-1, Class 3-B-2 and Class
3-B-3 Bonds.
Other Subordinate Bonds . . . . . . The Class B-4, Class B-5, Class
B-6, Class 2-B-4, Class
2-B-5, Class 2-B- 6, Class
3-B-4, Class 3-B-5 and Class
3-B-6 Bonds. The Other
Subordinate Bonds are not
offered hereby.
PAC I Bonds . . . . . . . . . . . . The Class A-1, Class A-2, Class
A-3, Class A-4 and Class A-6
Bonds.
PAC II Bonds . . . . . . . . . . . . The Class A-5, Class A-8, Class
A-10, Class A-13, Class A-14,
Class A-15, Class A-16, Class
A-17 and Class A-18 Bonds.
PAC Bonds . . . . . . . . . . . . . The PAC I Bonds and the PAC II
Bonds.
Companion Bonds . . . . . . . . . . The Class A-11 and Class A-12
Bonds.
LIBOR Bonds . . . . . . . . . . . . The Class A-11 and Class A-12
Bonds.
Group 1 Senior P&I Bonds . . . . . All Group 1 Senior Bonds other
than the Class A-7, Class A-9
and Class X Bonds and
Component P-1.
Group 2 Senior P&I Bonds . . . . . All Group 2 Senior Bonds other
than the Class 2-X Bonds and
Component P- 2.
Group 3 Senior P&I Bonds . . . . . All Group 3 Senior Bonds.
Senior P&I Bonds . . . . . . . . . The Group 1 Senior P&I Bonds,
the Group 2 Senior P&I Bonds
and the Group 3 Senior P&I
Bonds.
Regular Bonds . . . . . . . . . . . All Classes of Bonds other than
the Residual Bonds.
Residual Bonds . . . . . . . . . . The Class R-1, Class R-2 and
Class R-3 Bonds.
Physical Bonds . . . . . . . . . . The Residual Bonds.
Book-Entry Bonds . . . . . . . . . . All Bonds other than the
Physical Bonds.
Denominations . . . . . . . . . . . . . Each Class of Book-Entry Bonds
will be registered as a
single Bond held by a nominee
of The Depository Trust
Company, and beneficial
interests will be held by
investors through the
book-entry facilities of The
Depository Trust Company, as
described herein, in minimum
denominations of (i) in the
case of the Senior Bonds
(other than the Residual
Bonds), $1,000 and increments
of $1.00 in excess thereof
and (ii) in the case of the
Offered Subordinate Bonds,
$25,000 and increments of
$1.00 in excess thereof. One
Bond of each Class of
Book-Entry Bonds may be
issued in a different
principal or notional amount
to
S-12
<PAGE> 13
accommodate the remainder of
the initial principal or
notional amount of the Bonds
of such Class.
Each Class of Residual Bonds
will each be issued in
certificated fully- registered
form in a single bond of $100,
in the case of the Class R-1
Bond, and $50, in the case of
the Class R-2 and Class R-3
Bonds.
Master Servicers . . . . . . . . . . . . With respect to the BA Mortgage
Loans, Bank of America, FSB
("BAFSB"), and with respect
to the Cendant Mortgage
Loans, Cendant Mortgage
Corporation ("CENDANT").
BAFSB will act as Master
Servicer with respect to
approximately 57.41% of the
Group 1 Mortgage Loans by
Scheduled Principal Balance
as of the Cut-off Date.
Cendant will act as Master
Servicer with respect to all
remaining Mortgage Loans.
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. Each
Master Servicer is an
"Administrator" as such term
is used in the Prospectus.
See "Pooling and Servicing
Agreement -- Certain Matters
Regarding the Master
Servicers" herein.
Certificate Trustee . . . . . . . . . . . The First National Bank of
Chicago, a national bank, as
Certificate Trustee under the
Pooling and Servicing
Agreement. See "Pooling and
Servicing Agreement -- The
Certificate Trustee" herein.
Indenture Trustee . . . . . . . . . . . . The First National Bank of
Chicago, a national bank, as
Indenture Trustee under the
Indenture. See "Indenture"
herein.
Loan Sellers . . . . . . . . . . . . . . Each of (i) BAFSB and BANTSA, as
sellers of the BA Mortgage
Loans and (ii) Cendant, as
seller of the Cendant
Mortgage Loans.
Cut-off Date . . . . . . . . . . . . . . March 1, 1998.
Closing Date . . . . . . . . . . . . . . On or about March 31, 1998.
The Mortgage Pool . . . . . . . . . . . The Mortgage Loans in the
aggregate (the "MORTGAGE
POOL") consist primarily of
first lien, fixed rate
mortgage loans secured by
one- to four-family
residences and individual
condominium units located
primarily in California and
having original terms to
stated maturity ranging from
15 to 30 years.
The Mortgage Loans have been
divided into three groups
("GROUP 1 MORTGAGE LOANS",
"GROUP 2 MORTGAGE LOANS" and
"GROUP 3 MORTGAGE LOANS" and
each, a "MORTGAGE LOAN
GROUP"), each of which is more
fully described below and in
"Description of the Mortgage
Loans" and Annex A. See Annex
A herein for additional
statistical information
regarding each Mortgage Loan
S-13
<PAGE> 14
Group. The Group 1 Mortgage
Loans relate to Bond Group 1,
the Group 2 Mortgage Loans
relate to Bond Group 2 and the
Group 3 Mortgage Loans relate
to Bond Group 3.
All of the Mortgage Loans are
conventional mortgage loans.
All of the Mortgage Loans
with Loan-to-Value Ratios (as
defined herein) in excess of
80% have primary mortgage
insurance.
The Group 1 Mortgage Loans
consist of the BA Mortgage
Loans and certain Cendant
Mortgage Loans having original
terms to stated maturity
ranging from 20 to 30 years.
The Group 2 Mortgage Loans
consist of certain Cendant
Mortgage Loans having original
terms to stated maturity of 15
years. The Group 3 Mortgage
Loans consist of certain
Cendant Mortgage Loans having
original terms to stated
maturity ranging from 15 to 30
years. See "--Description of
the Mortgage Loans" herein.
Approximately 98.79%, 98.81% and
100% of the Group 1, Group 2
and Group 3 Mortgage Loans,
respectively, by their
Scheduled Principal Balances
as of the Cut-off Date are
Jumbo Loans. "JUMBO LOANS"
are mortgage loans that have
principal balances at
origination that exceed the
then applicable limitations
for purchase by the Federal
National Mortgage Association
("FNMA") and Freddie Mac
(formerly the Federal Home
Loan Mortgage Corporation)
("FREDDIE MAC").
All of the Group 3 Mortgage
Loans are Relocation Loans.
"RELOCATION LOANS" are
mortgage loans made to
employees of corporations who
have a substantial portion of
the costs related to the
mortgage loan reimbursed by
their employer. Some of the
expenses eligible for
reimbursement include costs
and discount points or real
estate commissions.
Set forth below is certain
information regarding the
Mortgage Loans in each
Mortgage Loan Group and the
related Mortgaged Properties
as of the Cut-off Date. All
such information is provided
on an approximate basis. All
weighted average information
provided below reflects
weighting of the Mortgage
Loans by their respective
Scheduled Principal Balances
as of the Cut-off Date. In
each case, such Scheduled
Principal Balance has been
calculated on the assumption
that the principal portion of
all scheduled payments (as
defined herein) due in respect
of each Mortgage Loan on or
before the Cut-off Date have
been received.
<TABLE>
Group 1 Mortgage Loans
----------------------
<S> <C>
Number of Mortgage Loans . . . . . . . 1,226
Aggregate Scheduled Principal
Balance . . . . . . . . . . . . . $415,921,869
Minimum Scheduled Principal Balance . $ 67,200
Maximum Scheduled Principal Balance . $ 1,000,000
Average Scheduled Principal Balance . $ 339,251
Minimum Mortgage Rate . . . . . . . . 6.750% per annum
Maximum Mortgage Rate . . . . . . . . 9.000% per annum
</TABLE>
S-14
<PAGE> 15
<TABLE>
<S> <C>
Weighted Average Mortgage Rate . . . . 7.503% per annum
Weighted Average Net Rate . . . . . . 7.273% per annum
Minimum Remaining Term
to Stated Maturity . . . . . . . . 237 months
Maximum Remaining Term
to Stated Maturity . . . . . . . . 360 months
Weighted Average Remaining
Term to Stated Maturity . . . . . 355 months
Weighted Average Original
Loan-to-Value Ratio . . . . . . . 73.62%
Location of Mortgaged Property
California . . . . . . . . . . . . 59.50%
Massachusetts . . . . . . . . . . 4.42%
New Jersey . . . . . . . . . . . . 3.16%
Illinois . . . . . . . . . . . . . 2.43%
New York . . . . . . . . . . . . . 2.33%
Other . . . . . . . . . . . . . . 28.16%
Group 2 Mortgage Loans
----------------------
Number of Mortgage Loans . . . . . . . 263
Aggregate Scheduled Principal
Balance . . . . . . . . . . . . . $ 88,317,906
Minimum Scheduled Principal Balance . $ 48,726
Maximum Scheduled Principal Balance . $ 772,889
Average Scheduled Principal Balance . $ 335,810
Minimum Mortgage Rate . . . . . . . . 6.250% per annum
Maximum Mortgage Rate . . . . . . . . 8.000% per annum
Weighted Average Mortgage Rate . . . . 7.113% per annum
Weighted Average Net Rate . . . . . . 6.912% per annum
Minimum Remaining Term
to Stated Maturity . . . . . . . . 120 months
Maximum Remaining Term
to Stated Maturity . . . . . . . . 180 months
Weighted Average Remaining
Term to Stated Maturity . . . . . 178 months
Weighted Average Original Loan-to-Value
Ratio . . . . . . . . . . . . . . 69.42%
Location of Mortgaged Property
California . . . . . . . . . . . . 45.24%
New Jersey . . . . . . . . . . . . 7.03%
Wisconsin . . . . . . . . . . . . 6.37%
Massachusetts . . . . . . . . . . 4.48%
Other . . . . . . . . . . . . . . 36.88%
Group 3 Mortgage Loans
----------------------
Number of Mortgage Loans . . . . . . . 287
Aggregate Scheduled Principal
Balance . . . . . . . . . . . . . $ 89,556,886
Minimum Scheduled Principal Balance . $ 226,327
Maximum Scheduled Principal Balance . $ 679,443
Average Scheduled Principal Balance . $ 312,045
Minimum Mortgage Rate . . . . . . . . 6.500% per annum
Maximum Mortgage Rate . . . . . . . . 7.875% per annum
</TABLE>
S-15
<PAGE> 16
<TABLE>
<S> <C>
Weighted Average Mortgage Rate . . . . 7.110% per annum
Weighted Average Net Rate . . . . . . 6.892% per annum
Minimum Remaining Term
to Stated Maturity . . . . . . . . 176 months
Maximum Remaining Term
to Stated Maturity . . . . . . . . 360 months
Weighted Average Remaining
Term to Stated Maturity . . . . . 344 months
Weighted Average Original Loan-to-Value
Ratio . . . . . . . . . . . . . . 79.98%
Location of Mortgaged Property
California . . . . . . . . . . . . 27.22%
Illinois . . . . . . . . . . . . . 7.87%
Texas . . . . . . . . . . . . . . 7.47%
Washington . . . . . . . . . . . . 6.34%
Other . . . . . . . . . . . . . . 51.10%
</TABLE>
Net Rate . . . . . . . . . . . . . . . . The "NET RATE" for each Mortgage
Loan is the Mortgage Rate
less the applicable Master
Servicing Fee (as defined in
the Pooling and Servicing
Agreement) attributable
thereto (expressed as a per
annum rate). It is expected
that with respect to each
Payment Date, the Master
Servicing Fee for each
Mortgage Loan will be 0.25%
per annum with respect to
Mortgage Loans serviced by
BAFSB and between 0.20% and
1.075% per annum with respect
to Mortgage Loans serviced by
Cendant. Any Cendant Master
Servicing Fee in excess of
0.20% will be set aside to
pay for lender funded
mortgage insurance and will
not be treated as servicing
compensation to Cendant and
will not be available to make
Compensating Interest
Payments (as defined herein).
For any Payment Date, the
"DUE DATE" for each Mortgage
Loan will be the first day of
the month in which the
Payment Date occurs.
The "SCHEDULED PRINCIPAL
BALANCE" of a Mortgage Loan
with respect to a Payment Date
is (i) the unpaid principal
balance of such Mortgage Loan
as of the close of business on
the related Due Date (i.e.,
taking account of the
principal payment to be made
on such Due Date and
irrespective of any
delinquency in its payment),
as specified in the
amortization schedule at the
time relating thereto (before
any adjustment to such
amortization schedule by
reason of any bankruptcy or
similar proceeding occurring
after the Cut-off Date (other
than a Deficient Valuation, as
defined under "Description of
the Bonds -- Allocation of
Losses; Subordination" herein)
or any moratorium or similar
waiver or grace period) less
(ii) any Principal Prepayments
and the principal portion of
any Net Liquidation Proceeds
(as defined herein) received
during or prior to the
immediately preceding
Prepayment Period (as defined
herein); provided that the
Scheduled Principal Balance of
any Liquidated Mortgage Loan
(as defined herein) is zero.
Payment Dates . . . . . . . . . . . . . . The 25th day of each month, or
if such day is not a business
day, then the next succeeding
business day, beginning in
April 1998 (each, a "PAYMENT
DATE").
S-16
<PAGE> 17
Record Date . . . . . . . . . . . . . . . The "RECORD DATE" for each
Payment Date will be the
close of business on the last
business day of the month
preceding the month in which
the related Payment Date
occurs.
Due Period . . . . . . . . . . . . . . . With respect to each Payment
Date, the period commencing
on the second day of the
month preceding the month in
which the Payment Date occurs
and ending at the close of
business on the first day of
the month in which the
Payment Date occurs (each, a
"DUE PERIOD").
Prepayment Period . . . . . . . . . . . . With respect to each Payment
Date, the period from the
first day through the last
day of the month preceding
the month in which the
Payment Date occurs (each, a
"PREPAYMENT PERIOD").
Payments on the Bonds . . . . . . . . . . Interest Payments. With respect
to each Payment Date,
interest will accrue during
the related Interest Accrual
Period for each Class of
Bonds (other than the Class P
Bonds) at the rate for such
Class set forth or determined
as provided on the cover page
hereof (each, a "BOND
INTEREST RATE") on the Class
Current Principal Balance (or
in the case of the Interest
Only Bonds, the Class
Notional Balance) of such
Class immediately preceding
such Payment Date. With
respect to each Payment Date,
the "INTEREST ACCRUAL PERIOD"
for each Class of Bonds will
be the calendar month
preceding the month in which
the Payment Date occurs, in
each case commencing in March
1998. Interest will be
calculated on the basis of a
360-day year comprised of
twelve 30-day months.
The Class P Bonds are principal
only Bonds and will not bear
interest.
On each Payment Date, as
described herein, interest
will be payable on each
interest-bearing Class of
Bonds in an aggregate amount
equal to the Accrued Bond
Interest for such Class on
such Payment Date, plus any
Accrued Bond Interest thereon
remaining unpaid from previous
Payment Dates. Net Interest
Shortfalls on the Mortgage
Loans will be allocated to the
Classes of Bonds as described
herein. See "Description of
the Bonds -- Payments on the
Bonds -- Interest" herein.
LIBOR. The Bond Interest Rates
for the LIBOR Bonds will be
determined by the Indenture
Trustee based on the
arithmetic mean 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 --
Payments on the Bonds --
Calculation of LIBOR" herein.
Principal Payments. On each
Payment Date, amounts in
respect of principal will be
paid to the holders of the
Bonds of the related Bond
Group (other than the Interest
Only Bonds of such Bond Group)
as provided herein under
"Description of the Bonds --
Payments on the Bonds --
Principal".
S-17
<PAGE> 18
Credit Enhancement --
General . . . . . . . . . . . . . . . Credit enhancement for the Group
1 Senior Bonds, the Group 2
Senior Bonds and the Group 3
Senior Bonds generally will
be provided by the Group 1
Subordinate Bonds, the Group
2 Subordinate Bonds and the
Group 3 Subordinate Bonds,
respectively. Credit
enhancement for each Class of
Subordinate Bonds of a Bond
Group will be provided by the
Class or Classes of
Subordinate Bonds of such
Bond Group with higher
numerical Class designations.
Credit Enhancement --
Subordination . . . . . . . . . . . . The rights of the holders of
each Class of the Group 1
Subordinate Bonds, the Group
2 Subordinate Bonds and the
Group 3 Subordinate Bonds to
receive payments with respect
to the Group 1 Mortgage
Loans, the Group 2 Mortgage
Loans and the Group 3
Mortgage Loans, respectively,
will be subordinated to such
rights of the holders of the
Group 1 Senior Bonds, the
Group 2 Senior Bonds and the
Group 3 Senior Bonds,
respectively, and to each
Class of Subordinate Bonds of
the related Bond Group having
a lower numerical designation
than such Class. The
subordination of the
Subordinate Bonds of each
Bond Group to the Senior
Bonds of such Bond Group, and
the further subordination
among the Subordinate Bonds
of a Bond Group, are each
intended to increase the
likelihood of timely receipt
by the holders of the Bonds
with higher relative payment
priority of the maximum
amount to which they are
entitled on any Payment Date
and to provide such holders
protection against losses
resulting from defaults on
Mortgage Loans, to the extent
described herein. The
Subordinate Bonds also
provide protection against
Special Hazard Losses (as
defined herein) to the extent
described herein. However,
in certain circumstances, the
amount of available
subordination (including the
limited subordination
provided for certain types of
losses) may be exhausted and
shortfalls in payments on
the Offered Bonds could
result. Holders of Senior
Bonds of a Bond Group will
bear their pro rata share of
any Realized Losses with
respect to Mortgage Loans in
the related Mortgage Loan
Group in excess of the
available total subordination
amount provided by the
related Subordinate Bonds.
See "Description of the Bonds
-- Payments on the Bonds",
"Description of the Bonds --
Allocation of Losses;
Subordination" and
"Description of the Bonds --
Subordination" herein.
As of the Closing Date, the
aggregate Current Principal
Balances of the Group 1
Subordinate Bonds and of the
Other Subordinate Bonds which
are part of the Group 1
Subordinate Bonds will equal
approximately 4.50% and 0.80%,
respectively, of the aggregate
Current Principal Balances of
all of the Classes of Group 1
Bonds, (ii) the aggregate
Current Principal Balances of
the Group 2 Subordinate Bonds
and of the Other Subordinate
Bonds which are part of the
Group 2 Subordinate Bonds will
equal approximately 3.00% and
0.55%, respectively, of the
aggregate Current Principal
Balances of all the Classes of
Group 2 Bonds, and (iii) the
aggregate Current Principal
Balances of the Group 3
Subordinate Bonds and of the
Other Subordinate
S-18
<PAGE> 19
Bonds which are part of the
Group 3 Subordinate Bonds will
equal approximately 3.75% and
0.55%, respectively, of the
aggregate Current Principal
Balances of all of the Classes
of Group 3 Bonds.
In addition, to extend the period
during which the Group 1
Subordinate Bonds, the Group
2 Subordinate Bonds and the
Group 3 Subordinate Bonds
remain available as credit
enhancement to the Group 1
Senior Bonds, the Group 2
Senior Bonds, and the Group 3
Senior Bonds, respectively,
the entire amount of any
prepayments and certain other
unscheduled recoveries of
principal with respect to the
Mortgage Loans in the related
Mortgage Loan Group will be
allocated to the Senior Bonds
(other than Class A-19 Bonds)
in the related Bond Group to
the extent described herein
during the first five years
after the Cut-off Date (with
such allocation being subject
to reduction over an
additional four year period
thereafter as described
herein). This allocation has
the effect of accelerating
the amortization of the
Senior Bonds in each Bond
Group as a whole while, in
the absence of losses in
respect of the Mortgage Loans
in the related Mortgage Loan
Group, increasing the
percentage interest in the
principal balance of the
Mortgage Loans in such
Mortgage Loan Group evidenced
by the related Subordinate
Bonds. See "Description of
the Bonds -- Payments on the
Bonds" and "-- Subordination"
herein.
Monthly Advances . . . . . . . . . . . . Each Master Servicer will be
obligated, under certain
circumstances, to advance
delinquent scheduled payments
of principal and interest on
Mortgage Loans it services
(each such advance, a
"MONTHLY ADVANCE"). See "
Pooling and Servicing
Agreement -- Monthly
Advances" herein.
Allocation of Losses . . . . . . . . . . Subject to the limitations set
forth below, Realized Losses
(other than those relating to
Excess Special Hazard Losses
(as defined herein)) on the
Mortgage Loans in each
Mortgage Loan Group will be
allocated as follows: (i)
the applicable Non-PO
Percentage of the principal
portion of such Realized
Losses will be allocated to
the Bonds of each Bond Group
(other than the Stripped P
Component of Bond Groups 1
and 2), first, to the
Subordinate Bonds of such
Bond Group in the inverse
order of their numerical
Class designations and then
pro rata to the Senior Bonds
of such Bond Group (other
than the Stripped P Component
of Bond Groups 1 and 2)
until, in each case, the
Current Principal Balance of
each such Class of Bonds is
reduced to zero; and (ii) the
applicable PO Percentage of
any such loss will be
allocated, to the extent
described herein, among the
Subordinate Bonds of the
applicable Bond Group in the
inverse order of their
numerical Class designation,
through the operation of the
applicable Component P
Deferred Payment Writedown
Amount for the Stripped P
Component of Bond Groups 1
and 2. Notwithstanding the
foregoing, the aggregate
amount of Realized Losses
which may be allocated by
means of subordination to
cover Special Hazard Losses
are initially limited to (i)
$4,842,479 for the Group 1
Bonds, (ii) $1,545,777 for
the Group 2 Bonds and (iii)
$1,358,885 for the Group 3
S-19
<PAGE> 20
Bonds. See "Description of
the Bonds -- Allocation of
Losses; Subordination" herein.
Any Special Hazard Losses in
excess of the amounts of
coverage therefor (an "EXCESS
SPECIAL HAZARD LOSS") on
Non-Discount Mortgage Loans in
Mortgage Loan Groups 1 and 2,
and all Excess Special Hazard
Losses on Mortgage Loans in
Mortgage Loan Group 3, will be
allocated on a pro rata basis
among the Senior Bonds of the
related Bond Group (other than
the Stripped P Components of
Mortgage Loan Groups 1 and 2)
and Subordinate Bonds of the
related Bond Group. The
principal portion of such
Excess Special Hazard Losses
on Discount Mortgage Loans in
Mortgage Loan Groups 1 and 2
will be allocated to the
Stripped P Component of the
related Bond Group in an
amount equal to the related PO
Percentage thereof, and the
remainder of such losses on
such Discount Mortgage Loans
will be allocated among the
remaining Senior Bonds and
Subordinate Bonds of such Bond
Group on a pro rata basis as
described above. After the
applicable Cross-Over Date,
all Realized Losses
(including, without
limitation, all Special Hazard
Losses) on the Mortgage Loans
in a Mortgage Loan Group will
be allocated among the Bonds
of the related Bond Group on a
pro rata basis. The amount of
any Realized Loss (other than
an Excess Special Hazard Loss)
allocated to a Stripped P
Component on or prior to the
Cross-Over Date for the
related Bond Group will be
treated as a Component P
Deferred Amount. See
"Description of the Bonds --
Allocation of Losses;
Subordination" herein.
Neither the Offered Bonds nor the
Mortgage Loans are insured or
guaranteed by any government
agency or instrumentality,
CMC, CCC, the Issuer, the
Loan Sellers, BSMCC, the
Master Servicers, the
Certificate Trustee, the
Indenture Trustee, the
Underwriter or any affiliates
thereof or any other person
or entity.
Yield and Prepayment
Considerations . . . . . . . . . . . . General Considerations. The
yield to maturity of each
Class of Bonds will be
affected by the amount and
timing of principal payments
on the Mortgage Loans in the
related Mortgage Loan Group,
the allocation of Available
Funds to such Class of Bonds,
the applicable Bond Interest
Rate for such Class of Bonds
and the purchase price paid
for such Bonds. In addition,
the yields to investors in
the Bonds will be adversely
affected by Realized Losses
and Net Interest Shortfalls.
The interaction of the
foregoing factors may have
different effects on the
various Classes of Bonds and
the effects on any Class may
vary at different times
during the life of such
Class. No representation is
made as to the anticipated
rate of prepayments on the
Mortgage Loans, the amount
and timing of Realized Losses
or Net Interest Shortfalls or
as to the anticipated yield
to maturity of any 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 Bonds to their investment
objectives. In addition to
the discussion below,
S-20
<PAGE> 21
prospective investors should
review the discussion under
"Yield and Prepayment
Considerations" herein.
Mortgage Loan Payments. If
prevailing mortgage rates fall
significantly below the
Mortgage Rates on the Mortgage
Loans, the Mortgage Loans are
likely to be subject to higher
prepayment rates than if
prevailing rates remain at or
above the Mortgage Rates on
the Mortgage Loans. Other
factors affecting prepayments
of Mortgage Loans include
changes in Mortgagors' housing
needs, job transfers,
unemployment, net equity in
the Mortgaged Properties and
servicing decisions. Amounts
received by virtue of
liquidations of the related
Mortgage Loans, repurchases of
the related Mortgage Loans
upon breach of representations
or warranties and optional
redemption of the Bonds also
affect the timing of receipt
of principal on the Bonds. In
general, the Mortgage Loans
may be prepaid at any time
without penalty.
Timing and Amount of Payments.
Unlike certain corporate
bonds, the timing and amount
of principal payments on the
Bonds are not fixed because
they are generally determined
by the timing and amount of
distributions on the
underlying Certificates,
distributions of which are
generally determined by the
timing and amount of principal
payments on the applicable
Mortgage Loans. The timing of
payments on the Mortgage Loans
may significantly affect an
investor's yield. In general,
the earlier a prepayment of
principal on the Mortgage
Loans, the greater will be the
effect on an investor's yield
to maturity. As a result, the
effect on an investor's yield
of principal prepayments
occurring at a rate higher (or
lower) than the rate
anticipated by the investor
during the period immediately
following the issuance of the
Bonds will not be offset by a
subsequent like reduction (or
increase) in the rate of
principal prepayments.
Furthermore, the effective
yield to Bondholders will be
slightly lower than the yield
otherwise produced by the
applicable Bond Interest Rate
and purchase price because,
while interest generally will
accrue on each such Bond from
the first day of the month,
the payment of such interest
will not be made earlier than
the 25th day of the month
following the month of
accrual. Moreover, to the
extent any Net Interest
Shortfall or the interest
portion of any Realized Loss
is allocated to a Class of
Bonds the yield to investors
in such Class will be reduced.
Discounts and Premiums. In the
case of any Bonds purchased at
a discount (including the
Class P Bonds), a slower than
anticipated rate of principal
payments could result in an
actual yield that is lower
than the anticipated yield. In
the case of any Bonds
purchased at a premium
(including each Class of
Interest Only Bonds), a faster
than anticipated rate of
principal payments could
result in an actual yield that
is lower than the anticipated
yield. A discount or premium
would be determined in
relation to the price at which
a Bond will yield its Bond
Interest Rate, after giving
effect to any payment delay.
S-21
<PAGE> 22
Reinvestment Risk. Because the
Mortgage Loans may be prepaid
at any time, it is not
possible to predict the rate
at which payments on the
Bonds will be received.
Since prevailing interest
rates are subject to
fluctuation, there can be no
assurance that investors in
the Bonds will be able to
reinvest the payments thereon
at yields equaling or
exceeding the yields on the
Bonds. Yields on any such
reinvestments may be lower,
and may even be significantly
lower, than yields on the
Bonds. Generally, when
prevailing interest rates
increase, prepayment rates on
mortgage loans tend to
decrease, resulting in a
reduced rate of return of
principal to investors at a
time when reinvestment at
such higher prevailing rates
would be desirable.
Conversely, when prevailing
interest rates decline,
prepayment rates on mortgage
loans tend to increase,
resulting in a greater rate
of return of principal to
investors at a time when
reinvestment at comparable
yields may not be possible.
Prospective investors in the
Bonds should consider
carefully the related
reinvestment risks in light
of other investments that may
be available to such
investors.
Weighted Average Interest Rates.
Because the Bond Interest
Rate applicable to (i) each
of the Class X Bonds and the
Class 2-X Bonds will equal or
be based upon the weighted
average of the excess, if
any, of the Net Rates of the
Group 1 Mortgage Loans and
Group 2 Mortgage Loans,
respectively, over a
specified percentage and (ii)
each Class of the Group 3
Bonds (except Component P-3)
will be based upon the
weighted average of the Net
Rates of all the Group 3
Mortgage Loans,
disproportionate prepayments
of Mortgage Loans with higher
Net Rates in the related
Mortgage Loan Group will
adversely affect the yield on
such Classes. Mortgage Loans
with higher Net Rates will
have higher Mortgage Rates as
well, and such Mortgage Loans
are likely to prepay at rates
that are faster than those
applicable to Mortgage Loans
with lower Mortgage Rates
with adverse effects on the
yields on the Bonds.
Subordination of Certain Classes
of Bonds. The rights of the
holders of the Group 1
Subordinate Bonds, the Group 2
Subordinate Bonds and the
Group 3 Subordinate Bonds to
receive payments with respect
to the Group 1 Mortgage Loans,
the Group 2 Mortgage Loans and
the Group 3 Mortgage Loans,
respectively, will be
subordinated to such rights of
the holders of the Group 1
Senior Bonds, the Group 2
Senior Bonds and the Group 3
Senior Bonds, respectively,
and to each Class of
Subordinate Bonds of the
related Bond Group having a
lower numerical designation
than such Class. The level of
subordination available as
support to the Senior Bonds of
a Bond Group will be directly
affected by the rate and
timing of prepayments and the
occurrence of Realized Losses.
Prepayments. The applicable
Non-PO Percentage (as defined
herein) of Principal
Prepayments on the Mortgage
Loans in any Mortgage Loan
Group will be allocated solely
to the Senior P&I Bonds of the
related Bond Group during the
first five years after the
Closing Date and then such
allocation will decrease
subject to meeting certain
loss and delinquency tests
during the next
S-22
<PAGE> 23
four years until the Senior
P&I Bonds of such Bond Group
and the related Subordinate
Bonds share pro rata in such
allocations. The entire
amount of the applicable PO
Percentage of any prepayment
on a Mortgage Loan in Mortgage
Loan Groups 1 or 2 will be
allocated solely to the
related Stripped P Component
as long as the Component
Current Principal Balance of
such Stripped P Component has
not been reduced to zero.
Consequently, during not less
than the first nine years
after the Closing Date,
prepayments, if applicable,
will have the effect of
accelerating the amortization
of one or more Classes of the
Senior P&I Bonds of the
related Bond Group and, if
applicable, the Stripped P
Component of such Bond Group
while increasing the
percentage interest in such
Mortgage Loan Group evidenced
by the Subordinate Bonds of
such Bond Group. In addition,
in order to maintain the
relative subordination among
the Subordinate Bonds of a
Bond Group, the applicable
Non-PO Percentage of
prepayments and certain other
unscheduled recoveries of
principal in respect of the
Mortgage Loans of the related
Mortgage Loan Group will not
be payable to the holders of a
Class of Subordinate Bonds of
such Bond Group on any Payment
Date if the Class Prepayment
Payment Trigger (as defined
herein) for such Class is not
satisfied, except as otherwise
described herein. If the Class
Prepayment Payment Trigger is
not satisfied with respect to
any Class of Subordinate Bonds
of a Bond Group, the
amortization of those Classes
of Subordinate Bonds with a
lower numerical class
designation may occur more
rapidly than would otherwise
have been the case and, in the
absence of losses in respect
of the Mortgage Loans of the
related Mortgage Loan Group,
the percentage interest in the
principal balance of the
Mortgage Loans evidenced by
such Class of Subordinate
Bonds may increase.
Relocation Loans. All of the
Group 3 Mortgage Loans are
Relocation Loans, which are
mortgage loans made to
employees of corporations who
have a substantial portion of
the costs related to the
mortgage loan reimbursed by
their employer. Because
mortgagors of Relocation Loans
generally may be more likely
to be transferred by their
employers than mortgagors in
general, Relocation Loans are
generally believed to prepay
faster than other loans with
similar characteristics that
are not Relocation Loans.
Sequential Pay Senior P&I Bonds.
The Classes of Senior P&I
Bonds of each Bond Group are
subject to various priorities
for payment of principal as
described herein. Payments on
Classes currently entitled to
receive principal payments
will be immediately affected
by the prepayment rate of the
Mortgage Loans of the related
Mortgage Loan Group at such
time. Payments on Classes
with a later priority of
payment will not be directly
affected by the prepayment
rate until such time as
principal is payable on such
Classes. However, the timing
of commencement of principal
payments and the weighted
average lives of such Classes
may be affected by the
prepayment rate experienced
both before and after the
commencement of principal
payments on such Classes. In
addition, because
S-23
<PAGE> 24
principal payments are paid to
certain Classes of Senior P&I
Bonds of a Bond Group before
other Classes of Senior P&I
Bonds of such Bond Group,
holders of Senior P&I Bonds
that receive principal later
bear a greater risk of being
allocated Realized Losses on
the Mortgage Loans of the
related Mortgage Loan Group
than holders of such Classes
that receive principal
earlier.
PAC Bonds. The Group 1 Senior
Bonds have been structured to
provide for relatively stable
payments of principal to the
PAC Bonds. Using the modeling
assumptions described in
"Description of the Bonds --
Payments on the Bonds --
Payments in Reduction of the
Current Principal Balance of
the PAC Bonds" herein, the
outstanding principal balance
of each of the Classes of the
PAC I Bonds and the PAC II
Bonds will be reduced to its
respective Planned Balance (as
defined herein) for each
Payment Date if prepayments on
the Mortgage Loans in Mortgage
Loan Group 1 occur at a
CONSTANT rate within the range
of approximately 125% to
approximately 500% SPA (as
defined herein) with respect
to the PAC I Bonds and at a
CONSTANT rate within the range
of approximately 175% to
approximately 275% SPA with
respect to the PAC II Bonds.
To the extent that prepayments
on the Group 1 Mortgage Loans
occur at a constant rate below
approximately 125% SPA with
respect to the PAC I Bonds or
below approximately 175% SPA
with respect to the PAC II
Bonds, the Group 1 Available
Funds allocable as payments of
principal on each Payment Date
may be insufficient to make
payments of principal on the
PAC I and PAC II Bonds,
respectively, in amounts
sufficient to reduce their
Current Principal Balances in
accordance with their Planned
Balances for such Payment
Date, and, as a result, the
weighted average lives of such
Bonds may be extended. To the
extent that prepayments occur
at a constant rate higher than
approximately 500% SPA with
respect to the PAC I Bonds and
higher than approximately 275%
SPA with respect to the PAC II
Bonds, the weighted average
lives of such Bonds may be
shortened.
Companion Bonds. Principal
Prepayments and other
unscheduled payments of
principal on the Group 1
Mortgage Loans may result in
principal available for
payment to the PAC Bonds on a
Payment Date in an amount
greater than the amount
necessary to reduce the
applicable Class Current
Principal Balances to their
respective Planned Balances
for such Payment Date. Such
excess will be paid to the
Companion Bonds until their
respective Class Current
Principal Balances have been
reduced to zero. In addition,
if the rate of Principal
Prepayments and other
unscheduled payments of
principal on the Group 1
Mortgage Loans causes the
principal available for
payment on the Group 1 Bonds
on any Payment Date to be less
than the amounts necessary to
reduce the Class Current
Principal Balances of the PAC
Bonds then entitled to receive
principal to their respective
Planned Balances, the
Companion Bonds will not
receive any payment of
principal. Accordingly, the
rate of payments on the Group
1 Mortgage Loans is expected
to have
S-24
<PAGE> 25
a greater effect on the
weighted average lives of the
Companion Bonds than on the
weighted average lives of the
PAC Bonds.
Interest Only Bonds. Because
the Class Notional Balance of
the Class X Bonds and the
Class 2-X Bonds will be based
upon the Scheduled Principal
Balances of the Group 1
Mortgage Loans and the Group 2
Mortgage Loans, respectively,
the yield on the Class X Bonds
and the Class 2-X Bonds will
be sensitive to the rate and
timing of principal payments
of the Group 1 Mortgage Loans
and the Group 2 Mortgage
Loans, respectively. The
yield on the Class A-7 and
Class A-9 Bonds also will be
sensitive to the rate and
timing of principal payments
of the Group 1 Mortgage Loans,
because the Class A-7 Notional
Balance is based on the Class
Current Principal Balances of
the Class A-1 through Class
A-4 Bonds and of the Class A-6
Bonds and the Class A-9
Notional Balance is based on
the Class Current Principal
Balance of the Class A-8
Bonds. A rapid rate of
principal payments on the
Group 1 Mortgage Loans will
have a materially negative
effect on the yield to
investors in the Class X,
Class A-7 and Class A-9 Bonds
and a rapid rate of principal
payments on the Group 2
Mortgage Loans will have a
materially negative effect on
the yield to investors in the
Class 2-X Bonds. Investors
should fully consider the
associated risks, including
the risk that a rapid rate of
principal payments could
result in the failure of
investors in each such Class
of Bonds to recover fully
their initial investments. See
"Yield and Prepayment
Considerations -- Yield on the
Interest Only Bonds" herein.
Class A-19 Bonds. As described
herein, during certain
periods, no principal payments
or a disproportionately small
or large portion of principal
payments will be paid to the
Class A-19 Bonds. Unless the
Class Current Principal
Balances of all other Group 1
Senior P&I Bonds have been
reduced to zero, the Class
A-19 Bonds will not be
entitled to receive any
payments of principal prior to
the Payment Date occurring in
April 2003.
Class P Bonds. The amounts
payable with respect to the
Stripped P Components of the
Class P Bonds generally derive
from principal payments on the
Discount Mortgage Loans in the
related Mortgage Loan Group.
As a result, the yield on the
Stripped P Components of the
Class P Bonds will be
adversely affected by slower
than expected payments of
principal (including
prepayments, defaults and
liquidations) on the Discount
Mortgage Loans in the related
Mortgage Loan Group. Because
Discount Mortgage Loans in
each Mortgage Loan Group have
lower Net Rates than the
Non-Discount Mortgage Loans of
such Mortgage Loan Group, and
because the Mortgage Loans
with lower Net Rates are
likely to have lower Mortgage
Rates, the Discount Mortgage
Loans are generally likely to
prepay at a slower rate than
the Non-Discount Mortgage
Loans of such Mortgage Loan
Group. See "Yield and
Prepayment Considerations --
Class P Bonds" herein.
Residual Bonds. Holders of the
Residual Bonds are entitled
to receive payments of
principal and interest as
described herein.
S-25
<PAGE> 26
However, holders of such Bonds
may have tax liabilities with
respect to their Bonds during
the early years of the related
REMIC that substantially
exceed the principal and
interest payable thereon
during such periods.
Liquidity . . . . . . . . . . . . . . . . There is currently no secondary
market for the Bonds, and
there can be no assurance
that one will develop. The
Underwriter intends to
establish a market in the
Offered Bonds, but it is not
obligated to do so. There is
no assurance that any such
market, if established, will
continue or will provide
investors with a sufficient
level of liquidity. Each
Bondholder will receive
monthly reports pertaining to
the Bonds as described under
"Indenture -- Reports by
Indenture Trustee to
Bondholders" in the
Prospectus. There are a
limited number of sources
which provide certain
information about
collateralized mortgage
obligations in the secondary
market, and there can be no
assurance that any of these
sources will provide
information about the Bonds.
Investors should consider the
effect of limited information
on the liquidity of the
Bonds.
Optional Redemption . . . . . . . . . . At its option, BSMCC or its
designee may, upon giving
written notice to the Issuer,
each Master Servicer, the
Certificate Trustee and the
Indenture Trustee, repurchase
from the related Trust all of
the remaining Mortgage Loans
of any Mortgage Loan Group,
and thereby effect an early
termination of the related
Certificates and redemption
of the Bonds of the related
Bond Group, on any Payment
Date when the aggregate
outstanding principal balance
of such Mortgage Loans in
such Mortgage Loan Group is
equal to or less than 5% of
the aggregate outstanding
principal balance of the
Mortgage Loans in such
Mortgage Loan Group as of the
Cut-off Date (any such
Payment Date is referred to
herein as an "OPTIONAL
REDEMPTION DATE"). Any such
repurchase shall be at a
price (the "REDEMPTION
PRICE") equal to the
aggregate Class Current
Principal Balances of the
then outstanding Bonds of the
related Bond Group, plus
accrued and unpaid interest
thereon through the end of
the month preceding the month
in which the Optional
Redemption Date occurs. Upon
any such optional repurchase
after which no Bonds are
outstanding, 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.
Certain Federal Income Tax
Consequences . . . . . . . . . . . . . For federal income tax purposes,
elections will be made to
treat the assets of the Trust
Estate as three separate real
estate mortgage investment
conduits (each a "REMIC," and
respectively, "REMIC I",
"REMIC II" and "REMIC III").
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 REMIC
I, REMIC II and REMIC III
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 or
S-26
<PAGE> 27
P Components thereof (other
than the Residual Bonds) and
the Subordinate Bonds will be
designated as the "regular
interests" in REMIC III, and
the Class R-1, Class R-2 and
Class R-3 Bonds will be
designated as the "residual
interests" in REMIC I, REMIC
II and REMIC III,
respectively.
Because the Senior Bonds or P
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 P,
Class A- 7, Class A-9, Class
X and Class 2-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 SPA (as defined
herein), with respect to the
Group 1 Loans, 250% of SPA
with respect to the Group 2
Loans, and 315% of SPA with
respect to the Group 3 Loans.
However, no representation is
made herein as to the rate at
which prepayments actually
will occur. See "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.
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
R-1, Class R-2 and Class R-3
Bonds will be considered as
representing the right to the
net income or loss of REMIC
I, REMIC II and REMIC III,
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
S-27
<PAGE> 28
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 REMICs 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
Residual Bondholder 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 applicable REMICs for
purposes of determining their
taxable income and
alternative minimum taxable
income.
Furthermore, the Treasury
regulations relating to REMICs
(the "REMIC REGULATIONS")
provide that certain transfers
of noneconomic residual
interests ("NERDS") and
residual interests that have
tax avoidance potential
("TAPRIS") will be disregarded
for federal income tax
purposes. It is expected that
the Class R-3 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 R-1, CLASS R-2 AND
CLASS R-3 BONDS REPRESENT THE
RESIDUAL INTEREST IN REMIC I,
REMIC II AND REMIC III,
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.
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 or any beneficial
interest therein may be sold
or otherwise transferred
except upon delivery to the
Indenture Trustee of the
certificates, affidavits and
other agreements
S-28
<PAGE> 29
described herein. See
"Certain Federal Income Tax
Consequences -- REMIC Bonds"
and "-- 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, Class B-2, Class 2-B-1,
Class 2-B-2, Class 3-B-1 and
Class 3-B-2 Bonds and the
Senior Bonds, other than the
Residual Bonds and the
Interest Only Bonds, may be
transferred to 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
Interest Only Bonds, the
Residual Bonds, or the Class
B-3, Class 2-B-3 or Class
3-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 Residual
Bonds may not be transferred
to a Plan Investor, and the
Interest Only Bonds, and the
Class B-3, Class 2-B-3 and
Class 3-B-3 Bonds may not be
transferred to a Plan Investor
unless the Plan Investor
provides 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 an
Interest Only Bond, the
Residual Bonds or a Class B-3,
Class 2-B-3 or Class 3-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.
See also "Restrictions on
Purchase and Transfer of the
Residual Bonds" herein.
S-29
<PAGE> 30
Stated Maturity of the Bonds . . . . . . The "STATED MATURITY" of each
Class of Bonds will be: (i)
with respect to each Class of
Group 1 Bonds and the Class P
Bonds, the Payment Date
occurring in May 2028; (ii)
with respect to each Class of
Group 2 Bonds, the Payment
Date occurring in April 2013;
and (iii) with respect to
each Class of Group 3 Bonds,
the Payment Date occurring in
April 2028. The Stated
Maturity has been determined
by adding one month to the
maturity date of the Mortgage
Loan in the related Mortgage
Loan Group 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 Mortgage 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.
Rating . . . . . . . . . . . . . . . . It is a condition to their
issuance that each Class of
Offered Bonds receives the
ratings set forth below from
Moody's Investors Service,
Inc. ("MOODY'S") and Duff &
Phelps Credit Rating Co.
("DCR"). Moody's and DCR are
referred to herein as the
"RATING AGENCIES".
<TABLE>
<CAPTION>
Rating
------------------------
Class Moody's DCR
----- ------- -------
<S> <C> <C>
Class P Bonds Aaa AAA
Class A-1 Bonds Aaa AAA
Class A-2 Bonds Aaa AAA
Class A-3 Bonds Aaa AAA
Class A-4 Bonds Aaa AAA
Class A-5 Bonds Aaa AAA
Class A-6 Bonds Aaa AAA
Class A-7 Bonds Aaa AAA
Class A-8 Bonds Aaa AAA
Class A-9 Bonds Aaa AAA
Class A-10 Bonds Aaa AAA
Class A-11 Bonds Aaa AAA
Class A-12 Bonds Aaa AAA
Class A-13 Bonds Aaa AAA
Class A-14 Bonds Aaa AAA
Class A-15 Bonds Aaa AAA
Class A-16 Bonds Aaa AAA
Class A-17 Bonds Aaa AAA
Class A-18 Bonds Aaa AAA
Class A-19 Bonds Aaa AAA
Class X Bonds Aaa AAA
Class B-1 Bonds - AA
Class B-2 Bonds - A
Class B-3 Bonds - BBB
Class 2-A Bonds Aaa AAA
Class 2-X Bonds Aaa AAA
</TABLE>
S-30
<PAGE> 31
<TABLE>
<CAPTION>
Rating
------------------------
Class Moody's DCR
----- ------- -------
<S> <C> <C>
Class 2-B-1 Bonds - AA
Class 2-B-2 Bonds - A
Class 2-B-3 Bonds - BBB
Class 3-A Bonds Aaa AAA
Class 3-B-1 Bonds - AA
Class 3-B-2 Bonds - A
Class 3-B-3 Bonds - BBB
Class R-1 Bonds Aaa AAA
Class R-2 Bonds Aaa AAA
Class R-3 Bonds Aaa AAA
</TABLE>
The ratings of the Offered Bonds
of any Class should be
evaluated independently from
similar ratings on other types
of securities. A rating is
not a recommendation to buy,
sell or hold securities and
may be subject to revision or
withdrawal at any time by the
Rating Agencies. See
"Rating" herein.
The Issuer has not requested a
rating of the Offered Bonds by
any rating agency other than
the Rating Agencies. However,
there can be no assurance as
to whether any other rating
agency will rate the Offered
Bonds or, if it does, what
rating would be assigned by
such other rating agency. The
rating assigned by such other
rating agency to the Offered
Bonds could be lower than the
respective ratings assigned by
the Rating Agencies.
Legal Investment . . . . . . . . . . . . The Senior Bonds and the Class
B-1, Class 2-B-1 and Class
3-B-1 Bonds will constitute
"mortgage related securities"
for purposes of the Secondary
Mortgage Market Enhancement
Act of 1984 ("SMMEA") so long
as they are rated in one of
the two highest rating
categories and, as such, will
be legal investments for
certain entities to the
extent provided in SMMEA,
subject to state laws
overriding SMMEA. Certain
states have enacted
legislation overriding the
legal investment provisions
of SMMEA. The remaining
Classes of Bonds will not
constitute "mortgage related
securities" under SMMEA (the
"NON-SMMEA BONDS"). The
appropriate characterization
of the Non-SMMEA Bonds under
various legal investment
restrictions, and thus the
ability of investors subject
to these restrictions to
purchase Non-SMMEA Bonds, may
be subject to significant
interpretive uncertainties.
All investors whose investment
activities are subject to
legal investment laws and
regulations or to review by
certain regulatory
authorities may be subject to
restrictions on investment in
the Bonds. Any such
institution should consult
its own legal advisors in
determining whether and to
what extent there may be
restrictions on its ability
to invest in the Bonds. See
"Legal Investment" herein and
in the Prospectus.
S-31
<PAGE> 32
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, BSMCC, 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 CMC, CCC, BSMCC, 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, BSMCC, 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
The yield to maturity of each Class of Bonds will be affected by the
amount and timing of principal payments on the Mortgage Loans in the related
Mortgage Loan Group, the allocation of the related Group Available Funds to
such Class of Bonds, the applicable Bond Interest Rate for such Class of Bonds
and the purchase price paid for such 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 Bonds to their investment
objectives. Prospective investors should review the discussion under
"Yield and Prepayment Considerations" herein.
RESIDUAL BONDS
The Class R-1, Class R-2 and Class R-3 Bonds, which represent the
residual interest in REMIC I, REMIC II and REMIC III, respectively, may
experience a highly negative after tax return. See "Special Tax
Considerations" herein.
SUBORDINATION
The rights of the Subordinate Bonds of a Bond Group to receive
payments in respect of the Mortgage Loans in the related Mortgage Loan Group
will be subordinated to such rights of the holders of the Senior Bonds of such
Bond Group and the Subordinate Bonds of such Bond Group senior thereto, all to
the extent described herein under "Description of the Bonds". Except for
Excess Special Hazard Losses, Realized Losses on Mortgage Loans in a Mortgage
Loan Group will be allocated first to the Other Subordinate Bonds of the
related Bond Group in reverse numerical order, second to the Offered
Subordinate Bonds of such Bond Group in reverse numerical order, and then to
the Senior Bonds of such Bond Group, in each case as described herein. See
"Description of the Bonds -- Allocation of Losses; Subordination" herein.
GEOGRAPHIC CONCENTRATION OF THE MORTGAGED PROPERTIES
Approximately 59.50% of the Mortgage Loans included in Mortgage Loan
Group 1 (by aggregate principal balance as of the Cut-off Date), approximately
45.24% of the Mortgage Loans included in Mortgage Loan Group 2 (by aggregate
principal balance as of the Cut-off Date), and approximately 27.22% of the
Mortgage Loans included in Mortgage Loan Group 3 (by aggregate principal
balance as of the Cut-off Date) are expected to be secured by Mortgaged
Properties located in the State of California. Consequently, losses and
prepayments on the Mortgage Loans and resultant payments on the Offered Bonds
may be affected significantly by changes in the housing markets and regional
economies of, and the occurrence of natural disasters (such as mud slides,
earthquakes, fires, floods, and hurricanes) in, the State of California.
Recently, certain counties in the State of California have been experiencing
S-32
<PAGE> 33
severe rain and flooding. In the Purchase Agreement, BSMCC will represent
that, as of the Closing Date, each Mortgaged Property is free of material
damage or any such damage is adequately covered by an insurance policy. Any
repurchase of a Mortgage Loan due to a breach of this representation will be
treated as a Principal Prepayment.
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, BSMCC will
have acquired the Mortgage Loans from the Loan Sellers pursuant to the terms of
the related Loan Sale Agreements. On the Closing Date, pursuant to a loan
purchase agreement between BSMCC and CCC (the "PURCHASE AGREEMENT"), BSMCC will
assign and convey the Mortgage Loans to CCC and CCC will, in turn, assign and
convey the Mortgage Loans, together with all of CCC's rights and benefits under
the Purchase Agreement, to the Issuer. The Issuer will simultaneously convey
the Mortgage Loans, together with all of the Issuer's rights and benefits under
the Purchase Agreement to the Certificate Trustee, and the Certificate Trustee
will issue the Certificates in exchange therefor. The Issuer will
simultaneously convey the Certificates to the Indenture Trustee as collateral
for the Bonds.
Pursuant to the Pooling and Servicing Agreement, each Master Servicer
will remit to its Protected Account payments (including prepayments) of
principal received on each related Mortgage Loan, together with interest
thereon at a rate (the "NET RATE") equal to the mortgage rate of interest borne
by such Mortgage Loan (the "MORTGAGE RATE"), less the applicable Master
Servicing Fee. See "Pooling and Servicing Agreement -- Protected Accounts"
herein. Funds or permitted investments in each Protected 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 the sole Certificateholder, in respect of the Group Available Funds
(as defined herein) for each Mortgage Loan Group. The Indenture Trustee shall
deposit such funds into the collection account (the "COLLECTION ACCOUNT")
established in accordance with the Indenture and maintained with the Indenture
Trustee, and such funds will be available to make payments on the Bonds. Each
Certificate will evidence the entire beneficial ownership interest in a
separate trust (each a "TRUST") consisting of, among other things, the Mortgage
Loans in the related Mortgage Loan Group and all proceeds in respect thereof.
Each Certificate will evidence the entire interest in a Mortgage Loan
Group. The Mortgage Loans constituting each Mortgage 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 until released as described herein.
Pursuant to the Purchase Agreement, BSMCC will make 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 are described herein
under "Pooling and Servicing Agreement -- Representations and Warranties". The
Certificate Trustee, on behalf of the Indenture Trustee, as sole
Certificateholder, will have no other remedies for any breaches of the
representations and warranties regarding the Mortgage Loans made by BSMCC under
the Purchase Agreement. Each Master Servicer's obligations with respect to the
Mortgage Loans being master serviced by it will generally 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 master
serviced by the Master Servicers pursuant to the Pooling and Servicing
Agreement. See "Pooling and Servicing Agreement" herein.
S-33
<PAGE> 34
DESCRIPTION OF THE MORTGAGE LOANS
The Mortgage Pool will consist of approximately 1,776 Mortgage Loans.
In general, these are first lien, fixed rate mortgages secured by one- to
four-family residences and individual condominium units (the "MORTGAGED
PROPERTIES") located primarily in California and having original terms to
stated maturity ranging from 20 to 30 years (in the case of Mortgage Loan Group
1), 15 years (in the case of Mortgage Loan Group 2), and 15 to 30 years (in the
case of Mortgage Loan Group 3). All of the Mortgage Loans are conventional
mortgage loans. All of the Mortgage Loans with Loan-to-Value Ratios (as
defined herein) in excess of 80% have primary mortgage insurance. The Cut-off
Date Scheduled Principal Balance of each Mortgage Loan Group set forth herein
is subject to a permitted variance of up to 10%. The Mortgage Loans have been
divided into three groups ("GROUP 1 MORTGAGE LOANS", "GROUP 2 MORTGAGE LOANS"
and "GROUP 3 MORTGAGE LOANS"). The following paragraphs and the tables set
forth in Annex A set forth additional information with respect to the Mortgage
Pool in the aggregate and each Mortgage Loan Group.* All percentages set forth
herein are based on the aggregate Scheduled Principal Balance of the Mortgage
Loans in the related Mortgage Loan Group as of the Cut-off Date unless
otherwise indicated.
Approximately 40.21% of the Mortgage Loans (the "BA MORTGAGE LOANS")
were originated or acquired by Bank of America, FSB ("BAFSB") or Bank of
America National Trust and Savings Association ("BANTSA"). Approximately
59.79% of the Mortgage Loans (the "CENDANT MORTGAGE LOANS") were originated or
acquired by Cendant Mortgage Corporation ("CENDANT"). As of the Cut-off Date,
none of the Mortgage Loans was more than 30 days delinquent.
Approximately 98.79%, 98.81% and 100% of the Group 1, Group 2 and
Group 3 Mortgage Loans, respectively, are Jumbo Loans.
Approximately 0.15% and approximately 7.54% of the Group 1 Mortgage
Loans and Group 3 Mortgage Loans, respectively, are Buydown Loans. "BUYDOWN
LOANS" are mortgage loans that include provisions whereby the Loan Seller or a
third party partially subsidizes the monthly payments of the related 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 Loan 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 the aggregate amount of future
payment subsidies. None of the Group 2 Mortgage Loans is a Buydown Loan.
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 original
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.
THE MASTER SERVICERS
GENERAL
Pursuant to the Pooling and Servicing Agreement, BAFSB will act as
Master Servicer with respect to the BA Mortgage Loans, which Mortgage Loans
will be serviced either by BAFSB or through sub-servicers. Cendant will act as
Master Servicer with respect to the Cendant Mortgage Loans, which Mortgage
Loans will be serviced either by
__________________________________
* The description herein and in Annex A hereof of the Mortgage Loans and
the Mortgage Loan Groups is based upon estimates of the composition thereof as
of the Cut-off-Date, as adjusted to reflect the Scheduled Principal Balance as
of the Cut-off-Date. Prior to the issuance of the Bonds, Mortgage Loans may be
removed as a result of (i) Principal Prepayments thereof in full prior to the
dates on which the Issuer acquired the Mortgage Loans, (ii) requirements of
Moody s or DCR or (iii) delinquencies or otherwise. In any such event, other
mortgage loans may be included in the Trusts. The Issuer believes that the
estimated information set forth herein with respect to the Mortgage Loans and
the Mortgage Loan Groups as presently constituted is representative of the
characteristics thereof at the time the Bonds are issued, although certain
characteristics of the Mortgage Loans and the Mortgage Loan Groups may vary.
S-34
<PAGE> 35
Cendant or through sub-servicers, pursuant to the Pooling and Servicing
Agreement. With respect to those Mortgage Loans serviced by sub-servicers,
each Master Servicer will remain liable for its servicing obligations under the
Pooling and Servicing Agreement as if such Master Servicer alone were servicing
such Mortgage Loans.
The Mortgage Loans were originated under the applicable programs
described below. The information set forth in the following paragraphs with
respect to BAFSB, BANTSA and Cendant has been provided by the respective party.
None of the Issuer, CCC, CMC, BSMCC, the Underwriter, the Indenture Trustee,
the Certificate Trustee or any of their respective affiliates have made or will
make any representation as to the accuracy or completeness of such information.
BAFSB AND BANTSA
With more than $235 billion in assets as of September 30, 1997, BANTSA
is the primary subsidiary of BankAmerica Corporation. In California it
operates more than 1,000 full-service branches as well as major consumer
lending, residential lending, small business banking, and commercial banking
operations. It also maintains corporate banking offices in major U.S. cities,
and branches and other facilities in more than 30 countries and territories
around the world. Its residential lending and home loan servicing operation,
combined with that of BAFSB, ranks among the top ten in the United States,
according to American Banker, with originations of more than $15 billion for
1996 and with a combined servicing portfolio of $82 billion as of December 31,
1996.
The principal executive offices of BANTSA are located at 555
California Street, San Francisco, California 94104.
With more than $14 billion in assets as of September 30, 1997, BAFSB,
a subsidiary of BankAmerica Corporation, originates and services home loans
nationwide through retail, wholesale and other specialized channels, and
originates and services manufactured housing loans throughout the United
States. In addition, BAFSB's Midwest Retail Division operates ATMs and a small
network of Financial Service Centers, primarily in the Chicago metropolitan
area, and its Community Development Division finances affordable housing
projects and offers government-guaranteed small business loans in 11 states.
BAFSB's headquarters is located in Portland, Oregon, and its
administrative offices are located at 555 California Street, San Francisco,
California 94104 (telephone 415-622-2220).
Residential mortgage loans are serviced currently by BAFSB at either
its servicing facility located in Cypress, California (the "CYPRESS CENTER") or
at its servicing facility in Richmond, Virginia (the "RICHMOND CENTER"). On
September 30, 1997, the Cypress Center was servicing approximately 443,000
mortgage loans with an aggregate principal balance of $54,370,000,000 and the
Richmond Center was servicing approximately 409,000 mortgage loans with an
aggregate principal balance of $35,660,000,000. Prior to January 1, 1998, the
Cypress Center loans were serviced by BANTSA.
The Cypress Center and the Richmond Center are responsible for
answering customer inquiries, receiving loan payments, reporting to investors,
maintaining hazard insurance or a blanket hazard policy, monitoring payment of
taxes, assessments and, when applicable, premiums under primary mortgage
insurance policies, and all mortgage accounting and record keeping. The
Cypress Center and the Richmond Center also are responsible for collection
efforts on delinquent residential mortgage loans and foreclosures thereon.
Separate units exist within affiliates of BankAmerica to manage and dispose of
other real estate owned.
Because both Centers service loans for governmental and
quasi-governmental agencies of the U.S. Government, the Centers are regularly
examined by either BANTSA's or BAFSB's internal and external auditors and
periodically by FNMA, Freddie Mac, GNMA, the Comptroller of the Currency or the
Office of Thrift Supervision, as applicable, and HUD. Certain financial
records of BANTSA and BAFSB relating to their mortgage servicing activities are
reviewed annually by their independent public accountants.
S-35
<PAGE> 36
BAFSB AND BANTSA UNDERWRITING STANDARDS
GENERAL. The underwriting standards of BAFSB and BANTSA under both
the "Standard Processing Program" and the "Rapid Processing Program" generally
allow Loan-to-Value Ratios at origination of between 70% and 95% depending upon
the original principal balance and the purpose of the mortgage loan.
Under both the Standard Processing Program and the Rapid Processing
Program, in determining whether a prospective borrower has sufficient income
available (i) to meet the borrower's monthly obligations 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, BAFSB and BANTSA generally apply ratios of the proposed
borrower's acceptable stable monthly gross income that vary based upon the
Loan-to-Value Ratios at origination. Such ratios may be exceeded when there
are mitigating factors such as the liquidity of the mortgagor, the length of
employment, the Loan-to-Value Ratio, and the stability of the real estate
market where the mortgaged property is located combined with local economic
conditions.
BAFSB and BANTSA use credit scoring as a principal tool in the credit
decision process. Credit scoring is used to identify loan requests eligible
for accelerated processing. Used as a tool, credit scoring allows BAFSB and
BANTSA to apply minimal credit documentation in the credit decision process.
When an application fits a profile that has been determined by BAFSB or BANTSA
as very low risk it is eligible for processing under the "Rapid Processing
Program". The characteristics of this profile can be determined from
information on the application and the in-file credit report.
As one component of the "Rapid Processing Program", a BAFSB and BANTSA
proprietary score is calculated based on credit information obtained from
credit repositories, or a credit score is obtained from two to three major
credit repositories. The BAFSB and BANTSA proprietary score was developed for
use in mortgage lending and, unlike a credit score obtained from a credit
repository, takes into account the effect of mortgage loan characteristics on
the probability of repayment by the borrower.
All mortgage loans underwritten under the "Rapid Processing Program"
have an Alternative Documentation Program designed for Rapid Processing. Only
minimal documentation is obtained. A year-to-date pay stub or a W-2 for the
most current year to verify current and total earnings and withholding, plus a
verbal Verification of Employment, are required for a salaried borrower.
Federal income tax returns (Form 1040) with all schedules are required for
borrowers who are self-employed. Documentation of assets is necessary only for
those assets needed for down payment and closing costs. Depending on the
Loan-to-Value Ratio, determining the source of the funds may not be required.
Each mortgage loan underwritten to the "Standard Processing Program"
or the "Rapid Processing Program" with a Loan-to-Value Ratio at origination in
excess of 80% is insured by a primary mortgage insurance policy covering a
portion of the principal balance of the mortgage loan at origination. The
amount of such coverage depends upon the Loan-to- Value Ratio at origination.
DELINQUENCY AND FORECLOSURE EXPERIENCE. The delinquency, foreclosure
and loss experience on the portfolios of one- to four-family first mortgage
loans owned and serviced by BAFSB and BANTSA are set forth in the following
tables. The portfolios of mortgage loans serviced by BAFSB and BANTSA include
both fixed and adjustable interest rate mortgage loans, including buydown
mortgage loans, loans with stated maturities of 15 to 40 years and other types
of mortgage loans having a variety of payment characteristics, and include
mortgage loans secured by mortgaged properties in geographic locations that may
not be representative of the geographic distribution or concentration of the
Mortgaged Properties securing the Mortgage Loans. BAFSB's and BANTSA's
portfolio of mortgage loans may differ significantly from the BA Mortgage Loans
in terms of interest rates, principal balances, geographic distribution, types
of properties and other possibly relevant characteristics. There can be no
assurance, and no representation is made, that the delinquency and foreclosure
experience with respect to the BA Mortgage Loans will be similar to that
reflected in the table below, nor is any representation made as to the rate at
which losses may be experienced on liquidation of defaulted BA Mortgage Loans.
The actual delinquency experience on the BA Mortgage Loans will depend, among
other things, upon the value of the real estate securing such BA Mortgage Loans
and the ability of borrowers to make required payments. In addition because
BAFSB did not begin servicing mortgage loans for BankAmerica until August 31,
1994, the delinquency, foreclosure and loss experience set forth below with
respect to the mortgage loans
S-36
<PAGE> 37
owned and serviced by BAFSB should not be considered representative of its
historical experience servicing mortgage loans similar to the Mortgage Loans or
indicative of future servicing performance.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE OF BAFSB
<TABLE>
<CAPTION>
At or for the year ended December 31,
------------------------------------------------------------------ At or for the nine-month
Period Ended
1994 1995 1996 September 30, 1997
----------------------------------------------------------------------------------------
By Dollar By Dollar By Dollar By Dollar
By No. Amount of By No. Amount of By No. Amount of By No. Amount of
of Loans of Loans of Loans of Loans
Loans (In Millions) Loans (In Millions) Loans (In Millions) Loans (In Millions)
----- ------------- ----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio . . . . . . 931 $105.8 4,846 $875.2 14,683 $3,410.5 16,337 $3,858.0
Average Portfolio Balance(1) 703 78.0 3,206 530.8 8,886 1,973.9 16,931 3,928.2
Period of Delinquency:
31 to 59 days . . . . . 1 0.1 55 7.4 154 34.0 166 28.8
60 to 89 days . . . . . 1 0.0 3 1.0 34 7.3 30 4.2
90 days or more (2) . . 4 0.3 1 0.3 14 2.0 49 7.3
-- ------ ----- ------ ------ -------- ------ --------
Total Delinquent Losses . . 6 $ 0.4 59 $ 8.7 202 $ 43.3 245 $ 40.3
Delinquency Ratio . . . . . 0.64% 0.41% 1.22% 0.98% 1.38% 1.27% 1.50% 1.04%
Foreclosures Pending(3) . . 0 0 2 $ 0.3 23 $ 3.7 73 $ 12.3
Foreclosure Ratio . . . . . 0.00% 0.00% 0.04% 0.04% 0.16% 0.11% 0.45% 0.32%
Losses(4) . . . . . . . . . 0 0 0 $ 0 0 $ 0 0 $ 0
Loss Ratio(5) . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(1) Average Portfolio Balance for the period indicated is based on end of
month balances divided by the number of months in the period
indicated.
(2) Does not include Foreclosures Pending.
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted and title to which had not been acquired by BAFSB, a third
party or by an insurer at the date indicated.
(4) Losses are the sum of losses less net gains ("Excess Recoveries") on
all mortgage loans liquidated during the period indicated. Loss for
any mortgage loan is equal to the difference between (a) the sum of
the outstanding principal balance plus accrued interest, lost interest
income accrued at BAFSB's internal reinvestment rate from the date
such mortgage loan became real estate owned until the date it was
liquidated, servicing advances and all liquidation expenses related to
such mortgage loan and (b) all amounts received in connection with the
liquidation of the related mortgaged property. Losses are included in
the year in which they were expensed or written down. Excess Recovery
is calculated only with the respect to defaulted mortgage loans as to
which the liquidation of the related mortgaged property resulted in
recoveries in excess of the sum of the outstanding principal balance
plus accrued interest thereon, servicing advances and all liquidation
expenses related to such mortgage loan.
(5) Loss Ratios are computed by dividing the Losses during the period
indicated by the Average Portfolio Balance during such period.
S-37
<PAGE> 38
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE OF BANTSA
<TABLE>
<CAPTION>
At or for the year ended December 31,
------------------------------------------------------------------ At or for the nine-month
Period Ended
1994 1995 1996 September 30, 1997
--------------------------------------------------------------------------------------------
By Dollar By Dollar By Dollar By Dollar
By No. Amount of By No. Amount of Amount of By No. Amount of
of Loans of Loans By No. Loans of Loans
Loans (In Millions) Loans (In Millions) of Loans (In Millions) Loans (In Millions)
----- ------------- ----- ------------- -------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio . . . . . . 175,323 $25,513.8 170,017 $25,460.0 $134,495 $24,421.6 136,623 $24,003.5
Average Portfolio Balance(1) 173,760 25,286.6 175,016 25,777.7 151,826 25,131.8 145,839 25,439.0
Period of Delinquency:
31 to 59 days . . . . . 2,317 299.1 2,673 360.2 2,459 332.1 2,953 383.2
60 to 89 days . . . . . 652 98.4 776 117.3 628 89.4 810 113.3
90 days or more (2) . . 1,017 194.9 876 161.4 599 96.3 655 91.5
----- --------- ------- --------- -------- --------- ------- ---------
Total Delinquent Losses . . 3,986 $ 592.4 4,325 $ 638.9 3,686 $ 517.8 4,418 $ 588.0
Delinquency Ratio . . . . . 2.27% 2.32% 2.54% 2.51% 2.74% 2.12% 3.23% 2.45%
Foreclosures Pending(3) . . 693 $ 162.9 1.099 $ 215.7 881 $ $156.8 808 $ 130.3
Foreclosure Ratio . . . . . 0.40% 0.64% 0.65% 0.85% 0.66% 0.64% 0.59% 0.54%
Losses(4) . . . . . . . . . 975 $ 101.6 1,286 $ 112.6 1,832 $ 98.8 927 $ 39.1
Loss Ratio(5) . . . . . . . 0.56% 0.40% 0.73% 0.44% 1.21% 0.39% 0.85% 0.21%
Excess Recovery(6) . . . . (7) (7) 13 $ 0.2 54 $ 0.5 48 $ 0.6
</TABLE>
(1) Average Portfolio Balance for the period indicated is based on end of
month balances divided by the number of months in the period
indicated.
(2) Does not include Foreclosures Pending.
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted and title to which had not been acquired by BANTSA, a third
party or by an insurer at the date indicated.
(4) Losses are the sum of losses less net gains ("Excess Recoveries") on
all mortgage loans liquidated during the period indicated. Loss for
any mortgage loan is equal to the difference between (a) the sum of
the outstanding principal balance plus accrued interest, lost interest
income accrued at BANTSA's internal reinvestment rate from the date
such mortgage loan became real estate owned until the date it was
liquidated, servicing advances and all liquidation expenses related to
such mortgage loan and (b) all amounts received in connection with the
liquidation of the related mortgaged property. Losses are included in
the year in which they were expensed or written down.
(5) Loss Ratios are computed by dividing the Losses during the period
indicated by the Average Portfolio Balance during such period.
(6) Excess Recovery is calculated only with the respect to defaulted
mortgage loans as to which the liquidation of the related mortgaged
property resulted in recoveries in excess of the sum of the
outstanding principal balance plus accrued interest thereon, servicing
advances and all liquidation expenses related to such mortgage loan.
(7) Excess Recovery cannot be computed for the indicated period.
S-38
<PAGE> 39
CENDANT
On April 30, 1997, the parent of PHH Mortgage Services Corporation,
PHH Corporation, announced that it had merged with HFS Incorporated pursuant to
which PHH Corporation became a subsidiary of HFS Incorporated. On December 18,
1997, HFS Incorporated announced it had merged with CUC International, Inc.
The new company name is Cendant Corporation. Cendant's primary business
segments include Travel (hotels, rental cars, and vacation time shares), Real
Estate (real estate brokerage offices including Century 21, Coldwell Banker,
and ERA, and mortgage services), and Membership (access to travel, shopping,
auto, dining, financial, and other services to over 73 million members
worldwide). PHH Mortgage Services Corporation has since changed its name to
Cendant Mortgage Corporation to show its affiliation with the new parent
company.
As of September 30, 1997, Cendant provided servicing for approximately
$28 billion aggregate principal amount of mortgage loans, substantially all of
which are being serviced for unaffiliated persons.
The following table set forth the number and dollar value of Cendant's
mortgage loan production for the periods indicated:
MORTGAGE LOAN PRODUCTION
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
------------------------------------------------------------- September 30,
1993 1994 1995 1996 1997
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Total Loans
Number of Loans 70,045 40,279 50,333 70,929 62,448
Volume of Loans
(in millions) $7,765.9 $4,607.7 $5,755.4 $8,292.6 $ 7,813
Average Loan
Balance $110,862 $114,389 $114,356 $116,916 $125,115
</TABLE>
Cendant believes that its increased loan production in recent years is
attributable to growth in volume from established customer relationships and
increased market penetration as well as volume generated from residential
mortgage refinancings in 1993. The decrease in the number and dollar amount of
loans in 1994 and 1995 as compared to 1993 was attributable primarily to the
increasing mortgage interest rate environment, resulting in a decrease in
mortgage loan activity, particularly refinancings. The increase in number and
dollar amount of loans in 1996 and 1997 are attributable to increased market
penetration for existing clients as well as additional new clients and the
merger with HFS Incorporated described above.
CENDANT UNDERWRITING STANDARDS
The underwriting standards of Cendant generally allow Loan-to-Value
Ratios at origination of up to 95% for mortgage loans with original principal
balances of up to $300,000, up to 80% for mortgage loans with original
principal balances of up to $500,000, up to 75% for mortgage loans with
original principal balances of up to $650,000 and up to 60% for mortgage loans
with principal balances of up to $1,000,000. 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, Cendant generally
applies ratios of up to 33% and 38%, respectively, of the proposed borrower's
acceptable stable monthly gross income. From time to time, Cendant makes loans
where these ratios are exceeded. In those instances, Cendant'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, Cendant generally will fund
up to the lesser of 10 units or 50% of the total units in a project.
S-39
<PAGE> 40
Cendant also originates mortgage loans pursuant to alternative sets of
underwriting criteria under its reduced documentation program ("REDUCED
DOCUMENTATION PROGRAM"), no asset, no income program ("NO ASSET, NO INCOME
PROGRAM"), and rate term refinance limited documentation program ("STREAMLINED
DOCUMENTATION PROGRAM"). Each of these programs is designed to facilitate the
loan approval process. Under the Reduced Documentation Program and the No
Asset, 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 Asset,
No Income Program are generally more restrictive than those under the standard
underwriting criteria of Cendant.
Under the Streamlined Documentation Program, which is generally
available only to Cendant 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 Cendant's underwriting policies may
be made. Such exceptions may be made on a loan-by-loan basis at the discretion
of the Cendant underwriter. Exceptions may be made only after consideration of
certain mitigating factors such as borrower capacity, liquidity, employment and
residential stability and local economic conditions.
Approximately 0.15% and approximately 7.54% of the Cendant Mortgage
Loans (by aggregate Scheduled Principal Balance of the Mortgage Loans in the
related Mortgage Loan Group as of the Cut-off Date) included in the Group 1
Mortgage Loans and the Group 3 Mortgage Loans, respectively, are Buydown Loans.
Buydown Loans are subject to temporary buydown plans, pursuant to which the
monthly payments made by the mortgagor in the early years of such 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.
With respect to each Buydown Loan, not later than the Master Servicer
Remittance Date in each month during the buydown period, Cendant will be
required to withdraw from the related Buydown Account and deposit into the
Certificate Account the amount, if any, of the Buydown Funds for such Buydown
Loan that, when added to the amount due from the mortgagor or such Buydown
Loan, equals the full monthly payment which would be due on the Buydown Loan on
the related Due Date if it were not subject to the buydown plan.
DELINQUENCY AND FORECLOSURE EXPERIENCE. The following table sets
forth the delinquency and foreclosure experience of mortgage loans serviced by
Cendant as of the dates indicated. Cendant's portfolio of mortgage loans may
differ significantly from the Cendant Mortgage Loans in terms of interest
rates, principal balances, geographic distribution, types of properties and
other possibly relevant characteristics. There can be no assurance, and no
representation is made, that the delinquency and foreclosure experience with
respect to the Cendant Mortgage Loans will be similar to that reflected in the
table below, nor is any representation made as to the rate at which losses may
be experienced on liquidation of defaulted Cendant Mortgage Loans. The actual
delinquency experience on the Cendant Mortgage Loans will depend, among other
things, upon the value of the real estate securing such Cendant Mortgage Loans
and the ability of borrowers to make required payments.
S-40
<PAGE> 41
DELINQUENCY AND FORECLOSURE EXPERIENCE IN CENDANT'S PORTFOLIO OF ONE-TO-FOUR
FAMILY, RESIDENTIAL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AS OF APRIL 30,
-----------------------
1994(5) 1995(5) 1996
--------- --------- ---------
No. of Principal No. of Principal No. of Principal
Loans Balance Loans Balance Loans Balance
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Total Portfolio 149,869 $16,646 135,693 $14,319 195,224 $21,681
Period of Delinquency(2)
30-59 Days 1,408 $169 1,640 $184 2,115 $231
60-89 Days 239 $29 293 $34 472 $57
90 Days of more(3) 168 $34 99 $28 14 $19
Total Delinquencies 1,815 $232 2,032 $246 2,601 $307
Foreclosure/Bankruptcies(4) 940 $122 991 $117 1,045 $121
Real Estate Owned
Total Portfolio
<CAPTION>
AS OF DECEMBER 31, NINE MONTHS ENDED
--------------------- --------------------
1996 SEPTEMBER 30, 1997
--------- --------------------
No. of Principal No. of Principal
Loans Balance Loans Balance
------- --------- ------- ---------
<S> <C> <C> <C>
Total Portfolio 224,622 $24,825 255,312 $28,195
Period of Delinquency(2)
30-59 Days 3,334 $344 $4,893 $501
60-89 Days 576 $71 901 $92
90 Days of more(3) 0 $0 432 $53
Total Delinquencies 4,110 $415 6,226 $646
Foreclosure/Bankruptcies(4) 1,340 $149 976 $102
Real Estate Owned
Total Portfolio
</TABLE>
__________________________________
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
All dollar amounts are in millions.
(2) No mortgage loan is included in this table as delinquent until it is
30 days past due.
(3) The 90 days or more period of delinquency is net of the
Foreclosures/Bankruptcies/Real Estate Owned category. On some
occasions, these loans may fall into the current through 89 days late
categories as well, however, such occurrences are rare.
(4) Entries may not add up to total due to rounding.
(5) Delinquency and foreclosure information as of April 30, 1994 and April
30, 1995 includes 508 and 533 loans, respectively, which are
associated with a portfolio of non-performing loans which were
acquired by Cendant in a bulk servicing purchase.
S-41
<PAGE> 42
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 MORTGAGE 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
Mortgage 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 Mortgage 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 the applicable 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.
S-42
<PAGE> 43
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.
TITLE INSURANCE POLICIES
The Pooling and Servicing Agreement requires that a policy of title
insurance ("TITLE INSURANCE POLICY") be in effect on each Mortgaged Property
and that such Title Insurance Policy contain no coverage exceptions, except
those permitted pursuant to the guidelines heretofore established by FNMA.
DESCRIPTION OF THE BONDS
The following summaries describing certain provisions of the Bonds do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Prospectus and the provisions of the Indenture
relating to the Bonds offered hereby. 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 (i) the
Certificates and (ii) such assets as from time to time are identified as
deposited in respect of the Certificates in the Collection Account established
by the Indenture Trustee for the benefit of the Bondholders, including an
amount deposited in the Collection Account in an amount equal to the aggregate
of the Class A-15 Incremental Interest Amounts, as defined under "--Available
Funds". Each Certificate will represent the beneficial ownership interest in
(i) the Mortgage Loans in the related Mortgage 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;
(iii) property which secured a related Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure after the Cut-Off Date;
(iv) amounts paid or payable by the insurer under any Primary Mortgage
Insurance Policy and any other insurance policy related to any Mortgage Loan in
the related Mortgage Loan Group; and (v) the rights and benefits of the Issuer
and the Certificate Trustee in and under each of the Loan Sale Agreements.
Payments on the Offered Bonds will be made on each Payment Date,
commencing in April 1998, 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 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 person acquiring a beneficial
interest in a Book-Entry Bond (each a "BENEFICIAL OWNER") 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 Clearing Agency 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.
S-43
<PAGE> 44
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 Current Principal Balance or
Class Notional Balance of not less than $1,000,000, by wire transfer in
immediately available funds, provided that the final payment in respect of any
Offered Bond will be made only upon presentation and surrender of such Bond at
the Corporate Trust Office of the Indenture Trustee. See "Indenture --
General" herein.
The Offered Bonds will be issued in minimum denominations of (i) in the
case of the Senior Bonds (other than the Residual Bonds), $1,000 and increments
of $1.00 in excess thereof and (ii) in the case of the Offered Subordinate
Bonds, $25,000 and integral multiples of $1.00 in excess thereof. In addition,
one Bond of each Class of Senior Bonds and Offered Subordinate Bonds may be
issued in a different principal or notional amount to accommodate the remainder
of the initial principal or notional amount of the Bonds of such Class. The
Residual Bonds will be issued in minimum denominations of $100, in the case of
the Class R-1 Bonds, and $50, in the case of the Class R-2 and Class R-3 Bonds.
HOLDERS OF THE CLASS P BONDS MAY NOT TRANSFER THE P COMPONENTS
SEPARATELY.
BOOK-ENTRY REGISTRATION
GENERAL. Beneficial Owners that are not participants or indirect
participants of DTC 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 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.
None of the Issuer, the Loan Sellers, BSMCC, 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 BONDS. 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
S-44
<PAGE> 45
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 OF 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.
AVAILABLE FUNDS
Available funds for any Payment Date will be determined separately
with respect to each Mortgage Loan Group ("GROUP 1 AVAILABLE FUNDS", "GROUP 2
AVAILABLE FUNDS" and "GROUP 3 AVAILABLE FUNDS", respectively, and collectively,
"AVAILABLE FUNDS" and individually, each a "GROUP AVAILABLE FUNDS") and in each
case will be an amount equal to the aggregate of the following with respect to
the related Mortgage Loans: (a) all previously undistributed payments on
account of principal (including the principal portion of Monthly Payments,
Principal Prepayments and the principal amount of Liquidation Proceeds) and all
previously undistributed payments on account of interest received after the
Cut- off Date and on or prior to the related Determination Date (including
scheduled amounts of distributions from Buydown Funds respecting Buydown Loans,
if any), (b) any Monthly Advances (including Certificate Account Advances, as
defined under "Pooling and Servicing Agreement -- Monthly Advances" herein) and
Compensating Interest Payments (as defined under "Pooling and Servicing
Agreement -- Servicing Compensation and Payment of Expenses" herein) by a
Master Servicer and (c) any amount reimbursed by a Master Servicer in
connection with losses on certain eligible investments, except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all Principal Prepayments and Liquidation Proceeds
received after the applicable Prepayment Period;
(iii) all payments, other than Principal Prepayments, that
represent early receipt of scheduled payments due on a date or dates
subsequent to the related Due Date;
(iv) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting which, and to the
extent that, there are any unreimbursed Monthly Advances or
Certificate Account Advances;
(v) amounts of Monthly Advances or Certificate Account
Advances determined to be nonrecoverable; and
S-45
<PAGE> 46
(vi) amounts permitted to be withdrawn from the Certificate
Account pursuant to clauses (i) through (xii) described under the
caption "Pooling and Servicing Agreement -- Certificate Account"
herein.
In addition, on each Payment Date through the first 24 Payment Dates, the Group
1 Available Funds will be increased by an amount of cash in the Collection
Account, deposited on the Closing Date, equal to the excess of the Accrued Bond
Interest on the Class A-15 Bonds for each such Payment Date over the amount of
such Accrued Bond Interest calculated as if such Class A-15 Bonds had a Bond
Interest Rate of 7.00% (such amount, the "CLASS A-15 INCREMENTAL INTEREST
AMOUNT" with respect to such Payment Date).
PAYMENTS ON THE BONDS
ALLOCATION OF AVAILABLE FUNDS. Interest and principal on the Bonds
will be paid monthly on each Payment Date, commencing in April 1998, in an
aggregate amount equal to the Available Funds for such Payment Date.
GROUP 1 SENIOR BONDS. On each Payment Date prior to the acceleration,
if any, of the Bonds, the Group 1 Available Funds will be paid in the following
order of priority among the Group 1 Senior Bonds, except as otherwise noted,
and provided that on each of the first 24 Payment Dates the Class A-15
Incremental Interest Amount with respect to such Payment Dates will be applied
solely to make payments of Accrued Bond Interest on the Class A-15 Bonds for
such Payment Dates:
first, to the interest-bearing Classes of Group 1 Senior Bonds, the
Accrued Bond Interest on each such Class for such Payment Date; as
described below, Accrued Bond Interest on each such Class of Group 1
Bonds is subject to reduction in the event of certain Net Interest
Shortfalls allocable thereto and any Net Interest Shortfalls shall be
allocated among the Group 1 Senior Bonds as described below;
second, to the interest-bearing Classes of Group 1 Senior Bonds, any
Accrued Bond Interest thereon remaining unpaid from previous Payment
Dates to the extent of remaining Group 1 Available Funds, with any
shortfall in available amounts being allocated among such Classes in
proportion to the amount of such Accrued Bond Interest remaining
unpaid for each such Class for such Payment Date;
third, on each Payment Date on or before the Group 1 Cross-Over Date,
to the Group 1 Senior Bonds (other than the Class A-7, Class A-9 and
Class X Bonds) in reduction of the Class Current Principal Balances or
Component Current Principal Balances thereof, as applicable:
(a) the Group 1 Senior P&I Optimal Principal Amount (as
defined herein) for such Payment Date, in the
following order of priority:
(i) to the Class A-19 Bonds up to the Class A-19
Optimal Principal Amount (as defined herein)
for such Payment Date, until the Class
Current Principal Balance thereof has been
reduced to zero;
(ii) to the Class R-1 Bonds until the Class
Current Principal Balance thereof has been
reduced to zero;
(iii) concurrently to the Class A-1 and Class A-10
Bonds in the percentages of approximately
70.1278527901% and 29.8721472099%,
respectively, until the Class Current
Principal Balance of the Class A-1 Bonds has
been reduced to its Planned Balance (as set
forth in Annex B hereto) for such Payment
Date;
(iv) concurrently to the Class A-2, Class A-17 and
Class A-18 Bonds in the percentages of
approximately 46.0874438277%, 26.9562780862%
and 26.9562780862%, respectively, until the
Class Current Principal Balance of the Class
A-2 Bonds has been reduced to its Planned
Balance (as set forth in Annex B hereto) for
such Payment Date;
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<PAGE> 47
(v) concurrently to the Class A-3 and Class A-10
Bonds in the percentages of approximately
83.0823887667% and 16.9176112333%,
respectively, until the Class Current
Principal Balance of the Class A-3 Bonds has
been reduced to its Planned Balance (as set
forth in Annex B hereto) for such Payment
Date;
(vi) concurrently to the Class A-4 and Class A-10
Bonds in the percentages of approximately
80.3211586902% and 19.6788413098%,
respectively, until the Class Current
Principal Balance of the Class A-4 Bonds has
been reduced to the greater of its Planned
Balance (as set forth in Annex B hereto) for
such Payment Date or $20,530,000;
(vii) sequentially, to the Class A-4 and Class A-6
Bonds, in that order, until their respective
Class Current Principal Balances have been
reduced to their respective Planned Balances
(as set forth in Annex B hereto) for such
Payment Date;
(viii) concurrently to the Class A-8, Class A-10,
Class A-17 and Class A-18 Bonds in the
percentages of approximately 62.2031621534%,
8.2735568848%, 14.7616404809% and
14.7616404809%, respectively, until the Class
Current Principal Balance of the Class A-8
Bonds has been reduced to its respective
Planned Balance (as set forth in Annex B
hereto) for such Payment Date;
(ix) to the Class A-5 Bonds until the Class
Current Principal Balance thereof has been
reduced to its Planned Balance (as set forth
in Annex B hereto) for such Payment Date;
(x) concurrently to the Class A-13 and Class A-16
Bonds in the percentages of approximately
87.5% and 12.5%, respectively, until their
respective Class Current Principal Balances
have been reduced to their respective Planned
Balances (as set forth in Annex B hereto) for
such Payment Date;
(xi) concurrently to the Class A-14, Class A-15
and Class A-16 Bonds in the percentages of
approximately 59.9452842072%, 27.5547157928%
and 12.5%, respectively, until their
respective Class Current Principal Balances
have been reduced to their respective Planned
Balances (as set forth in Annex B hereto) for
such Payment Date;
(xii) concurrently to the Class A-11 and Class A-12
Bonds, pro rata, until their respective Class
Current Principal Balances have been reduced
to zero;
(xiii) concurrently to the Class A-8, Class A-10,
Class A-17 and Class A-18 Bonds in the
percentages set forth in clause (viii) above,
without regard to the Planned Balance of the
Class A-8 Bonds for such Payment Date, until
the Class Current Principal Balance of the
Class A-8 Bonds has been reduced to zero;
(xiv) to the Class A-5 Bonds without regard to the
Planned Balance thereof for such Payment
Date, until the Class Current Principal
Balance of the Class A-5 Bonds has been
reduced to zero;
(xv) concurrently to the Class A-13 and Class A-16
Bonds in the percentages set forth in clause
(x) above, without regard to their respective
Planned Balances for such Payment Date, until
the Class Current Principal Balance of the
Class A-13 Bonds has been reduced to zero;
(xvi) concurrently to the Class A-14, Class A-15
and Class A-16 Bonds in the percentages set
forth in clause (xi) above, without regard to
their respective
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<PAGE> 48
Planned Balances for such Payment Date, until
their respective Class Current Principal
Balances have been reduced to zero;
(xvii) concurrently to the Class A-1 and Class A-10
Bonds in the percentages set forth in clause
(iii) above, without regard to the Planned
Balance of the Class A-1 Bonds for such
Payment Date, until the Class Current
Principal Balance of the Class A-1 Bonds has
been reduced to zero;
(xviii) concurrently to the Class A-2, Class A-17 and
Class A-18 Bonds in the percentages set forth
in clause (iv) above, without regard to the
Planned Balance of the Class A-2 Bonds for
such Payment Date, until the Class Current
Principal Balance of the Class A- 2 Bonds has
been reduced to zero;
(xix) concurrently to the Class A-3 and Class A-10
Bonds in the percentages set forth in clause
(v) above, without regard to the Planned
Balance of the Class A-3 Bonds for such
Payment Date, until the Class Current
Principal Balance of the Class A-3 Bonds has
been reduced to zero;
(xx) concurrently to the Class A-4 and Class A-10
Bonds in the percentages set forth in clause
(vi) above, without regard to the Planned
Balance of the Class A-4 Bonds for such
Payment Date, until the Class Current
Principal Balance of the Class A-4 Bonds has
been reduced to $20,530,000; and
(xxi) sequentially, to the Class A-4 and Class A-6
Bonds, in that order, without regard to their
respective Planned Balances for such Payment
Date, until their respective Class Current
Principal Balances have been reduced to zero;
and
(b) the Component P Principal Payment Amount (as defined
herein) for Component P-1 and such Payment Date, to
the Class P Bonds, until the Component Current
Principal Balance of Component P-1 has been reduced
to zero; and
fourth, the Component P Deferred Amount for Component P-1 for such
Payment Date, to the Class P Bonds; provided that (i) on any Payment
Date, payments pursuant to this priority fourth shall not exceed the
excess, if any, of (x) the Group 1 Available Funds remaining after
giving effect to payments pursuant to clauses first through third
above over (y) the sum of the amount of Accrued Bond Interest for such
Payment Date and Accrued Bond Interest remaining unpaid from previous
Payment Dates on all Classes of Group 1 Subordinate Bonds then
outstanding, (ii) such payments shall not reduce the Component Current
Principal Balance of Component P-1 and (iii) no payment will be made
in respect of the Component P Deferred Amount for Component P-1 after
the Group 1 Cross-Over Date.
On each Payment Date prior to the acceleration, if any, of the Bonds
and after the Group 1 Cross-Over Date, payments of principal on the outstanding
Group 1 Senior Bonds (other than the Class A-7, Class A-9 and Class X Bonds and
Component P-1) will be made pro rata among all such Group 1 Senior Bonds,
regardless of the allocation, or sequential nature, of principal payments
described in priority third (a) above, and the Component P Principal Payment
Amount for Component P-1 for such Payment Date shall be paid to the Class P
Bonds until the Component Current Principal Balance of Component P-1 has been
reduced to zero.
If, after payments have been made pursuant to priorities first and
second under "--Group 1 Senior Bonds" above on any Payment Date, the remaining
Group 1 Available Funds are less than the sum of the Group 1 Senior P&I Optimal
Principal Amount and the Component P Principal Payment Amount for Component P-1
for such Payment Date, such amounts shall be proportionately reduced, and such
remaining Group 1 Available Funds will be paid on the Group 1 Senior Bonds
(other than the Class A-7, Class A-9 and Class X Bonds) on the basis of such
reduced amounts. Notwithstanding any reduction in principal payable to the
Class P Bonds pursuant to this paragraph, the Component Current Principal
Balance of Component P-1 shall be reduced not only by principal so paid but
also by the difference between (i) principal payable to the Class P Bonds with
respect to Component P-1 in accordance with clause (b) of
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<PAGE> 49
priority third above and (ii) principal actually paid to the Class P Bonds with
respect to Component P-1 after giving effect to this paragraph (such
difference, the "COMPONENT P-1 CASH SHORTFALL"). The Component P-1 Cash
Shortfall with respect to any Payment Date will be added to the Component P
Deferred Amount applicable to Component P-1.
The "CLASS A-19 OPTIMAL PRINCIPAL AMOUNT" for any Payment Date
occurring prior to the Payment Date in April 2003 will equal zero. The Class
A-19 Optimal Principal Amount for any Payment Date occurring after the first
five years following the Closing Date will be as follows: for any Payment Date
during the sixth, seventh, eighth and ninth years after the Closing Date, 30%,
40%, 60% and 80%, respectively, of the Class A-19 Pro Rata Optimal Principal
Amount (as defined below) for such Payment Date; and, for any Payment Date
thereafter, 100% of the Class A-19 Pro Rata Optimal Principal Amount for such
Payment Date. Notwithstanding the foregoing, if on any Payment Date the Class
Current Principal Balance of each Class of Group 1 Senior Bonds (other than the
Class A-19 Bonds and Component P-1) has been reduced to zero, the Class A-19
Optimal Principal Amount shall equal the Group 1 Senior P&I Optimal Principal
Amount to the extent not paid on such Payment Date to other Classes of Group 1
Senior Bonds.
For any Payment Date, the "CLASS A-19 PRO RATA OPTIMAL PRINCIPAL
AMOUNT" shall be an amount equal to the product of (x) the sum of the Group 1
Senior P&I Optimal Principal Amount and the Group 1 Subordinate Optimal
Principal Amount for such Payment Date multiplied by (y) a fraction, the
numerator of which is the Class Current Principal Balance of the Class A-19
Bonds immediately prior to such Payment Date and the denominator of which is
the aggregate Class Current Principal Balances of all Classes of Group 1 Bonds
(other than Component P-1) immediately prior to such Payment Date.
GROUP 1 SUBORDINATE BONDS. On each Payment Date prior to the
acceleration, if any, of the Bonds, the Group 1 Available Funds remaining after
the payments described above under "--Group 1 Senior Bonds" will be paid to the
Group 1 Subordinate Bonds sequentially, in the following order, to the Class
B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Bonds, in each
case up to an amount equal to and in the following order: (a) the Accrued Bond
Interest thereon for such Payment Date, (b) any Accrued Bond Interest thereon
remaining unpaid from previous Payment Dates and (c) such Class's Allocable
Share (as defined herein) for such Payment Date.
GROUP 2 SENIOR BONDS. On each Payment Date prior to the acceleration,
if any, of the Bonds, the Group 2 Available Funds will be paid in the following
order of priority among the Group 2 Senior Bonds except as otherwise noted:
first, to the interest-bearing Classes of Group 2 Senior Bonds, the
Accrued Bond Interest on each such Class for such Payment Date; as
described below, Accrued Bond Interest on each such Class of Group 2
Senior Bonds is subject to reduction in the event of certain Net
Interest Shortfalls allocable thereto and any Net Interest Shortfalls
shall be allocated among the Group 2 Senior Bonds as described below;
second, to the interest-bearing Classes of Group 2 Senior Bonds, any
Accrued Bond Interest thereon remaining unpaid from previous Payment
Dates to the extent of remaining Group 2 Available Funds, with any
shortfall in available amounts being allocated among such Classes in
proportion to the amount of such Accrued Bond Interest remaining
unpaid for each such Class for such Payment Date;
third, to the Group 2 Senior Bonds (other than the Class 2-X Bonds) in
reduction of the Class Current Principal Balances or Component Current
Principal Balance thereof, as applicable:
(a) the Group 2 Senior P&I Optimal Principal Amount (as
defined herein) for such Payment Date, in the
following order of priority:
(i) to the Class R-2 Bonds until the Class
Current Principal Balance thereof has been
reduced to zero;
(ii) to the Class 2-A Bonds until the Class
Current Principal Balance thereof has been
reduced to zero;
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<PAGE> 50
(b) the Component P Principal Payment Amount for
Component P-2 for such Payment Date, to the Class P
Bonds, until the Component Current Principal Balance
of Component P-2 has been reduced to zero; and
fourth, the Component P Deferred Amount for Component P-2 for such
Payment Date, to the Class P Bonds; provided that (i) on any Payment
Date, payments pursuant to this priority fourth shall not exceed the
excess, if any, of (x) the Group 2 Available Funds remaining after
giving effect to payments pursuant to clauses first through third
above over (y) the sum of the amount of Accrued Bond Interest for such
Payment Date and Accrued Bond Interest remaining unpaid from previous
Payment Dates on all Classes of Group 2 Subordinate Bonds then
outstanding, (ii) such payments shall not reduce the Component Current
Principal Balance of Component P-2 and (iii) no payment will be made
in respect of the Component P Deferred Amount for Component P-2 after
the Group 2 Cross-Over Date.
If, after payments have been made pursuant to priorities first and
second under "--Group 2 Senior Bonds" above on any Payment Date, the remaining
Group 2 Available Funds are less than the sum of the Group 2 Senior P&I Optimal
Principal Amount and the Component P Principal Payment Amount for Component P-2
for such Payment Date, such amounts shall be proportionately reduced, and such
remaining Group 2 Available Funds will be paid on the Group 2 Senior Bonds
(other than the Class 2-X Bonds) on the basis of such reduced amounts.
Notwithstanding any reduction in principal payable to the Class P Bonds
pursuant to this paragraph, the Component Current Principal Balance of
Component P-2 shall be reduced not only by principal so paid but also by the
difference between (i) principal payable to the Class P Bonds with respect to
Component P-2 in accordance with clause (b) of priority third above and (ii)
principal actually paid to the Class P Bonds with respect to Component P-2
after giving effect to this paragraph (such difference, the "COMPONENT P-2 CASH
SHORTFALL", and the Component P-1 Cash Shortfall and the Component P-2 Cash
Shortfall, each a "COMPONENT P CASH SHORTFALL"). The Component P-2 Cash
Shortfall with respect to any Payment Date will be added to the Component P
Deferred Amount applicable to Component P-2.
GROUP 2 SUBORDINATE BONDS. On each Payment Date prior to the
acceleration, if any, of the Bonds, the Group 2 Available Funds remaining after
the payments described above under "-- Group 2 Senior Bonds" will be paid to
the Group 2 Subordinate Bonds sequentially, in the following order, to the
Class 2-B-1, Class 2-B-2, Class 2-B-3, Class 2-B-4, Class 2-B-5 and Class 2-B-6
Bonds, in each case up to an amount equal to and in the following order: (a)
the Accrued Bond Interest thereon for such Payment Date, (b) any Accrued Bond
Interest thereon remaining unpaid from previous Payment Dates and (c) such
Class's Allocable Share (as defined herein) for such Payment Date.
GROUP 3 SENIOR BONDS. On each Payment Date prior to the acceleration,
if any, of the Bonds, the Group 3 Available Funds will be paid in the following
order of priority among the Group 3 Senior Bonds except as otherwise noted:
first, to the interest-bearing Classes of Group 3 Senior Bonds, the
Accrued Bond Interest on each such Class for such Payment Date; as
described below, Accrued Bond Interest on each such Class of Group 3
Senior Bonds is subject to reduction in the event of certain Net
Interest Shortfalls allocable thereto and any Net Interest Shortfalls
shall be allocated between the Group 3 Senior Bonds as described
below;
second, to the interest-bearing Classes of Group 3 Senior Bonds, any
Accrued Bond Interest thereon remaining unpaid from previous Payment
Dates to the extent of remaining Group 3 Available Funds, with any
shortfalls in available amounts being allocated between such Classes
in proportion to the amount of Accrued Bond Interest remaining unpaid
for each such Class for such Payment Date;
third, the Group 3 Senior P&I Optimal Principal Amount (as defined
herein) for such Payment Date in the following order of priority: (a)
to the Class R-3 Bonds until the Class Current Principal Balance
thereof has been reduced to zero; and (b) concurrently to the Class
3-A Bonds and Component P-3, pro rata, until the Class Current
Principal Balance and Component Current Principal Balance thereof,
respectively, have been reduced to zero.
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<PAGE> 51
GROUP 3 SUBORDINATE BONDS. On each Payment Date prior to the
acceleration, if any, of the Bonds, the Group 3 Available Funds remaining after
the payments described above under "-- Group 3 Senior Bonds" will be paid among
the Group 3 Subordinate Bonds sequentially, in the following order, to the
Class 3-B-1, Class 3-B-2, Class 3-B-3, Class 3-B- 4, Class 3-B-5 and Class
3-B-6 Bonds, in each case up to an amount equal to and in the following order:
(a) the Accrued Bond Interest thereon for such Payment Date, (b) any Accrued
Bond Interest thereon remaining unpaid from previous Payment Dates and (c) such
Class's Allocable Share (as defined herein) for such Payment Date.
ACCELERATION OF THE BONDS. 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 Current 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
Current Principal Balances of the Senior Bonds has been reduced to zero,
holders representing 66 2/3% of the Class Current Principal Balances of the
Class or Classes of Subordinate Bonds then outstanding with the lowest
numerical Class designation may exercise such remedies. Such Class or Classes
of Subordinate Bonds constitute 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 in proportion to the amount of unpaid accrued interest and
payments of principal on the outstanding Bonds (other than the Interest Only
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 all Mortgage Loan Groups, regardless of the
allocation, or sequential nature, of principal payments described above, based
upon the Class Current Principal Balances of the Bonds (technically, an
"acceleration"). Since the entitlement to such amounts is based on the Class
Current Principal Balances of the Bonds, after the Cross-Over Date for a Bond
Group, the Subordinate Bonds 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 Class Current Principal Balances of all Classes of Bonds, any
remaining Group Available Funds for each Mortgage Loan Group 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.
"PRO RATA" payments or allocations among Classes of Bonds and each P
Component will be made in proportion to the then Class Current Principal
Balance of such Classes and Component Current Principal Balances of each such P
Component.
INTEREST. With respect to each Payment Date, interest will accrue
during the related Interest Accrual Period for each Class of Bonds (other than
the Class P Bonds) at its then applicable Bond Interest Rate on the Class
Current Principal Balance or Class Notional Balance of such Class immediately
preceding such Payment Date. The Bond Interest Rate for each Class of Bonds is
set forth or described on the cover page hereof. The effective yield to the
holders of Bonds will be lower than the yield otherwise produced by the
applicable Bond Interest Rate and purchase price, because interest will not be
paid to such Bondholders until the 25th day (or if such day is not a Business
Day, then on the next succeeding Business Day) of the month following the month
in which interest accrues on the Mortgage Loans. See "Yield and Prepayment
Considerations" herein.
The Class P Bonds are principal only Bonds and will not bear interest.
The "ACCRUED BOND INTEREST" for any interest-bearing Class of Bonds
for any Payment Date will equal the interest accrued during the related
Interest Accrual Period at the applicable Bond Interest Rate on the Class
Current Principal Balance (or in the case of a Class of Interest Only Bonds,
the Class Notional Balance) of such Class immediately prior to such Payment
Date less (i) in the case of an interest-bearing Class of Senior Bonds, such
Class's share of any Net Interest Shortfall (as defined below) and the interest
portion of any Excess Special Hazard Losses and, after the Payment Date on
which the aggregate of Class Current Principal Balances of the Subordinate
Bonds in the related Bond Group is reduced to zero, giving effect to all
payments on such Payment Date (the "GROUP 1 CROSS-OVER DATE", the "GROUP 2
CROSS-OVER DATE", the "GROUP 3 CROSS-OVER DATE", respectively, and each, a
"CROSS-OVER DATE"), the interest portion of any Realized Losses applicable to
its related Mortgage Loan Group and (ii) in the case of a Class of Subordinate
Bonds, such Class's share of any Net Interest Shortfall and the interest
portion of any Realized Losses applicable to its related Mortgage Loan Group.
Such Net Interest Shortfalls will be allocated among the Classes
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<PAGE> 52
of Bonds in a Bond Group in proportion to the amount of Accrued Bond Interest
that would have been allocated thereto in the absence of such shortfalls. The
interest portion of Realized Losses in a Mortgage Loan Group will be allocated
first to the Classes of Subordinate Bonds in the related Bond Group in reverse
order of their numerical designations commencing with the Class B-6, Class
2-B-6 and Class 3-B-6 Bonds and following the applicable Cross-Over Date, such
Realized Losses will be allocated to the Classes of interest-bearing Senior
Bonds in the related Bond Group in proportion to the amount of Accrued Bond
Interest that would have been allocated thereto in the absence of such Realized
Losses. Accrued Bond Interest is calculated on the basis of a 360-day year
consisting of twelve 30-day months. No Accrued Bond Interest will be payable
with respect to any Class of Bonds after the Payment Date on which the Class
Current Principal Balance or Class Notional Balance of such Class has been
reduced to zero.
The "CURRENT PRINCIPAL BALANCE" of any Bond (other than a Class of
Interest Only Bonds) as of any Payment Date will equal such Bond's initial
principal amount on the Closing Date, as reduced by (i) all amounts paid on
previous Payment Dates on such Bond on account of principal, (ii) the principal
portion of all Realized Losses previously allocated to such Bond (taking
account of the Loss Allocation Limitation applicable to the Bond Group of such
Bond) and (iii) in the case of a Subordinate Bond, such Bond's pro rata share,
if any, of the applicable Subordinate Bond Writedown Amount and/or any
applicable Component P Deferred Payment Writedown Amount, in each case for
previous Payment Dates. With respect to any Class of Bonds (other than the
Interest Only Bonds), the "CLASS CURRENT PRINCIPAL BALANCE" thereof will equal
the sum of the Current Principal Balances of all Bonds in such Class. With
respect to any P Component, the "COMPONENT CURRENT PRINCIPAL BALANCE" thereof
will equal such P Component's initial principal amount on the Closing Date, as
reduced by (i) all amounts paid on previous Payment Dates on such P Component
(other than with respect to Component P Deferred Amounts), (ii) the principal
portion of all Realized Losses previously allocated to such P Component (taking
account of the Loss Allocation Limitation applicable to the Bond Group of such
P Component) and (iii) any applicable Component P Cash Shortfalls, in each case
for previous Payment Dates.
As of any Payment Date, the "SUBORDINATE BOND WRITEDOWN AMOUNT" for
each Subordinate Bond Group will equal the amount by which (a) the sum of the
Class Current Principal Balances of all of the Bonds in the related Bond Group
and the Component Current Principal Balance of the P Component in such Bond
Group (after giving effect to the payment of principal and the allocation of
applicable Realized Losses and any applicable Component P Deferred Payment
Writedown Amount and Component P Cash Shortfall in reduction of the Class
Current Principal Balances of such Bonds and the Component Current Principal
Balance of such P Component on such Payment Date) exceeds (b) the Scheduled
Principal Balances of Mortgage Loans in the related Mortgage Loan Group on the
Due Date related to such Payment Date. The applicable Subordinate Bond
Writedown Amount and any applicable Component P Deferred Payment Writedown
Amount will be allocated to the Classes of Subordinate Bonds in a Bond Group in
inverse order of their numerical Class designations, until the Class Current
Principal Balance of each such Class has been reduced to zero. From and after
the Cross-Over Date for a Bond Group, the Subordinate Bond Writedown Amount for
such Bond Group not allocated to the Subordinate Bonds of such Bond Group will
be allocated among the Senior Bonds of such Bond Group, other than the Stripped
P Component of such Bond Group (if any), pro rata.
The "CLASS NOTIONAL BALANCE" of a Bond is an amount used as a
reference to calculate the amount of interest due on an Interest Only Bond.
The Class Notional Balance of the Class A-7 Bonds (the "CLASS A-7 NOTIONAL
BALANCE") on any date will be equal to the sum of (i) the product of (A)
8.8888888889% and (B) the Class Current Principal Balance of the Class A-1
Bonds, (ii) the product of (A) 14.9544582575% and (B) the Class Current
Principal Balance of the Class A-2 Bonds, (iii) the product of (A)
7.4074074074% and (B) the Class Current Principal Balance of the Class A-3
Bonds, (iv) the product of (A) 4.4444444444% and (B) the Class Current
Principal Balance of the Class A-4 Bonds, and (v) the product of (A)
3.7037037037% and (B) the Class Current Principal Balance of the Class A-6
Bonds. The Class Notional Balance of the Class A-9 Bonds (the "Class A-9
Notional Balance") on any date will be equal to the product of 2.4610272767% of
the Class Current Principal Balance of the Class A-8 Bonds.
The Class Notional Balance of the Class X Bonds (the "CLASS X NOTIONAL
BALANCE") immediately prior to a given Payment Date will be equal to the
aggregate of the Scheduled Principal Balances of the Group 1 Mortgage Loans on
the second preceding Due Date, and the Class Notional Balance of the Class 2-X
Bonds (the "CLASS 2-X NOTIONAL BALANCE") immediately prior to a given Payment
Date will be equal to the aggregate of the Scheduled Principal Balances of the
Group 2 Mortgage Loans on the second preceding Due Date.
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<PAGE> 53
With respect to any Payment Date, the "INTEREST SHORTFALL" is equal to
the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Rates) on Mortgage Loans in the related Mortgage Loan Group
resulting from (a) prepayments in full received during the related Prepayment
Period, (b) partial prepayments received during the related Prepayment Period
to the extent applied prior to the Due Date in the month of the Payment Date
and (c) interest payments on certain of the Mortgage Loans being limited
pursuant to the provisions of the Soldiers' and Sailors' Civil Relief Act of
1940 (the "RELIEF ACT"). Interest Shortfalls will result because (i)
Mortgagors are obligated to pay interest on prepayments in full only to the
date of prepayment by the Mortgagor, (ii) (a) partial prepayments are generally
not required to be accompanied by interest on the amount of such partial
prepayment and (b) partial prepayments applied prior to the Due Date in the
month of the Payment Date will result in a reduction of the Scheduled Principal
Balance of the related Mortgage Loan without a corresponding reduction of the
Current Principal Balance of any Bond and (iii) the Relief Act limits, in
certain circumstances, the interest rate required to be paid by a Mortgagor in
the military service to 6% per annum. Interest Shortfalls resulting from
prepayments in full or in part in any calendar month will be offset by the
Master Servicer which services the Mortgage Loan on the Payment Date in the
following calendar month to the extent that such Interest Shortfalls do not
exceed the applicable Master Servicing Fee in connection with such Payment
Date. The amount of the applicable Master Servicing Fee used to offset such
Interest Shortfalls is referred to herein as "COMPENSATING INTEREST PAYMENTS".
Interest Shortfalls net of Compensating Interest Payments are referred to
herein as "NET INTEREST SHORTFALLS". Any Cendant Master Servicing Fee in
excess of 0.20% will be set aside to pay for lender funded mortgage insurance
and will not be treated as servicing compensation to Cendant and will not be
available to make Compensating Interest Payments.
If on any Payment Date the applicable Group Available Funds for the
Senior Bonds of a Bond Group is less than the Accrued Bond Interest on such
Senior Bonds for such Payment Date prior to reduction for Net Interest
Shortfall and the interest portion of Realized Losses, the shortfall will be
allocated among the holders of each Class of interest- bearing Senior Bonds in
such Bond Group in proportion to the respective amounts of Accrued Bond
Interest that would have been allocated thereto in the absence of such Net
Interest Shortfall and/or Realized Losses for such Payment Date. In addition,
the amount of any interest shortfalls with respect to the related Mortgage Loan
Group that are covered by subordination will constitute unpaid Accrued Bond
Interest and will be payable to holders of the Bonds of the related Classes
entitled to such amounts on subsequent Payment Dates, to the extent of the
applicable Available Funds after current interest payments as required herein.
Any such amounts so carried forward will not bear interest. Shortfalls in
interest payments will not be offset by a reduction in the servicing
compensation of the Master Servicers or otherwise, except to the extent of
applicable Compensating Interest Payments.
CALCULATION OF LIBOR. Commencing on March 30, 1998, with respect to
the Class A-11 and Class A-12 Bonds, and monthly thereafter on the second
business day prior to the first day of the related Interest Accrual Period for
the Class A-11 and Class A-12 Bonds (each, a "LIBOR DETERMINATION DATE"), until
the Class Current Principal Balances of such Classes of Bonds have been reduced
to zero, the Indenture Trustee will request each of the designated reference
banks meeting the criteria set forth herein (the "REFERENCE BANKS") to inform
the Indenture Trustee of the quotation offered by its principal London office
for making one-month United States dollar deposits in leading banks in the
London interbank market, as of 11:00 a.m. (London time) on such LIBOR
Determination Date. (For purposes of calculating LIBOR, "business day" means a
day on which banks are open for dealing in foreign currency and exchange in
London and New York City). In lieu of making a request of the Reference Banks,
the Indenture Trustee may rely on the quotations for those Reference Banks that
appear at such time on the Reuters Screen LIBO Page (as defined in the
International Swap Dealers Association Inc. Code of Standard Wording,
Assumptions and Provisions for Swaps, 1986 Edition), to the extent available.
LIBOR will be established by the Indenture Trustee on each LIBOR
Determination Date as follows:
(a) If on any LIBOR Determination Date two or more
Reference Banks provide such offered quotations, LIBOR for the next
Interest Accrual Period shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple
of 1/32%).
(b) If on any LIBOR Determination Date only one or none
of the Reference Banks provides such offered quotations, LIBOR for the
next Interest Accrual Period shall be whichever is the higher of (i)
LIBOR as determined on the previous LIBOR Determination Date or (ii)
the Reserve Interest Rate. The "RESERVE INTEREST RATE" shall be the
rate per annum which the Indenture Trustee determines to be either (i)
the
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arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/32%) of the one-month United States dollar lending rates
that New York City banks selected by the Indenture Trustee are
quoting, on the relevant LIBOR Determination Date, to the principal
London offices of at least two of the Reference Banks to which such
quotations are, in the opinion of the Indenture Trustee, being so
made, or (ii) in the event that the Indenture Trustee can determine no
such arithmetic mean, the lowest one-month United States dollar
lending rate which New York City banks selected by the Indenture
Trustee are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on the first LIBOR Determination Date, the
Indenture Trustee is required but is unable to determine the Reserve
Interest Rate in the manner provided in paragraph (b) above, LIBOR
shall be 5.6875%. If on any subsequent LIBOR Determination Date, the
Indenture Trustee is required but is unable to determine the Reserve
Interest Rate in the manner provided in paragraph (b) above, LIBOR
shall be LIBOR for the immediately preceding LIBOR Determination Date.
Each Reference Bank shall (i) be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not control, be controlled by, or be under common control with the
Indenture Trustee, and (iii) have an established place of business in London.
If any such Reference Bank should be unwilling or unable to act as such or if
the Indenture Trustee should terminate the appointment of any such Reference
Bank, the Indenture Trustee will promptly appoint another leading bank meeting
the criteria specified above.
The establishment of LIBOR on each LIBOR Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Class A-11 and Class A-12 Bonds for the related
Interest Accrual Period shall (in the absence of manifest error) be final and
binding. Each such rate of interest may be obtained by telephoning the
Indenture Trustee at 1-800-524-9472.
PRINCIPAL. All payments and other amounts received in respect of the
Scheduled Principal Balance of the Group 1 Mortgage Loans will be allocated
between (i) the Group 1 Senior P&I Bonds and the Group 1 Subordinate Bonds, on
the one hand, and (ii) Component P-1, on the other, in each case based on the
applicable Non-PO Percentage and the applicable PO Percentage, respectively, of
such amounts. All payments and other amounts received in respect of the
Scheduled Principal Balance of the Group 2 Mortgage Loans will be allocated
between (i) the Group 2 Senior P&I Bonds and the Group 2 Subordinate Bonds, on
the one hand, and (ii) Component P-2, on the other, in each case based on the
applicable Non-PO Percentage and the applicable PO Percentage, respectively, of
such amounts. All payments and other amounts received in respect of the
Scheduled Principal Balance of the Group 3 Mortgage Loans will be allocated
between the Group 3 Senior Bonds and the Group 3 Subordinate Bonds.
The "NON-PO PERCENTAGE" with respect to any Mortgage Loan in Mortgage
Loan Group 1 or Mortgage Loan Group 2 with a Net Rate less than 6.75% or 6.50%,
respectively, per annum (each such Mortgage Loan, a "DISCOUNT MORTGAGE LOAN")
will be equal to the Net Rate thereof divided by 6.75% or 6.50%, respectively.
The "NON-PO PERCENTAGE" with respect to any Mortgage Loan in Mortgage Loan
Group 1 or Mortgage Loan Group 2 with a Net Rate equal to or greater than 6.75%
or 6.50%, respectively, per annum (each such Mortgage Loan, a "NON-DISCOUNT
MORTGAGE LOAN") will be 100%. The "NON-PO PERCENTAGE" with respect to each
Mortgage Loan in Mortgage Loan Group 3 will be 100%. The "PO PERCENTAGE" with
respect to any Discount Mortgage Loan in Mortgage Loan Group 1 or Mortgage Loan
Group 2 will be the fraction, expressed as a percentage, equal to 6.75% or
6.50%, respectively, minus the Net Rate thereof divided by 6.75% or 6.50%,
respectively. The "PO PERCENTAGE" with respect to each Non-Discount Mortgage
Loan in Mortgage Loan Group 1 or Mortgage Loan Group 2 and each Mortgage Loan
in Mortgage Loan Group 3 will be 0%.
Payments in reduction of (i) the Class Current Principal Balance of
each Class of Group 1 Senior P&I Bonds and (ii) the Component Current Principal
Balance of Component P-1 will be made on each Payment Date as described under
priority third above under "-- Group 1 Senior Bonds". In accordance with such
priority third, the Group 1 Available Funds remaining after payment of interest
on the interest-bearing Group 1 Senior P&I Bonds will be allocated to such
Group 1 Senior P&I Bonds and Component P-1 in an aggregate amount not to exceed
the sum of the Group 1 Senior P&I Optimal Principal Amount and the Component P
Principal Payment Amount for Component P-1 for such Payment Date.
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Payments in reduction of the Class Current Principal Balances of each
Class of Group 1 Subordinate Bonds will be made as described under "--Group 1
Subordinate Bonds" above. In accordance therewith, the Group 1 Available
Funds, if any, remaining after payments of principal and interest on the Group
1 Senior Bonds and payments in respect of the Component P Deferred Amounts for
Component P-1 on such Payment Date will be allocated to the Group 1 Subordinate
Bonds in an amount equal to each such Class's Allocable Share for such Payment
Date, provided that no payment of principal will be made on any such Class
until any Class ranking prior thereto has received payments of interest and
principal, and such Class has received payments of interest, on such Payment
Date.
Payments in reduction of (i) the Class Current Principal Balance of
each Class of Group 2 Senior P&I Bonds and (ii) the Component Current Principal
Balance of Component P-2 will be made on each Payment Date as described under
priority third above under "--Group 2 Senior Bonds". In accordance with such
priority third, the Group 2 Available Funds remaining after payment of interest
on the Group 2 Senior P&I Bonds will be allocated to such Group 2 Senior P&I
Bonds and Component P-2 in an aggregate amount not to exceed the sum of the
Group 2 Senior P&I Optimal Principal Amount and the Component P Principal
Payment Amount for Component P-2 for such Payment Date.
Payments in reduction of the Class Current Principal Balances of each
Class of Group 2 Subordinate Bonds will be made as described under "-- Group 2
Subordinate Bonds" above. In accordance therewith, the Group 2 Available
Funds, if any, remaining after payments of principal and interest on the Group
2 Senior Bonds and payments in respect of the Component P Deferred Amounts for
Component P-2 on such Payment Date will be allocated to the Group 2 Subordinate
Bonds in an amount equal to each such Class's Allocable Share for such Payment
Date, provided that no payment of principal will be made on any such Class
until any Class ranking prior thereto has received payments of interest and
principal, and such Class has received payments of interest, on such Payment
Date.
Payments in reduction of (i) the Class Current Principal Balance of
each Class of Group 3 Senior P&I Bonds and (ii) the Component Current Principal
Balance of Component P-3 will be made on each Payment Date as described under
priority third above under "--Group 3 Senior Bonds". In accordance with such
priority third, the Group 3 Available Funds remaining after payment of interest
on the Group 3 Senior P&I Bonds will be allocated to such Group 3 Senior P&I
Bonds in an aggregate amount not to exceed the Group 3 Senior P&I Optimal
Principal Amount for such Payment Date.
Payments in reduction of the Class Current Principal Balances of each
Class of Group 3 Subordinate Bonds will be made as described under "-- Group 3
Subordinate Bonds" above. In accordance therewith, the Group 3 Available
Funds, if any, remaining after payments of principal and interest on the Group
3 Senior Bonds on such Payment Date will be allocated to the Group 3
Subordinate Bonds in an amount equal to each such Class's Allocable Share for
such Payment Date, provided that no payment of principal will be made on any
such Class until any Class ranking prior thereto has received payments of
interest and principal, and such Class has received payments of interest, on
such Payment Date.
The "SENIOR P&I OPTIMAL PRINCIPAL AMOUNT" for each Bond Group with
respect to each Payment Date will be an amount equal to the sum of the
following (but in no event greater than the aggregate of the Class Current
Principal Balances of each Class of the Senior P&I Bonds of such Bond Group
(including the Component Current Principal Balance of Component P-3 in the case
of Bond Group 3) immediately prior to such Payment Date):
(i) the applicable Senior Percentage of the applicable
Non-PO Percentage of all scheduled payments of principal due on each
Mortgage Loan in the related Mortgage Loan Group on the related Due
Date, as specified in the amortization schedule at the time applicable
thereto (after adjustment for previous principal prepayments but
before any adjustment to such amortization schedule by reason of any
bankruptcy or similar proceeding or any moratorium or similar waiver
or grace period);
(ii) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of the Scheduled Principal Balance of
each Mortgage Loan in the related Mortgage Loan Group which was the
subject of a prepayment in full received by the related Master
Servicer during the applicable Prepayment Period (as defined below);
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(iii) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of all partial prepayments allocated to
principal received by the related Master Servicer during the
applicable Prepayment Period with respect to each Mortgage Loan in the
related Mortgage Loan Group;
(iv) the lesser of (a) the applicable Senior Prepayment
Percentage of the sum of (A) all Net Liquidation Proceeds (as defined
herein) allocable to principal received in respect of each Mortgage
Loan in the related Mortgage Loan Group which became a Liquidated
Mortgage Loan during the related Prepayment Period (other than
Mortgage Loans described in the immediately following clause (B)) and
(B) the Scheduled Principal Balance of each such Mortgage Loan in the
related Mortgage Loan Group purchased by an insurer from the
Certificate Trustee during the related Prepayment Period pursuant to
the related Primary Mortgage Insurance Policy, if any, or otherwise;
and (b) the applicable Senior Percentage of the applicable Non-PO
Percentage of the sum of (A) the Scheduled Principal Balance of each
Mortgage Loan in the related Mortgage Loan Group which became a
Liquidated Mortgage Loan during the related Prepayment Period (other
than the Mortgage Loans described in the immediately following clause
(B)) and (B) the Scheduled Principal Balance of each such Mortgage
Loan in the related Mortgage Loan Group that was purchased by an
insurer from the Certificate Trustee during the related Prepayment
Period pursuant to the related Primary Mortgage Insurance Policy, if
any, or otherwise, less (C) in the case of clause (b), the then
applicable Senior Percentage of the applicable Non-PO Percentage of
the principal portion of Excess Special Hazard Losses on each Mortgage
Loan in the related Mortgage Loan Group incurred during the related
Prepayment Period; and
(v) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of the sum of (a) the Scheduled Principal
Balance of each Mortgage Loan or REO Property in the related Mortgage
Loan Group which was repurchased by BSMCC in connection with such
Payment Date and (b) the excess, if any, of the Scheduled Principal
Balance of a Mortgage Loan in the related Mortgage Loan Group that has
been replaced by BSMCC with a substitute Mortgage Loan pursuant to the
Pooling and Servicing Agreement in connection with such Payment Date
over the Scheduled Principal Balance of such substitute Mortgage Loan.
The Senior P&I Optimal Principal Amount with respect to Bond Group 1,
Bond Group 2 and Bond Group 3 is referred to herein as the "GROUP 1 SENIOR P&I
OPTIMAL PRINCIPAL AMOUNT", the "GROUP 2 SENIOR P&I OPTIMAL PRINCIPAL AMOUNT"
and the "GROUP 3 SENIOR P&I OPTIMAL PRINCIPAL AMOUNT", respectively.
The "SENIOR PERCENTAGE" for the Senior Bonds of each Bond Group on any
Payment Date will equal the lesser of (i) 100% and (ii) the percentage (carried
to six places rounded up) obtained by dividing the aggregate of the Class
Current Principal Balances of all the Senior P&I Bonds of such Bond Group
immediately preceding such Payment Date by the aggregate Scheduled Principal
Balance of the Mortgage Loans (other than the PO Percentage of each Discount
Mortgage Loan) in the related Mortgage Loan Group as of the beginning of the
related Due Period. The initial Senior Percentages for the Group 1, Group 2
and Group 3 Bonds are expected to be approximately 95.50%, 96.99% and 96.25%,
respectively.
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The "SENIOR PREPAYMENT PERCENTAGE" for the Senior Bonds of each Bond
Group on any Payment Date occurring during the periods set forth below will be
as follows:
<TABLE>
<CAPTION>
PERIOD (MONTHS INCLUSIVE) SENIOR PREPAYMENT PERCENTAGE
- ------------------------- ----------------------------
<S> <C>
April 1998 - March 2003. . . . . . . . . . . . . . . . 100%
April 2003 - March 2004 . . . . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 70%
of the Subordinate Percentage for such Bond Group
April 2004 - March 2005 . . . . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 60%
of the Subordinate Percentage for such Bond Group
April 2005 - March 2006 . . . . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 40%
of the Subordinate Percentage for such Bond Group
April 2006 - March 2007 . . . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 20%
of the Subordinate Percentage for such Bond Group
April 2007 and thereafter . . . . . . . . . . . . . . . Senior Percentage for the related Bond Group
</TABLE>
Notwithstanding the foregoing, if on any Payment Date the Senior
Percentage for a Bond Group exceeds the Senior Percentage for such Bond Group
as of the Closing Date, the Senior Prepayment Percentage for such Bond Group
for such Payment Date will equal 100%.
In addition, no reduction of the Senior Prepayment Percentage for a
Bond Group shall occur on any Payment Date (such limitation being the "SENIOR
PREPAYMENT PERCENTAGE STEPDOWN LIMITATION") unless, as of the last day of the
month preceding such Payment Date, (i) the aggregate Scheduled Principal
Balance of Mortgage Loans of the related Mortgage Loan Group delinquent 60 days
or more (including for this purpose any such Mortgage Loans in foreclosure and
Mortgage Loans with respect to which the related Mortgaged Property has been
acquired by the related Trust), averaged over the last six months, as a
percentage of the sum of the aggregate of the Class Current Principal Balances
of the Subordinate Bonds of such Bond Group does not exceed 50% and (ii)
cumulative Realized Losses on such Mortgage Loans do not exceed (a) 30% of the
aggregate of the Class Current Principal Balances of the Subordinate Bonds of
such Bond Group as of the Closing Date (the "ORIGINAL SUBORDINATE PRINCIPAL
BALANCE") if such Payment Date occurs between and including April 2003 and
March 2004, (b) 35% of the applicable Original Subordinate Principal Balance if
such Payment Date occurs between and including April 2004 and March 2005, (c)
40% of the applicable Original Subordinate Principal Balance if such Payment
Date occurs between and including April 2005 and March 2006, (d) 45% of the
applicable Original Subordinate Principal Balance if such Payment Date occurs
between and including April 2006 and March 2007, and (e) 50% of the applicable
Original Subordinate Principal Balance if such Payment Date occurs during or
after April 2007.
With respect to any Mortgage Loan and any Payment Date, the
"PREPAYMENT PERIOD" is the period from the first day through the last day of
the month preceding the month of such Payment Date.
The "COMPONENT P PRINCIPAL PAYMENT AMOUNT" for each of Component P-1
and Component P-2 with respect to each Payment Date will be an amount equal to
the sum of:
(i) the applicable PO Percentage of all scheduled
payments of principal due on each Discount Mortgage Loan in the
related Mortgage Loan Group on the related Due Date as specified in
the amortization schedule at the time applicable thereto (after
adjustment for previous principal prepayments but before any
adjustment to such amortization schedule by reason of any bankruptcy
or similar proceeding or any moratorium or similar waiver or grace
period);
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(ii) the applicable PO Percentage of the Scheduled
Principal Balance of each Discount Mortgage Loan in the related
Mortgage Loan Group which was the subject of a prepayment in full
received by the related Master Servicer during the applicable
Prepayment Period;
(iii) the applicable PO Percentage of all partial
prepayments allocated to principal of each Discount Mortgage Loan in
the related Mortgage Loan Group received by the related Master
Servicer during the applicable Prepayment Period;
(iv) the lesser of (a) the applicable PO Percentage of the
sum of (A) all Net Liquidation Proceeds allocable to principal
received with respect to each Discount Mortgage Loan in the related
Mortgage Loan Group which became a Liquidated Mortgage Loan during the
related Prepayment Period (other than a Discount Mortgage Loan
described in the immediately following clause (B)) and (B) the
Scheduled Principal Balance of each such Discount Mortgage Loan in the
related Mortgage Loan Group purchased by an insurer from the
Certificate Trustee during the related Prepayment Period pursuant to
the related Primary Mortgage Insurance Policy, if any, or otherwise;
and (b) the applicable PO Percentage of the sum of (A) the Scheduled
Principal Balance of each Discount Mortgage Loan in the related
Mortgage Loan Group which became a Liquidated Mortgage Loan during the
related Prepayment Period (other than a Discount Mortgage Loan
described in the immediately following clause (B)) and (B) the
Scheduled Principal Balance of each such Discount Mortgage Loan in the
related Mortgage Loan Group that was purchased by an insurer from the
Certificate Trustee during the related Prepayment Period pursuant to
the related Primary Mortgage Insurance Policy, if any, or otherwise,
less (C) in the case of clause (b), the applicable PO Percentage of
the principal portion of Excess Special Hazard Losses with respect to
Discount Mortgage Loans in the related Mortgage Loan Group incurred
during the related Prepayment Period; and
(v) the applicable PO Percentage of the sum of (a) the
Scheduled Principal Balance of each Discount Mortgage Loan or REO
Property (which previously secured a Discount Mortgage Loan) in the
related Mortgage Loan Group which was repurchased by BSMCC in
connection with such Payment Date and (b) the excess, if any, between
the Scheduled Principal Balance of a Discount Mortgage Loan in the
related Mortgage Loan Group that has been replaced by BSMCC with a
substitute Discount Mortgage Loan pursuant to the Pooling and
Servicing Agreement in connection with such Payment Date and the
Scheduled Principal Balance of such substitute Discount Mortgage Loan.
The "SUBORDINATE PERCENTAGE" for the Subordinate Bonds of each Bond
Group on any Payment Date will equal 100% minus the Senior Percentage for the
Senior Bonds of such Bond Group. The "SUBORDINATE PREPAYMENT PERCENTAGE" for
the Subordinate Bonds of any Bond Group on any Payment Date will equal 100%
minus the applicable Senior Prepayment Percentage, except that on any Payment
Date after the aggregate of the Class Current Principal Balances of the Senior
Bonds of such Bond Group have each been reduced to zero, the Subordinate
Prepayment Percentage for such Bond Group will equal 100%. The initial
Subordinate Percentages for the Group 1, Group 2 and Group 3 Subordinate Bonds
are expected to be approximately 4.50%, 3.01% and 3.75%, respectively.
The "SUBORDINATE OPTIMAL PRINCIPAL AMOUNT" for the Subordinate Bonds
of each Bond Group with respect to each Payment Date will be an amount equal to
the sum of the following (but in no event greater than the aggregate of the
Class Current Principal Balances of the Subordinate Bonds of such Bond Group
immediately prior to such Payment Date):
(i) the applicable Subordinate Percentage of the
applicable Non-PO Percentage of all scheduled payments of principal
due on each Mortgage Loan in the related Mortgage Loan Group on the
related Due Date, as specified in the amortization schedule at the
time applicable thereto (after adjustment for previous principal
prepayments but before any adjustment to such amortization schedule by
reason of any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period);
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(ii) the applicable Subordinate Prepayment Percentage of
the applicable Non-PO Percentage of the Scheduled Principal Balance of
each Mortgage Loan in the related Mortgage Loan Group which was the
subject of a prepayment in full received by the related Master
Servicer during the applicable Prepayment Period;
(iii) the applicable Subordinate Prepayment Percentage of
the applicable Non-PO Percentage of all partial prepayments of
principal received by the related Master Servicer during the
applicable Prepayment Period with respect to each Mortgage Loan in the
related Mortgage Loan Group;
(iv) the excess, if any, of the applicable Non-PO
Percentage of (a) all Net Liquidation Proceeds allocable to principal
received on each Mortgage Loan in the related Mortgage Loan Group
which became a Liquidated Mortgage Loan during the related Prepayment
Period over (b) (I) the amount payable to Senior Bondholders of the
applicable Bond Group as described under clause (iv) of the definition
of "Senior P&I Optimal Principal Amount" plus (II) in the case of Bond
Group 1 or 2, the amount payable with respect to Component P-1 or P-2,
respectively, as described under clause (iv) of the definition of
Component P Principal Payment Amount on such Payment Date;
(v) the applicable Subordinate Prepayment Percentage of
the applicable Non-PO Percentage of the sum of (a) the Scheduled
Principal Balance of each Mortgage Loan or REO Property in the related
Mortgage Loan Group which was repurchased by BSMCC in connection with
such Payment Date and (b) the excess. if any, of the Scheduled
Principal Balance of a Mortgage Loan in the related Mortgage Loan
Group that has been replaced by BSMCC with a substitute Mortgage Loan
pursuant to the Pooling and Servicing Agreement in connection with
such Payment Date over the Scheduled Principal Balance of such
substitute Mortgage Loan; and
(vi) on the Payment Date on which the aggregate of the
Class Current Principal Balances of the Senior P&I Bonds of such Bond
Group have all been reduced to zero, 100% of any applicable Senior P&I
Optimal Principal Amount.
The "ALLOCABLE SHARE" with respect to any Class of Subordinate Bonds
of any Bond Group on any Payment Date will generally equal such Class's pro
rata share (based on the Class Current Principal Balances of each Class
entitled thereto) of the Subordinate Optimal Principal Amount for such Bond
Group; provided that, except as described in the second succeeding sentence, no
Class of Subordinate Bonds (other than the Class of Subordinate Bonds
outstanding with the lowest numerical designation) shall be entitled on any
Payment Date to receive payments pursuant to clauses (ii), (iii) and (v) of the
definition of the Subordinate Optimal Principal Amount unless the Class
Prepayment Payment Trigger for the related Class is satisfied for such Payment
Date. The "CLASS PREPAYMENT PAYMENT TRIGGER" for a Class of Subordinate Bonds
for any Payment Date is satisfied if the fraction (expressed as a percentage),
the numerator of which is the Class Current Principal Balances of such Class
and each Class subordinate thereto, if any, and the denominator of which is the
aggregate of the Scheduled Principal Balances of all of the applicable Mortgage
Loans as of the related Due Date, equals or exceeds such percentage calculated
as of the Closing Date. If the Class Prepayment Payment Trigger is not
satisfied for any Class of Subordinate Bonds on any Payment Date, this may have
the effect of accelerating the amortization of more senior Classes of
Subordinate Bonds. If on any Payment Date the Class Current Principal Balance
of any Class of Subordinate Bonds for which the related Class Prepayment
Payment Trigger was satisfied on such Payment Date is reduced to zero, any
amounts payable to such Class pursuant to clauses (ii), (iii) and (v) of the
definition of "Subordinate Optimal Principal Amount", to the extent of such
Class's remaining Allocable Share, shall be paid to the remaining Classes of
Subordinate Bonds in reduction of their respective Class Current Principal
Balances, sequentially, in the order of their numerical Class designations.
"DETERMINATION DATE" means the 18th day of the month of the Payment
Date, or if such day is not a Business Day, the following Business Day (but in
no event less than two Business Days prior to the related Payment Date).
"INSURANCE PROCEEDS" are amounts paid by an insurer under any Primary
Mortgage Insurance Policy, standard hazard insurance policy, flood insurance
policy or title insurance policy covering any Mortgage Loan or Mortgaged
Property other than amounts required to be paid over to the Mortgagor pursuant
to law or the related Mortgage Note and other than amounts used to repair or
restore the Mortgaged Property or to reimburse certain expenses. "REPURCHASE
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<PAGE> 60
PROCEEDS" are proceeds of any Mortgage Loan repurchased by BSMCC and any cash
deposit in connection with the substitution of a Mortgage Loan pursuant to the
provisions described under "Pooling and Servicing Agreement -- Assignment of
Mortgage Loans" and "-- Representations and Warranties" herein.
"PRINCIPAL PREPAYMENT" is any payment or other recovery of principal
on a Mortgage Loan which is received in advance of its scheduled Due Date to
the extent that it is not accompanied by an amount as to interest representing
scheduled interest due on any date or dates in any month or months subsequent
to the month of prepayment, including Insurance Proceeds and Repurchase
Proceeds, but excluding Liquidation Proceeds received at the time a Mortgage
Loan becomes a Liquidated Mortgage Loan.
"MONTHLY PAYMENT" with respect to any Mortgage Loan and any month is
the scheduled payment or payments of principal and interest due during such
month on such Mortgage Loan which either is payable by a Mortgagor in such
month under the related Mortgage Note, or in the case of any Mortgaged Property
acquired through foreclosure or deed-in-lieu of foreclosure (each such
Mortgaged Property, an "REO PROPERTY"), would otherwise have been payable under
the related Mortgage Note.
PAYMENTS IN REDUCTION OF THE CURRENT PRINCIPAL BALANCE OF THE PAC
BONDS. The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-6 Bonds are
planned amortization class securities and are sometimes collectively referred
to as the "PAC I BONDS". The Class A-5, Class A-8, Class A-10, Class A-13,
Class A-14, Class A-15, Class A-16, Class A-17 and Class A-18 Bonds also are
planned amortization class securities and are sometimes collectively referred
to as the "PAC II BONDS", and together with the PAC I Bonds, as the "PAC
BONDS". On each Payment Date, the Group 1 Available Funds will be allocated
among the Group 1 Senior Bonds, including, but not limited to, the PAC Bonds,
as described under "Description of the Bonds -- Payments on the Bonds --
Allocations of Available Funds" herein. To the extent that funds are available
to make payments in reduction of the Class Current Principal Balances of each
of the Classes of the PAC Bonds on each Payment Date, each such Class will be
entitled to receive the amount, if any, required to reduce the outstanding
Class Current Principal Balance thereof (prior to giving effect to payments in
reduction thereof to be made on such Payment Date) for such Payment Date to the
planned balance (each a "PLANNED BALANCE") for such Class set forth in Annex B
hereof.
The Planned Balances of each Class of PAC Bonds on each Payment Date
were calculated assuming that (i) the Mortgage Loans in Mortgage Loan Group 1
and the Group 1 Bonds have the characteristics described below in the second
paragraph under "Yield and Prepayment Considerations -- Decrement Tables"
herein as used for the computation of weighted average lives, and (ii) (A) with
respect to the PAC I Bonds, such Mortgage Loans are prepaid at any constant
rate within the range of approximately 125% to approximately 500% SPA (as
defined herein) and (B) with respect to the PAC II Bonds, such Mortgage Loans
are prepaid at a constant rate within the range of approximately 175% to
approximately 275% SPA and (iii) the initial Class Current Principal Balances
of the PAC I and PAC II Bonds are as set forth on the cover page hereof.
It is extremely unlikely that the Mortgage Loans in Mortgage Loan
Group 1 will prepay at a constant percentage of SPA. In addition, some or all
of the other assumptions that are used in preparing the table in Annex B are
unlikely to reflect actual experience. Accordingly, there is no assurance that
the Class Current Principal Balance of any Class of PAC Bonds will conform on
any Payment Date to the applicable level set forth in such table. In addition,
if the Group 1 Senior P&I Optimal Principal Amount exceeds the amount necessary
to pay the amounts necessary to reduce the PAC Bonds to their respective
Planned Balances, on any Payment Date, the excess will be allocated on such
Payment Date to payments in reduction of the Current Principal Balances of the
Group 1 Bonds in accordance with the priorities described herein, and will not
be retained for payment on subsequent Payment Dates. Accordingly, if principal
prepayments on the Mortgage Loans in Mortgage Loan Group 1 do not occur at a
constant rate within the applicable ranges in the case of the PAC I and PAC II
Bonds, the amount available on subsequent Payment Dates for payment of each
Class of the PAC Bonds may be less than the amounts necessary to reduce their
Class Current Principal Balances to their Planned Balances for such Payment
Dates, even if on average prepayments on the Mortgage Loans in Mortgage Loan
Group 1 do occur at such a constant rate. Payments in reduction of the Class
Current Principal Balance of any Class of PAC Bonds may reduce the Current
Principal Balance of such Bonds to zero significantly earlier or later than the
Payment Date specified herein. See "Yield and Prepayment Considerations --
Weighted Average Lives and Decrement Tables" below for a further discussion of
the effect of prepayments on the
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Mortgage Loans on the rate of payments in reduction of Class Current Principal
Balances and on the weighted average lives of the Bonds.
ALLOCATION OF LOSSES; SUBORDINATION
A "REALIZED LOSS" with respect to a Mortgage Loan is (i) a Deficient
Valuation (as defined below) or (ii) as to any Liquidated Mortgage Loan, the
unpaid principal balance thereof plus accrued and unpaid interest thereon at
the Mortgage Rate through the last day of the month of liquidation less the Net
Liquidation Proceeds with respect to such Mortgage Loan and the related
Mortgaged Property. A "LIQUIDATED MORTGAGE LOAN" is any defaulted Mortgage
Loan as to which the applicable Master Servicer has determined that all amounts
which it expects to recover from or on account of such Mortgage Loan have been
recovered.
"LIQUIDATION PROCEEDS" are amounts received by the applicable Master
Servicer in connection with the liquidation of a defaulted Mortgage Loan
whether through trustee's sale, foreclosure sale, proceeds of insurance
policies, condemnation proceeds or otherwise.
"NET LIQUIDATION PROCEEDS" with respect to a Mortgage Loan are
Liquidation Proceeds net of unreimbursed advances by the related Master
Servicer, Monthly Advances and expenses incurred by the related Master Servicer
in connection with the liquidation of such Mortgage Loan and the related
Mortgaged Property.
In the event of a personal bankruptcy of a Mortgagor, the bankruptcy
court may establish the value of the Mortgaged Property at an amount less than
the then Outstanding Principal Balance of the Mortgage Loan secured by such
Mortgaged Property and could reduce the secured debt to such value. In such
case, the holder of such Mortgage Loan would become an unsecured creditor to
the extent of the difference between the Outstanding Principal Balance of such
Mortgage Loan and such reduced secured debt (such difference, a "DEFICIENT
VALUATION"). In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including the reduction
of the amount of the monthly payment on the related Mortgage Loan (a "DEBT
SERVICE REDUCTION").
A "SPECIAL HAZARD LOSS" is a Realized Loss attributable to damage or a
direct physical loss suffered by a Mortgaged Property (including any Realized
Loss due to the presence or suspected presence of hazardous wastes or
substances on a Mortgaged Property) other than any such damage or loss covered
by a hazard policy or a flood insurance policy required to be maintained in
respect of such Mortgaged Property under the Pooling and Servicing Agreement or
any loss due to normal wear and tear or certain other causes.
On each Payment Date, the applicable PO Percentage of the principal
portion of any Realized Loss on a Discount Mortgage Loan in Mortgage Loan Group
1 or Mortgage Loan Group 2 and any Component P Cash Shortfall relating to
Component P-1 or P-2 will be allocated to Component P-1 and P-2, respectively,
until the Component Current Principal Balance of each such P Component is
reduced to zero. With respect to any Payment Date through the Cross-Over Date
for the relevant Bond Group, the aggregate of all amounts so allocable to
Component P-1 or Component P-2, as applicable, on such date in respect of any
Realized Losses (other than Excess Special Hazard Losses) on Mortgage Loans in
the related Mortgage Loan Group and any related Component P Cash Shortfalls and
all amounts previously allocated in respect of such Realized Losses or related
Component P Cash Shortfalls and not paid on prior Payment Dates will be the
applicable "COMPONENT P DEFERRED AMOUNT" for Components P-1 and P-2,
respectively. To the extent funds are available therefor on any Payment Date
through the applicable Cross-Over Date for the relevant Bond Group, payments in
respect of the related Component P Deferred Amount will be made in accordance
with priority fourth under "--Payments on the Bonds -- Group 1 Senior Bonds"
and "-- Group 2 Senior Bonds", respectively, above (any amount so paid, a
"COMPONENT P DEFERRED PAYMENT WRITEDOWN AMOUNT"). No interest will accrue on
any Component P Deferred Amount. On each Payment Date through the applicable
Cross-Over Date for the relevant Bond Group, the Class Current Principal
Balance of the Class of Subordinate Bonds with the highest numerical
designation in such Bond Group then outstanding will be reduced by the amount
of any payments in respect of the applicable Component P Deferred Amount for
such Bond Group on such Payment Date in accordance with priority fourth under
"--Payments on the Bonds -- Group 1 Senior Bonds" and "--Group 2 Senior Bonds",
respectively. After the Cross-Over Date with respect to Bond Groups 1 and 2,
no more payments will be made in respect of, and applicable Realized Losses and
Component P Cash Shortfalls allocable to the Stripped P Component of such Bond
Group will not be added to, the Component P Deferred Amount for such Stripped P
Component.
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On any Payment Date, the Non-PO Percentage of the principal portion of
Realized Losses ("NON-PO REALIZED LOSSES") with respect to a Mortgage Loan in
any Mortgage Loan Group which suffered Realized Losses during the related
Prepayment Period (other than Excess Special Hazard Losses) will be allocated
among the outstanding Classes of Subordinate Bonds in such Bond Group in
inverse order of priority, until the Class Current Principal Balance of each
such Class has been reduced to zero (i.e., such Realized Losses will be
allocated first to the Class B-6, Class 2-B-6 and Class 3-B-6 Bonds,
respectively, while such Bonds are outstanding, second, to the Class B-5, Class
2-B-5 and Class 3-B-5 Bonds, respectively, and so on). After the Cross-Over
Date for such Bond Group, such Non-PO Realized Losses will be allocated, pro
rata based on their Class Current Principal Balances (or Component Current
Principal Balance in the case of Component P-3), among the Senior Bonds of such
Bond Group (excluding the Stripped P Component, if any, of such Bond Group).
The applicable Non-PO Percentage of the principal portion of any Excess Special
Hazard Loss with respect to a Mortgage Loan in any Mortgage Loan Group for any
Payment Date will be allocated pro rata among all outstanding Classes of Bonds
of the related Bond Group (other than the Stripped P Components of the Class P
Bonds, and the Class A- 7, Class A-9, Class X and Class 2-X Bonds) based on
their Class Current Principal Balances (or Component Current Principal Balance,
in the case of Component P-3). An "EXCESS SPECIAL HAZARD LOSS" is any Special
Hazard Loss occurring after the Special Hazard Termination Date, as described
more fully below.
No reduction of the Class Current Principal Balance of any Class of
Bonds of any Bond Group, or of the Component Current Principal Balance of the P
Component of any Bond Group, shall be made on any Payment Date on account of
Realized Losses to the extent that such reduction would have the effect of
reducing the aggregate of the Class Current Principal Balances of all of the
Classes of Bonds of such Bond Group and the Component Current Principal Amount
of the P Component of such Bond Group as of such Payment Date to an amount less
than the aggregate of the Scheduled Principal Balances of the Mortgage Loans in
the related Mortgage Loan Group as of the preceding Due Date (such limitation
being the applicable "LOSS ALLOCATION LIMITATION" with respect to each such
Bond Group).
The principal portion of Debt Service Reductions will not be allocated
in reduction of the Class Current Principal Balance of any Bond. However,
regardless of when they occur, Debt Service Reductions may reduce the amount of
Group Available Funds for a Mortgage Loan Group that would otherwise be
available for payment on a Payment Date. As a result of the subordination of
the Subordinate Bonds of a Bond Group in right of payment, any Debt Service
Reductions relating to Mortgage Loans in the related Mortgage Loan Group, prior
to the applicable Cross-Over Date for such Bond Group, will be borne by such
Subordinate Bonds (to the extent then outstanding) in inverse order of priority
and, after the Cross-Over Date for such Bond Group, will be borne by the Senior
Bonds of such Bond Group.
All allocations of the principal portion of Realized Losses will be
accomplished on a Payment Date by reducing the Class Current Principal Balances
of the applicable Classes and the Component Current Principal Balances of the
applicable P Components by their appropriate shares of any such losses
occurring during the month preceding the month of such Payment Date and,
accordingly, will be taken into account in determining the payments of
principal and interest on the Bonds commencing on the following Payment Date,
except that the aggregate amount of the principal portion of any Realized
Losses on the Mortgage Loans in Mortgage Loan Groups 1 and 2 to be allocated to
Component P-1 and Component P- 2, respectively, on any Payment Date through the
applicable Cross-Over Date for the related Bond Group will also be taken into
account in determining payments in respect of the Component P Deferred Amount
for such Payment Date.
The interest portion of Realized Losses will be allocated among the
outstanding Classes of Bonds offered hereby to the extent described under "--
Payments on the Bonds -- Interest" above.
Any Special Hazard Loss will on each Payment Date be allocated solely
to the Subordinate Bonds of the related Bond Group until the Special Hazard
Termination Date. The "SPECIAL HAZARD TERMINATION DATE" is the Payment Date
upon which the Special Hazard Loss Amount for the applicable Bond Group has
been reduced to zero or a negative number (or the applicable Cross-Over Date,
if earlier). Upon the initial issuance of the Bonds, the "SPECIAL HAZARD LOSS
AMOUNT" for the Group 1 Mortgage Loans will equal the aggregate of the
Scheduled Principal Balances as of the Cut-off Date of the highest percentage
of Mortgage Loans of Mortgage Loan Group 1 (by principal balance) secured by
Mortgaged Properties in any single California five-digit ZIP code area (or
approximately $4,842,479) and the "SPECIAL HAZARD LOSS AMOUNT" for the Group 2
and Group 3 Mortgage Loans will equal twice
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the outstanding principal balance of the Mortgage Loan in the applicable
Mortgage Loan Group which has the largest outstanding principal balance as of
the Cut-off Date (or approximately $1,545,777 and $1,358,885, respectively).
As of any Payment Date, the Special Hazard Loss Amount for each Mortgage Loan
Group will equal the initial Special Hazard Loss Amount for such Mortgage Loan
Group minus the sum of (i) the aggregate amount of Special Hazard Losses that
would have been previously allocated to the Subordinate Bonds of the related
Bond Group in the absence of the Loss Allocation Limitation and (ii) the
Adjustment Amount for such Mortgage Loan Group. For each anniversary of the
Cut-off Date, the "ADJUSTMENT AMOUNT" for each Mortgage Loan Group shall be
equal to the amount, if any, by which the applicable Special Hazard Loss Amount
(without giving effect to the deduction of the Adjustment Amount for such
anniversary) exceeds the lesser of (A) an amount calculated by the Certificate
Trustee and approved by each of Moody's and DCR, which amount shall not be less
than $500,000, and (B) the greater of (x) 1.0% (or if greater than 1.0%, the
highest percentage of Mortgage Loans in such Mortgage Loan Group by principal
balance secured by Mortgaged Properties in any California five- digit ZIP code
area) of the outstanding principal balance of all the Mortgage Loans in such
Mortgage Loan Group on the Payment Date immediately preceding such anniversary
and (y) twice the outstanding principal balance of the Mortgage Loan in such
Mortgage Loan Group which has the largest outstanding principal balance on the
Payment Date immediately preceding such anniversary.
SUBORDINATION
PRIORITY OF SENIOR BONDS. As of the Closing Date, (i) the aggregate
Class Current Principal Balances of the Group 1 Subordinate Bonds and of the
Other Subordinate Bonds which are part of the Group 1 Subordinate Bonds will
equal approximately 4.50% and 0.80%, respectively, of the aggregate Class
Current Principal Balances of all of the Classes of Group 1 Bonds, (ii) the
aggregate of the Class Current Principal Balances of the Group 2 Subordinate
Bonds and of the Other Subordinate Bonds which are part of the Group 2
Subordinate Bonds will equal approximately 3.00% and 0.55%, respectively, of
the aggregate of the Class Current Principal Balances of all the Classes of
Group 2 Bonds, and (iii) the aggregate of the Class Current Principal Balances
of the Group 3 Subordinate Bonds and of the Other Subordinate Bonds which are
part of the Group 3 Subordinate Bonds will equal approximately 3.75% and 0.55%,
respectively, of the aggregate Current Principal Balances of all of the Classes
of Group 3 Bonds.
The rights of the holders of each Class of the Group 1 Subordinate
Bonds, the Group 2 Subordinate Bonds and the Group 3 Subordinate Bonds to
receive payments with respect to the Group 1 Mortgage Loans, the Group 2
Mortgage Loans and the Group 3 Mortgage Loans, respectively, will be
subordinated to such rights of the holders of the Group 1 Senior Bonds, the
Group 2 Senior Bonds and the Group 3 Senior Bonds, respectively, and to each
Class of Subordinate Bonds of the related Bond Group having a lower numerical
designation than such Class. The subordination of the Subordinate Bonds of a
Bond Group to the Senior Bonds of such Bond Group, and the further
subordination among the Subordinate Bonds of a Bond Group, are each intended to
increase the likelihood of timely receipt by the holders of the Bonds with
higher relative payment priority of the maximum amount to which they are
entitled on any Payment Date and to provide such holders protection against
losses resulting from defaults on Mortgage Loans to the extent described above.
However, in certain circumstances, the amount of available
subordination (including the limited subordination provided for Excess Special
Hazard Losses) may be exhausted and shortfalls in payments on the Offered Bonds
could result. Holders of Senior Bonds will bear their proportionate share of
Realized Losses in excess of the total subordination amount. The allocation of
Non-PO Realized Losses and, in the case of Bond Groups 1 and 2, the applicable
Component P Deferred Payment Writedown Amount to the Subordinate Bonds of the
related Bond Group on any Payment Date will decrease the protection provided to
the Senior Bonds of such Bond Group then outstanding on future Payment Dates by
reducing the aggregate of the Class Current Principal Balances of the related
Subordinate Bonds then outstanding.
In addition, in order to extend the period during which the
Subordinate Bonds of a Bond Group remain available as credit enhancement for
the Senior Bonds of such Bond Group, the entire amount of any prepayment or
other unscheduled recovery of principal with respect to a Mortgage Loan will be
allocated to the applicable Senior Bonds to the extent described herein during
the first five years after the Closing Date (with such allocation being subject
to reduction thereafter as described herein). This allocation has the effect
of accelerating the amortization of the applicable Senior Bonds while, in the
absence of losses in respect of the related Mortgage Loans, increasing the
percentage interest in the principal balance of the related Mortgage Loans
evidenced by the related Subordinate Bonds.
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In certain other circumstances as described under "-- Payments on the
Bonds -- Allocation of Available Funds -- Acceleration of the Bonds" above,
principal prepayments otherwise payable to the Subordinate Bonds of a Bond
Group will in lieu thereof be paid to the related Senior Bonds.
After the payment of amounts payable in respect of the Senior Bonds of
a Bond Group on each Payment Date, the Subordinate Bonds of such Bond Group
will be entitled on such date to the remaining portion, if any, of the related
Group Available Funds in an aggregate amount equal to the Accrued Bond Interest
on the Subordinate Bonds for such date, any remaining unpaid Accrued Bond
Interest thereon from previous Payment Dates and the sum of the Allocable
Shares of the Subordinate Bonds. Amounts so paid to Subordinate Bondholders
will not be available to cover any delinquencies or any Realized Losses on
Mortgage Loans in respect of subsequent Payment Dates.
PRIORITY AMONG SUBORDINATE BONDS. On each Payment Date, the holders
of any particular Class of Subordinate Bonds of a Bond Group will have a
preferential right to receive the amounts due them on such Payment Date out of
Available Funds for the related Mortgage Loan Group, prior to any payment being
made on such date on each Class of Bonds subordinated to such Class. In
addition, except as described herein, Non-PO Realized Losses for all Bond
Groups and, in the case of Bond Groups 1 and 2, the applicable Component P
Deferred Payment Writedown Amounts will be allocated, to the extent set forth
herein, in reduction of the Class Current Principal Balances of the related
Classes of Subordinate Bonds in the inverse order of their numerical Class
designation. The effect of the allocation of such Non-PO Realized Losses and
any applicable Component P Deferred Payment Writedown Amounts to a Class of
Subordinate Bonds will be to reduce future payments allocable to such Class and
increase the relative portion of payments allocable to more senior Classes of
Subordinate Bonds.
In order to maintain the relative levels of subordination among the
related Classes of Subordinate Bonds in each Bond Group, the applicable Non-PO
Percentage of prepayments and certain other unscheduled recoveries of principal
in respect of the Mortgage Loans in the related Mortgage Loan Group (which
generally will not be payable to such Bonds for at least the first five years
after the Cut-off Date) will not be payable to the holders of any Class of
Subordinate Bonds of such Bond Group on any Payment Date for which the related
Class Prepayment Payment Trigger is not satisfied, except as described above.
See "-- Payments on the Bonds -- Principal" above. If the Class Prepayment
Payment Trigger is not satisfied with respect to any Class of Subordinate Bonds
of a Bond Group, the amortization of more senior Classes of Subordinate Bonds
of such Bond Group may occur more rapidly than would otherwise have been the
case and, in the absence of losses in respect of the related Mortgage Loans,
the percentage interest in the principal balance of the Mortgage Loans
evidenced by such Subordinate Bonds may increase.
As a result of the subordination of any Class of Subordinate Bonds of
a Bond Group, such Class of Bonds will be more sensitive than more senior
Classes of Bonds of such Group to the rate of delinquencies and defaults on the
Mortgage Loans in the related Mortgage Loan Group, and under certain
circumstances investors in such Bonds may not recover their initial investment.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the Bonds will be
affected by the amount and timing of principal payments on the applicable
Mortgage Loan Group and the allocation of Available Funds to various Classes of
Bonds. Investors should carefully consider the associated risks discussed
under the headings "Yield and Prepayment Considerations" and "Legal Investment"
in the "Summary of Terms" herein and under the heading "Legal Investment" in
the Prospectus.
STATED MATURITY
The "Stated Maturities" for payments on each Class of Group 1 Bonds
and the Class P Bonds, the Group 2 Bonds and the Group 3 Bonds are May 2028,
April 2013 and April 2028, respectively, which, in each case, is the Payment
Date in the month following the latest scheduled maturity date of all of the
Mortgage Loans in the related Mortgage Loan Group. Because the rate of payment
(including prepayments) of principal on the Mortgage Loans can
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be expected to exceed the scheduled rate of payments, and could exceed the
scheduled rate by a substantial amount, the disposition of the last remaining
Mortgage Loan in any Mortgage Loan Group may be earlier, and could be
substantially earlier, than the applicable Stated Maturity. In addition, BSMCC
or its designee may, at its option, repurchase all the Mortgage Loans of a
Mortgage Loan Group from the related Trust on an Optional Redemption Date. See
"Pooling and Servicing Agreement -- Termination" herein.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount
of time that will elapse from the date of its issuance until each dollar of
principal of such security will be paid to the investor. The weighted average
life of a Bond is determined by (a) multiplying the amount of the reduction, if
any, of the Class Current Principal Balance (or Class Current Notional Balance)
of such Bond from one Payment Date to the next Payment Date by the number of
years from the date of issuance to the second such Payment Date, (b) summing
the results and (c) dividing the sum by the aggregate amount of the reductions
in the Class Current Principal Balance or Class Notional Balance of such Bond
referred to in clause (a). The weighted average lives of the Bonds will be
influenced by, among other factors, the rate at which principal is paid on
Mortgage Loans in the applicable Mortgage Loan Group or Groups. Principal
payments of Mortgage Loans may be in the form of scheduled amortization or
prepayments including as a result of foreclosure proceedings or by virtue of
the purchase of a Mortgage Loan in advance of its stated maturity as required
or permitted by the Pooling and Servicing Agreement. In general, the Mortgage
Loans may be prepaid by the Mortgagors at any time without payment of any
prepayment fee or penalty. The actual weighted average life and term to
maturity of each Class of Bonds, in general, will be shortened if the level of
such prepayments with respect to principal on the applicable Mortgage Loan
Group or Groups increase.
INTEREST ONLY BONDS; GROUP 3 BONDS
Because the Class X Notional Balance and the Class 2-X Notional
Balance will be based upon the Scheduled Principal Balances of the Group 1
Mortgage Loans and the Group 2 Mortgage Loans, respectively, the yield on the
Class X and Class 2-X Bonds will be sensitive to the rate and timing of
principal payments of the Group 1 Mortgage Loans and Group 2 Mortgage Loans,
respectively. The yield on the Class A-7 and Class A-9 Bonds also will be
sensitive to the rate and timing of principal payments on the Group 1 Mortgage
Loans, because the Class A-7 Notional Balance is based on the Class Current
Principal Balances of the Class A-1 through Class A-4 Bonds and the Class A-6
Bonds, and the Class A-9 Notional Balance is based on the Class Current
Principal Balance of the Class A-8 Bonds. A rapid rate of principal payments
with respect to the applicable Mortgage Loan Group will have a materially
negative effect on the yield to investors in the related Class or Classes of
Interest Only Bonds. Moreover, as a result of the method of calculation of the
Bond Interest Rate of the Class X and Class 2-X Bonds and each Class of the
Group 3 Bonds (other than Component P- 3), to the extent the Mortgage Loans in
the applicable Mortgage Loan Group with relatively higher Net Rates prepay
faster than those with relatively lower Net Rates, the yield on the Classes of
Bonds will be reduced. Investors should fully consider the associated risks,
including the risk that a rapid rate of principal payments could result in the
failure of investors in such Classes of Bonds to recover fully their initial
investments.
CLASS A-19 BONDS
As described herein, during certain periods, no principal payments or
a disproportionately small or large portion of principal payments will be paid
to the Class A-19 Bonds. Unless the Class Current Principal Balances of all
other Group 1 Senior P&I Bonds have been reduced to zero, the Class A-19 Bonds
will not be entitled to receive any payments of principal prior to the Payment
Date occurring in April 2003.
CLASS P BONDS
The amounts payable with respect to the Component P-1 and Component
P-2 derive from principal payments on the Discount Mortgage Loans in Mortgage
Loan Group 1 and Mortgage Loan Group 2, respectively. As a result, the yield
on the Class P Bonds will be adversely affected by slower than expected
payments of principal (including prepayments, defaults and liquidations) on
such Discount Mortgage Loans. Because the Discount Mortgage Loans of each such
Mortgage Loan Group have lower Net Rates than the Non-Discount Mortgage Loans
of such Mortgage Loan Group, and because the Mortgage Loans with lower Net
Rates are likely to have lower Mortgage Rates, the Discount
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Mortgage Loans of each such Mortgage Loan Group are generally likely to prepay
at a slower rate than the Non-Discount Mortgage Loans of such Mortgage Loan
Group.
PREPAYMENT MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement ("SPA") represents an assumed rate of prepayment each month of the
then outstanding principal balance of a pool of new mortgage loans. SPA does
not purport to be either a historical description of the prepayment experience
of any pool of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans in the
Mortgage Loan Groups. A 100% SPA assumes prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first
month of the life of the mortgage and an additional 0.2% per annum in each
month thereafter (for example, 0.4% per annum in the second month) until the
thirtieth month. Beginning in the thirtieth month and in each month thereafter
during the life of the mortgage loans, 100% SPA assumes a constant prepayment
rate of 6% per annum. Multiples will be calculated from this prepayment rate
series. For example, 250% SPA assumes prepayment rates will be approximately
0.50% per annum in month one, approximately 1% per annum in month two, reaching
approximately 15% per annum in month 30 and remaining constant at approximately
15% per annum thereafter. A 0% SPA assumes no prepayments.
RELOCATION LOANS
All of the Group 3 Mortgage Loans are Relocation Loans, which are
mortgage loans made to employees of corporations who have a substantial portion
of the costs related to the mortgage loan reimbursed by their employer.
Because mortgagors of Relocation Loans generally may be more likely to be
transferred by their employers than mortgagors in general, Relocation Loans are
generally believed to prepay faster than other loans with similar
characteristics that are not Relocation Loans.
PRICING ASSUMPTIONS
The Bonds were structured assuming, among other things, a 250% SPA
with respect to the Group 1 Bonds, a 250% SPA with respect to the Group 2 Bonds
and a 315% SPA with respect to the Group 3 Bonds. The prepayment assumptions
to be used for pricing purposes for the respective Classes may vary as
determined at the time of sale. The actual rate of prepayment may vary
considerably from the rate used for any prepayment assumption.
DECREMENT TABLES
The following tables entitled "Percent of Initial Class Principal
Balance or Class Notional Balance Outstanding" indicate the percentages of the
initial Class Current Principal Balance or Class Notional Balance of each Class
of Offered Bonds that would be outstanding after each of the dates shown at
various constant percentages of SPA and the corresponding weighted average
lives of such Classes of Offered Bonds.
The following tables have been prepared based on the assumptions that:
(i) Mortgage Loan Group 1 consists of Mortgage Loans having characteristics
based on the characteristics of the related Mortgage Loans as described herein,
and each of Mortgage Loan Groups 2 and 3 consists of Mortgage Loans having the
characteristics set forth below:
<TABLE>
<CAPTION>
Cut-off Date Original Term to Remaining Term to
Mortgage Scheduled Maturity Maturity
Loan Group Principal Balance (in months) (in months) Mortgage Rate Net Rate
- ---------- ----------------- ----------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
2 $ 80,980,678 180 178 7.165827465% 6.965110072%
2 $ 7,337,228 180 179 6.529930336% 6.329930336%
3 $ 89,556,886 346 344 7.110187824% 6.891751440%
</TABLE>
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(ii) the Mortgage Loans prepay at the specified percentages of SPA, (iii) no
defaults in the payment by Mortgagors of principal of and interest on the
Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage Loans
are received on the first day of each month commencing in April 1998 and are
computed prior to giving effect to prepayments received on the last day of the
prior month, (v) prepayments are allocated as described herein without giving
effect to loss and delinquency tests, (vi) there are no Net Interest Shortfalls
and prepayments represent prepayments in full of individual Mortgage Loans that
are received on the last day of each month, commencing in March 1998, (vii)
scheduled Monthly Payments of principal and interest on the Mortgage Loans are
calculated with respect to their respective principal balances (prior to giving
effect to prepayments received thereon during the preceding calendar month),
Mortgage Rate and remaining terms to stated maturity such that the Mortgage
Loans will fully amortize by their stated maturities, (viii) the initial Class
Current Principal Balances or Class Notional Balances of the Bonds are as set
forth on the cover page hereof and under "Summary of Terms -- Other Subordinate
Bonds", (ix) payments in respect of the Bonds are received in cash on the 25th
day of each month, commencing in April 1998, (x) the Offered Bonds are
purchased on March 31, 1998 and (xi) neither BSMCC nor its designee exercises
its option to repurchase the Mortgage Loans described under the caption
"Pooling and Servicing Agreement -- Termination". While it is assumed that
each of the Mortgage Loans prepays at the specified constant percentages of the
SPA, this is not likely to be the case.
Discrepancies will exist between the characteristics of the actual
Mortgage Loans which will be delivered to the Certificate Trustee and
characteristics of the Mortgage Loans assumed in preparing the tables. To the
extent that the Mortgage Loans have characteristics which differ from those
assumed in preparing the tables, the Bonds may mature earlier or later than
indicated by the tables.
Based on the foregoing assumptions, the tables below indicate the
weighted average life of each Class of Offered Bonds and set forth the
percentages of the initial Class Current Principal Balance or Class Notional
Balance of each such Class that would be outstanding after the Payment Date in
March of each of the years indicated, assuming that the Mortgage Loans in the
related Mortgage Loan Group prepay at the percentage of SPA indicated therein.
Neither SPA nor any other prepayment model or assumption purports to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans included in the Mortgage Loan Groups. Variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentage of initial Class Current Principal Balance
or Class Notional Balance (and weighted average life) shown in the following
tables. Such variations may occur even if the average prepayment experience of
all such Mortgage Loans equals any of the specified percentages of SPA.
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PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS P BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 97 95 94 92 90
March 2000 .......... 94 88 82 76 70
March 2001 .......... 91 79 68 58 48
March 2002 .......... 88 70 55 43 32
March 2003 .......... 84 62 45 32 22
March 2004 .......... 80 55 37 24 15
March 2005 .......... 76 48 29 17 10
March 2006 .......... 72 42 24 13 6
March 2007 .......... 67 36 19 9 4
March 2008 .......... 62 31 15 7 3
March 2009 .......... 56 26 11 5 2
March 2010 .......... 51 22 9 3 1
March 2011 .......... 44 18 7 2 1
March 2012 .......... 38 14 5 1 *
March 2013 .......... 31 11 3 1 *
March 2014 .......... 30 9 3 1 *
March 2015 .......... 29 8 2 1 *
March 2016 .......... 27 7 2 * *
March 2017 .......... 26 6 1 * *
March 2018 .......... 24 6 1 * *
March 2019 .......... 22 5 1 * *
March 2020 .......... 20 4 1 * *
March 2021 .......... 18 3 1 * *
March 2022 .......... 16 3 * * *
March 2023 .......... 14 2 * * *
March 2024 .......... 11 2 * * *
March 2025 .......... 9 1 * * *
March 2026 .......... 6 1 * * *
March 2027 .......... 3 * * * *
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 13.4 8.1 5.7 4.4 3.6
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-68
<PAGE> 69
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 73 0 0 0 0
March 2002 .......... 45 0 0 0 0
March 2003 .......... 14 0 0 0 0
March 2004 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 3.8 2.3 2.3 2.3 2.3
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-69
<PAGE> 70
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-2 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 51 51 51 51
March 2002 .......... 100 0 0 0 0
March 2003 .......... 100 0 0 0 0
March 2004 .......... 90 0 0 0 0
March 2005 .......... 71 0 0 0 0
March 2006 .......... 51 0 0 0 0
March 2007 .......... 30 0 0 0 0
March 2008 .......... 8 0 0 0 0
March 2009 .......... 0 0 0 0 0
Weighted Average Life
(in years)** .... 8.0 3.0 3.0 3.0 3.0
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-70
<PAGE> 71
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-3 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 51 51 51 51
March 2003 .......... 100 0 0 0 0
March 2004 .......... 100 0 0 0 0
March 2005 .......... 100 0 0 0 0
March 2006 .......... 100 0 0 0 0
March 2007 .......... 100 0 0 0 0
March 2008 .......... 100 0 0 0 0
March 2009 .......... 84 0 0 0 0
March 2010 .......... 58 0 0 0 0
March 2011 .......... 30 0 0 0 0
March 2012 .......... 0 0 0 0 0
March 2013 .......... 0 0 0 0 0
Weighted Average Life
(in years)** .... 12.3 4.0 4.0 4.0 4.0
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-71
<PAGE> 72
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-4 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 75 75 75 75
March 2004 .......... 100 24 24 24 24
March 2005 .......... 100 0 0 0 0
March 2006 .......... 100 0 0 0 0
March 2007 .......... 100 0 0 0 0
March 2008 .......... 100 0 0 0 0
March 2009 .......... 100 0 0 0 0
March 2010 .......... 100 0 0 0 0
March 2011 .......... 100 0 0 0 0
March 2012 .......... 100 0 0 0 0
March 2013 .......... 81 0 0 0 0
March 2014 .......... 61 0 0 0 0
March 2015 .......... 36 0 0 0 0
March 2016 .......... 6 0 0 0 0
March 2017 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ....... 16.4 5.5 5.5 5.5 5.5
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-72
<PAGE> 73
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-5 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 14
March 2003 .......... 100 100 100 100 0
March 2004 .......... 100 100 100 100 0
March 2005 .......... 100 100 100 76 0
March 2006 .......... 100 100 100 34 0
March 2007 .......... 100 100 100 3 0
March 2008 .......... 100 100 100 0 0
March 2009 .......... 100 100 71 0 0
March 2010 .......... 100 100 45 0 0
March 2011 .......... 100 81 25 0 0
March 2012 .......... 100 39 7 0 0
March 2013 .......... 100 * 0 0 0
March 2014 .......... 100 0 0 0 0
March 2015 .......... 100 0 0 0 0
March 2016 .......... 100 0 0 0 0
March 2017 .......... 100 0 0 0 0
March 2018 .......... 100 0 0 0 0
March 2019 .......... 100 0 0 0 0
March 2020 .......... 100 0 0 0 0
March 2021 .......... 100 0 0 0 0
March 2022 .......... 100 0 0 0 0
March 2023 .......... 100 0 0 0 0
March 2024 .......... 62 0 0 0 0
March 2025 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ...... 26.2 13.8 12.0 7.7 3.7
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-73
<PAGE> 74
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-6 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 100 100 100 100
March 2004 .......... 100 100 100 100 100
March 2005 .......... 100 39 39 39 39
March 2006 .......... 100 0 0 0 0
March 2007 .......... 100 0 0 0 0
March 2008 .......... 100 0 0 0 0
March 2009 .......... 100 0 0 0 0
March 2010 .......... 100 0 0 0 0
March 2011 .......... 100 0 0 0 0
March 2012 .......... 100 0 0 0 0
March 2013 .......... 100 0 0 0 0
March 2014 .......... 100 0 0 0 0
March 2015 .......... 100 0 0 0 0
March 2016 .......... 100 0 0 0 0
March 2017 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 18.5 7.0 7.0 7.0 7.0
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-74
<PAGE> 75
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-7 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 96 71 71 71 71
March 2002 .......... 92 43 43 43 43
March 2003 .......... 87 23 23 23 23
March 2004 .......... 82 10 10 10 10
March 2005 .......... 77 2 2 2 2
March 2006 .......... 71 0 0 0 0
March 2007 .......... 65 0 0 0 0
March 2008 .......... 58 0 0 0 0
March 2009 .......... 52 0 0 0 0
March 2010 .......... 45 0 0 0 0
March 2011 .......... 38 0 0 0 0
March 2012 .......... 30 0 0 0 0
March 2013 .......... 25 0 0 0 0
March 2014 .......... 20 0 0 0 0
March 2015 .......... 13 0 0 0 0
March 2016 .......... 6 0 0 0 0
March 2017 .......... 0 0 0 0 0
March 2018 .......... 0 0 0 0 0
March 2019 .......... 0 0 0 0 0
March 2020 .......... 0 0 0 0 0
March 2021 .......... 0 0 0 0 0
March 2022 .......... 0 0 0 0 0
March 2023 .......... 0 0 0 0 0
March 2024 .......... 0 0 0 0 0
March 2025 .......... 0 0 0 0 0
March 2026 .......... 0 0 0 0 0
March 2027 .......... 0 0 0 0 0
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 11.1 4.0 4.0 4.0 4.0
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-75
<PAGE> 76
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-8 AND CLASS A-9 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 97 91 88 88 88
March 2000 .......... 93 71 63 63 61
March 2001 .......... 93 71 55 46 12
March 2002 .......... 93 71 48 21 0
March 2003 .......... 93 71 43 6 0
March 2004 .......... 93 71 39 1 0
March 2005 .......... 93 65 31 0 0
March 2006 .......... 93 52 19 0 0
March 2007 .......... 93 38 8 0 0
March 2008 .......... 93 27 * 0 0
March 2009 .......... 93 16 0 0 0
March 2010 .......... 93 5 0 0 0
March 2011 .......... 93 0 0 0 0
March 2012 .......... 93 0 0 0 0
March 2013 .......... 93 0 0 0 0
March 2014 .......... 93 0 0 0 0
March 2015 .......... 93 0 0 0 0
March 2016 .......... 93 0 0 0 0
March 2017 .......... 91 0 0 0 0
March 2018 .......... 79 0 0 0 0
March 2019 .......... 67 0 0 0 0
March 2020 .......... 54 0 0 0 0
March 2021 .......... 40 0 0 0 0
March 2022 .......... 25 0 0 0 0
March 2023 .......... 9 0 0 0 0
March 2024 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 21.0 7.0 4.5 2.8 2.1
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-76
<PAGE> 77
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-10 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 99 96 95 95 95
March 2000 .......... 97 89 85 85 84
March 2001 .......... 92 69 62 58 45
March 2002 .......... 86 59 49 39 30
March 2003 .......... 80 39 27 13 10
March 2004 .......... 77 28 16 * 0
March 2005 .......... 77 26 13 0 0
March 2006 .......... 77 21 8 0 0
March 2007 .......... 77 15 3 0 0
March 2008 .......... 77 11 * 0 0
March 2009 .......... 74 6 0 0 0
March 2010 .......... 69 2 0 0 0
March 2011 .......... 63 0 0 0 0
March 2012 .......... 57 0 0 0 0
March 2013 .......... 50 0 0 0 0
March 2014 .......... 42 0 0 0 0
March 2015 .......... 37 0 0 0 0
March 2016 .......... 37 0 0 0 0
March 2017 .......... 36 0 0 0 0
March 2018 .......... 32 0 0 0 0
March 2019 .......... 27 0 0 0 0
March 2020 .......... 22 0 0 0 0
March 2021 .......... 16 0 0 0 0
March 2022 .......... 10 0 0 0 0
March 2023 .......... 4 0 0 0 0
March 2024 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 14.7 5.1 4.1 3.4 3.1
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-77
<PAGE> 78
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-11 AND CLASS A-12 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 93 81 69
March 2000 .......... 100 100 76 36 0
March 2001 .......... 100 100 54 0 0
March 2002 .......... 100 100 39 0 0
March 2003 .......... 100 100 28 0 0
March 2004 .......... 100 100 23 0 0
March 2005 .......... 100 100 22 0 0
March 2006 .......... 100 100 20 0 0
March 2007 .......... 100 100 19 0 0
March 2008 .......... 100 100 17 0 0
March 2009 .......... 100 100 15 0 0
March 2010 .......... 100 100 13 0 0
March 2011 .......... 100 100 11 0 0
March 2012 .......... 100 100 10 0 0
March 2013 .......... 100 100 9 0 0
March 2014 .......... 100 93 7 0 0
March 2015 .......... 100 84 6 0 0
March 2016 .......... 100 75 5 0 0
March 2017 .......... 100 66 4 0 0
March 2018 .......... 100 58 4 0 0
March 2019 .......... 100 51 3 0 0
March 2020 .......... 100 43 2 0 0
March 2021 .......... 100 36 2 0 0
March 2022 .......... 100 30 1 0 0
March 2023 .......... 100 24 1 0 0
March 2024 .......... 100 18 1 0 0
March 2025 .......... 100 13 1 0 0
March 2026 .......... 79 8 * 0 0
March 2027 .......... 39 4 * 0 0
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 28.7 21.6 5.4 1.7 1.3
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-78
<PAGE> 79
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-13 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 100 100 100 0
March 2004 .......... 100 100 100 100 0
March 2005 .......... 100 100 100 100 0
March 2006 .......... 100 100 100 100 0
March 2007 .......... 100 100 100 100 0
March 2008 .......... 100 100 100 6 0
March 2009 .......... 100 100 100 0 0
March 2010 .......... 100 100 100 0 0
March 2011 .......... 100 100 100 0 0
March 2012 .......... 100 100 100 0 0
March 2013 .......... 100 100 52 0 0
March 2014 .......... 100 0 0 0 0
March 2015 .......... 100 0 0 0 0
March 2016 .......... 100 0 0 0 0
March 2017 .......... 100 0 0 0 0
March 2018 .......... 100 0 0 0 0
March 2019 .......... 100 0 0 0 0
March 2020 .......... 100 0 0 0 0
March 2021 .......... 100 0 0 0 0
March 2022 .......... 100 0 0 0 0
March 2023 .......... 100 0 0 0 0
March 2024 .......... 100 0 0 0 0
March 2025 .......... 0 0 0 0 0
March 2026 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 26.8 15.3 15.1 9.6 4.2
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-79
<PAGE> 80
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-14 AND CLASS A-15 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 100 100 100 15
March 2004 .......... 100 100 100 100 *
March 2005 .......... 100 100 100 100 *
March 2006 .......... 100 100 100 100 0
March 2007 .......... 100 100 100 100 0
March 2008 .......... 100 100 100 100 0
March 2009 .......... 100 100 100 77 0
March 2010 .......... 100 100 100 58 0
March 2011 .......... 100 100 100 44 0
March 2012 .......... 100 100 100 33 0
March 2013 .......... 100 100 100 24 0
March 2014 .......... 100 92 92 18 0
March 2015 .......... 100 73 73 13 0
March 2016 .......... 100 58 58 10 0
March 2017 .......... 100 46 46 7 0
March 2018 .......... 100 36 36 5 0
March 2019 .......... 100 28 28 4 0
March 2020 .......... 100 21 21 3 0
March 2021 .......... 100 16 16 2 0
March 2022 .......... 100 12 12 1 0
March 2023 .......... 100 8 8 1 0
March 2024 .......... 100 6 6 1 0
March 2025 .......... 78 4 4 * 0
March 2026 .......... 2 2 2 * 0
March 2027 .......... 1 1 1 * 0
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 27.2 19.5 19.5 13.5 4.7
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-80
<PAGE> 81
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-16 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 100 100 100 11
March 2004 .......... 100 100 100 100 *
March 2005 .......... 100 100 100 100 *
March 2006 .......... 100 100 100 100 0
March 2007 .......... 100 100 100 100 0
March 2008 .......... 100 100 100 80 0
March 2009 .......... 100 100 100 60 0
March 2010 .......... 100 100 100 46 0
March 2011 .......... 100 100 100 34 0
March 2012 .......... 100 100 100 26 0
March 2013 .......... 100 100 90 19 0
March 2014 .......... 100 72 72 14 0
March 2015 .......... 100 57 57 11 0
March 2016 .......... 100 45 45 8 0
March 2017 .......... 100 36 36 6 0
March 2018 .......... 100 28 28 4 0
March 2019 .......... 100 22 22 3 0
March 2020 .......... 100 17 17 2 0
March 2021 .......... 100 12 12 1 0
March 2022 .......... 100 9 9 1 0
March 2023 .......... 100 7 7 1 0
March 2024 .......... 100 4 4 * 0
March 2025 .......... 61 3 3 * 0
March 2026 .......... 2 2 2 * 0
March 2027 .......... 1 1 1 * 0
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 27.1 18.6 18.6 12.7 4.6
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-81
<PAGE> 82
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-17 AND CLASS A-18 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 98 94 92 92 92
March 2000 .......... 95 80 74 74 73
March 2001 .......... 95 65 54 48 24
March 2002 .......... 95 49 33 15 0
March 2003 .......... 95 49 29 4 0
March 2004 .......... 92 49 27 * 0
March 2005 .......... 86 45 22 0 0
March 2006 .......... 80 36 13 0 0
March 2007 .......... 74 26 6 0 0
March 2008 .......... 67 18 * 0 0
March 2009 .......... 64 11 0 0 0
March 2010 .......... 64 4 0 0 0
March 2011 .......... 64 0 0 0 0
March 2012 .......... 64 0 0 0 0
March 2013 .......... 64 0 0 0 0
March 2014 .......... 64 0 0 0 0
March 2015 .......... 64 0 0 0 0
March 2016 .......... 64 0 0 0 0
March 2017 .......... 62 0 0 0 0
March 2018 .......... 55 0 0 0 0
March 2019 .......... 46 0 0 0 0
March 2020 .......... 37 0 0 0 0
March 2021 .......... 28 0 0 0 0
March 2022 .......... 17 0 0 0 0
March 2023 .......... 6 0 0 0 0
March 2024 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 17.0 5.8 4.0 2.9 2.4
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
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<PAGE> 83
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-19 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 100 100 100 100 100
March 2000 .......... 100 100 100 100 100
March 2001 .......... 100 100 100 100 100
March 2002 .......... 100 100 100 100 100
March 2003 .......... 100 100 100 100 100
March 2004 .......... 100 97 95 92 90
March 2005 .......... 99 94 88 83 77
March 2006 .......... 98 88 79 70 55
March 2007 .......... 96 82 69 57 36
March 2008 .......... 94 74 57 43 25
March 2009 .......... 92 67 47 32 17
March 2010 .......... 90 60 39 24 12
March 2011 .......... 87 54 32 18 8
March 2012 .......... 84 48 27 14 5
March 2013 .......... 81 43 22 10 4
March 2014 .......... 78 38 18 8 2
March 2015 .......... 75 34 14 6 2
March 2016 .......... 71 30 12 4 1
March 2017 .......... 67 26 9 3 1
March 2018 .......... 62 22 7 2 *
March 2019 .......... 58 19 6 2 *
March 2020 .......... 53 16 5 1 *
March 2021 .......... 48 14 3 1 *
March 2022 .......... 42 11 3 1 *
March 2023 .......... 36 9 2 * *
March 2024 .......... 30 7 1 * *
March 2025 .......... 23 5 1 * *
March 2026 .......... 16 3 1 * *
March 2027 .......... 8 1 * * *
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 21.4 15.0 11.9 10.2 8.9
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-83
<PAGE> 84
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS X BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 99 97 95 94 92
March 2000 .......... 98 92 85 79 73
March 2001 .......... 97 84 72 61 51
March 2002 .......... 96 77 61 47 36
March 2003 .......... 94 70 51 36 25
March 2004 .......... 93 64 43 27 17
March 2005 .......... 91 58 36 21 12
March 2006 .......... 90 53 30 16 8
March 2007 .......... 88 48 25 12 6
March 2008 .......... 86 43 21 9 4
March 2009 .......... 84 39 17 7 3
March 2010 .......... 82 35 14 5 2
March 2011 .......... 80 32 12 4 1
March 2012 .......... 77 28 10 3 1
March 2013 .......... 74 25 8 2 1
March 2014 .......... 71 22 6 2 *
March 2015 .......... 68 20 5 1 *
March 2016 .......... 65 17 4 1 *
March 2017 .......... 61 15 3 1 *
March 2018 .......... 57 13 3 * *
March 2019 .......... 53 11 2 * *
March 2020 .......... 48 10 2 * *
March 2021 .......... 44 8 1 * *
March 2022 .......... 38 6 1 * *
March 2023 .......... 33 5 1 * *
March 2024 .......... 27 4 * * *
March 2025 .......... 21 3 * * *
March 2026 .......... 14 2 * * *
March 2027 .......... 7 1 * * *
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 19.9 10.4 6.6 4.8 3.8
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-84
<PAGE> 85
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS B-1, CLASS B-2 AND CLASS B-3 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 99 99 99 99 99
March 2000 .......... 98 98 98 98 98
March 2001 .......... 97 97 97 97 97
March 2002 .......... 96 96 96 96 96
March 2003 .......... 94 94 94 94 94
March 2004 .......... 93 91 89 86 84
March 2005 .......... 91 87 82 77 71
March 2006 .......... 90 81 73 65 57
March 2007 .......... 88 75 63 52 42
March 2008 .......... 86 68 52 39 29
March 2009 .......... 84 61 43 30 20
March 2010 .......... 82 55 36 22 13
March 2011 .......... 80 49 30 17 9
March 2012 .......... 77 44 24 13 6
March 2013 .......... 74 40 20 9 4
March 2014 .......... 71 35 16 7 3
March 2015 .......... 68 31 13 5 2
March 2016 .......... 65 27 11 4 1
March 2017 .......... 61 24 9 3 1
March 2018 .......... 57 21 7 2 1
March 2019 .......... 53 18 5 1 *
March 2020 .......... 48 15 4 1 *
March 2021 .......... 44 12 3 1 *
March 2022 .......... 38 10 2 * *
March 2023 .......... 33 8 2 * *
March 2024 .......... 27 6 1 * *
March 2025 .......... 21 4 1 * *
March 2026 .......... 14 3 * * *
March 2027 .......... 7 1 * * *
March 2028 .......... 0 0 0 0 0
March 2029 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 19.9 14.0 11.2 9.7 8.8
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-85
<PAGE> 86
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS 2-A BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 96 94 92 90 88
March 2000 .......... 92 85 79 72 66
March 2001 .......... 87 75 63 53 43
March 2002 .......... 82 65 50 38 28
March 2003 .......... 77 56 40 27 18
March 2004 .......... 72 48 31 19 11
March 2005 .......... 66 41 24 13 7
March 2006 .......... 59 34 18 9 4
March 2007 .......... 52 28 14 6 2
March 2008 .......... 45 22 10 4 1
March 2009 .......... 37 17 7 3 1
March 2010 .......... 28 12 5 2 *
March 2011 .......... 19 7 3 1 *
March 2012 .......... 9 3 1 * *
March 2013 .......... 0 0 0 0 0
March 2014 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 8.7 6.4 4.9 3.9 3.2
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-86
<PAGE> 87
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS 2-X BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 96 94 92 90 88
March 2000 .......... 92 85 79 73 67
March 2001 .......... 87 75 64 54 45
March 2002 .......... 82 66 51 39 30
March 2003 .......... 77 57 41 29 19
March 2004 .......... 72 49 32 21 13
March 2005 .......... 66 41 25 15 8
March 2006 .......... 59 34 19 10 5
March 2007 .......... 52 28 14 7 3
March 2008 .......... 45 22 10 5 2
March 2009 .......... 37 17 7 3 1
March 2010 .......... 28 12 5 2 1
March 2011 .......... 19 7 3 1 *
March 2012 .......... 9 3 1 * *
March 2013 .......... 0 0 0 0 0
March 2014 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 8.7 6.4 5.0 4.0 3.3
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-87
<PAGE> 88
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS 2-B-1, CLASS 2-B-2 AND CLASS 2-B-3 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ --- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 96 96 96 96 96
March 2000 .......... 92 92 92 92 92
March 2001 .......... 87 87 87 87 87
March 2002 .......... 82 82 82 82 82
March 2003 .......... 77 77 77 77 77
March 2004 .......... 72 70 68 66 64
March 2005 .......... 66 62 59 55 51
March 2006 .......... 59 53 48 42 37
March 2007 .......... 52 44 37 31 25
March 2008 .......... 45 35 27 20 15
March 2009 .......... 37 27 19 13 9
March 2010 .......... 28 19 12 8 5
March 2011 .......... 19 12 7 4 2
March 2012 .......... 9 5 3 1 1
March 2013 .......... 0 0 0 0 0
March 2014 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 8.7 8.1 7.7 7.3 6.9
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-88
<PAGE> 89
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS 3-A BONDS
PAYMENT DATE 0% 150% 315% 425% 550%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 99 96 93 91 89
March 2000 .......... 98 89 80 74 67
March 2001 .......... 96 80 63 54 44
March 2002 .......... 95 71 50 38 28
March 2003 .......... 94 63 39 27 17
March 2004 .......... 92 57 31 19 10
March 2005 .......... 90 50 24 14 6
March 2006 .......... 88 45 19 10 4
March 2007 .......... 87 40 15 7 2
March 2008 .......... 84 35 12 5 2
March 2009 .......... 82 31 9 4 1
March 2010 .......... 80 28 7 3 1
March 2011 .......... 77 24 6 2 *
March 2012 .......... 74 21 5 1 *
March 2013 .......... 71 19 4 1 *
March 2014 .......... 68 16 3 1 *
March 2015 .......... 65 14 2 * *
March 2016 .......... 61 12 2 * *
March 2017 .......... 57 10 1 * *
March 2018 .......... 53 9 1 * *
March 2019 .......... 48 7 1 * *
March 2020 .......... 43 6 * * *
March 2021 .......... 38 5 * * *
March 2022 .......... 32 4 * * *
March 2023 .......... 26 3 * * *
March 2024 .......... 20 2 * * *
March 2025 .......... 13 1 * * *
March 2026 .......... 5 * * * *
March 2027 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 18.9 8.9 5.2 4.1 3.2
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-89
<PAGE> 90
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS 3-B-1, CLASS 3-B-2 AND CLASS 3-B-3 BONDS
PAYMENT DATE 0% 150% 315% 425% 550%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 99 99 99 99 99
March 2000 .......... 98 98 98 98 98
March 2001 .......... 96 96 96 96 96
March 2002 .......... 95 95 95 95 95
March 2003 .......... 94 94 94 94 94
March 2004 .......... 92 89 86 84 82
March 2005 .......... 90 85 78 74 68
March 2006 .......... 88 78 67 61 53
March 2007 .......... 87 71 56 47 38
March 2008 .......... 84 63 44 34 25
March 2009 .......... 82 56 35 25 16
March 2010 .......... 80 49 27 18 10
March 2011 .......... 77 43 22 13 7
March 2012 .......... 74 38 17 9 4
March 2013 .......... 71 33 13 7 3
March 2014 .......... 68 29 10 5 2
March 2015 .......... 65 25 8 3 1
March 2016 .......... 61 21 6 2 1
March 2017 .......... 57 18 5 2 *
March 2018 .......... 53 15 3 1 *
March 2019 .......... 48 13 3 1 *
March 2020 .......... 43 10 2 1 *
March 2021 .......... 38 8 1 * *
March 2022 .......... 32 6 1 * *
March 2023 .......... 26 5 1 * *
March 2024 .......... 20 3 * * *
March 2025 .......... 13 2 * * *
March 2026 .......... 5 1 * * *
March 2027 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 18.9 13.0 10.2 9.2 8.4
</TABLE>
* Represents a percentage greater than 0% but less than 0.5%.
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-90
<PAGE> 91
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS R-1, CLASS R-2 AND CLASS R-3 BONDS
PAYMENT DATE 0% 125% 250% 375% 500%
- ------------ -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage .. 100 100 100 100 100
March 1999 .......... 0 0 0 0 0
Weighted Average Life
(in years)** ..... 0.1 0.1 0.1 0.1 0.1
</TABLE>
** The weighted average life of a Bond is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance (or
notional amount) of such Bond from one Payment Date to the next Payment
Date by the number of years from the date of issuance to the second
such Payment Date, (b) summing the results and (c) dividing the sum by
the aggregate amount of the reductions in the principal balance (or
notional amount) of such Bond referred to in clause (a).
S-91
<PAGE> 92
YIELD ON CLASS P BONDS
The Class P Bonds will be "principal only" Bonds, will not bear
interest and will be offered at a substantial discount to their initial Class
Current Principal Balance. As indicated in the table below, a low rate of
principal payments (including prepayments) will have a material negative effect
on the yield to investors in the Class P Bonds.
The significance of the effects of prepayments on the Class P Bonds is
illustrated in the following table entitled "Sensitivity of the Class P Bonds
to Prepayments", which shows the pre-tax yield (on a corporate bond equivalent
basis) to the holders of such Bonds under different constant percentages of
SPA. The yields of such Bonds set forth in the following table were calculated
using the assumptions specified above under "--Decrement Tables" and assuming
that the purchase price of the Class P Bonds is approximately 65% of the
initial Class Current Principal Balance and such Bonds are purchased on March
31, 1998.
It is not likely that the Discount Mortgage Loans in Mortgage Loan
Groups 1 and 2 and the Mortgage Loans in Mortgage Loan Group 3 will prepay at a
constant rate until maturity or that all such Mortgage Loans will prepay at the
same rate or that they will have the characteristics assumed. There can be no
assurance that the Discount Mortgage Loans in Mortgage Loan Groups 1 and 2 and
the Mortgage Loans in Mortgage Loan Group 3 will prepay at any of the rates
shown in the table or at any other particular rate. The timing of changes in
the rate of prepayments may affect significantly the yield realized by a holder
of a Class P Bond and there can be no assurance that the pre-tax yield to an
investor in the Class P Bonds will correspond to any of the pre-tax yields
shown herein. Each investor must make its own decision as to the appropriate
prepayment assumptions to be used in deciding whether or not to purchase a
Class P Bond.
SENSITIVITY OF THE CLASS P BONDS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-----------------------------------------------------------
0% 125% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity . . . . . . . 3.53% 6.12% 8.82% 11.42% 13.90%
</TABLE>
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Class P Bonds, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase price of the Class P Bonds indicated above and converting such
monthly rates to corporate bond equivalent rates. Such calculation does not
take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as payments on the
Class P Bonds and consequently does not purport to reflect the return on any
investment in the Class P Bonds when such reinvestment rates are considered.
YIELD ON INTEREST ONLY BONDS
The significance of the effects of prepayments on the Class A-7, Class
A-9, Class X and Class 2-X Bonds is illustrated in the following table entitled
"Sensitivity of the Class A-7, Class A-9, Class X and Class 2-X Bonds to
Prepayments", which shows the pre-tax yield (on a corporate bond equivalent
basis) to holders of such Bonds under different constant percentages of SPA.
The yields of such Bonds set forth in the following table were calculated using
the assumptions specified above under "--Decrement Tables" and assuming that
the purchase price of the Class A-7, Class A-9, Class X and Class 2-X Bonds is
approximately 20.171875%, 11.453125%, 2.058% and 1.421875%, respectively, of
the related initial Class Notional Balance (plus accrued interest) and such
Bonds are purchased on March 31, 1998.
As indicated in the following tables, the yield to investors in the
Class A-7, Class A-9, Class X and Class 2-X Bonds will be highly sensitive to
the rate of principal payments (including prepayments) on (i) in the case of
the Class A-7, Class A-9 and Class X Bonds, the Group 1 Mortgage Loans
(especially, in the case of the Class X Bonds, those with
S-92
<PAGE> 93
high Net Rates) and (ii) in the case of the Class 2-X Bonds, the Group 2
Mortgage Loans (especially those with high Net Rates), which, in each case,
generally can be prepaid at any time without penalty. On the basis of the
assumptions described above, the yield to maturity on the Class A-7, Class A-9,
Class X and Class 2-X Bonds would be 0% if prepayments were to occur at a
constant rate of approximately 796%, 666%, 474% and 484% SPA, respectively.
It is not likely that the Mortgage Loans will prepay at a constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or that they will have the characteristics assumed. There can be no
assurance that the Mortgage Loans will prepay at any of the rates shown in the
table or at any other particular rate. The timing of changes in the rate of
prepayments may affect significantly the yield realized by a holder of a Class
A-7, Class A-9, Class X or Class 2-X Bond and there can be no assurance that
the pre-tax yield to an investor in the Class A- 7, Class A-9, Class X or Class
2-X Bonds will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment
assumptions to be used in deciding whether or not to purchase a Class A-7,
Class A-9, Class X or Class 2-X Bond.
SENSITIVITY OF THE CLASS A-7, CLASS A-9, CLASS X AND CLASS 2-X BONDS
TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-----------------------------------------------------------
0% 125% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Class A-7 Bonds . . . . . . . . . . . . . 31.65% 12.98% 12.98% 12.98% 12.98%
Class A-9 Bonds . . . . . . . . . . . . . 60.93% 51.18% 41.94% 31.21% 15.67%
Class X Bonds . . . . . . . . . . . . . . 24.83% 18.48% 12.00% 5.37% (1.39)%
Class 2-X Bonds . . . . . . . . . . . . . 24.13% 18.13% 11.97% 5.65% (0.84)%
</TABLE>
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Class A-7, Class A-9, Class X and Class
2-X Bonds, respectively, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed purchase price of such Bonds
indicated above, and converting such monthly rates to corporate bond equivalent
rates. Such calculation does not take into account variations that may occur
in the interest rates at which investors may be able to reinvest funds received
by them as payments of interest on the Class A-7, Class A-9, Class X and Class
2-X Bonds and consequently does not purport to reflect the return on any
investment in the Class A-7, Class A-9, Class X and Class 2-X Bonds when such
reinvestment rates are considered.
YIELD ON CLASS A-12 BONDS
The significance of the effects of prepayments and changes in LIBOR on
the Class A-12 Bonds is illustrated in the following tables, which show the
pre-tax yield (on a corporate bond equivalent basis) to the holders of such
Bonds under different constant percentages of SPA and constant levels of LIBOR.
The yields of such Bonds set forth in the following tables were calculated
using the assumptions specified above under "--Decrement Tables" and assuming
that (i) on each LIBOR Determination Date, LIBOR will be at the level shown,
(ii) the purchase price of the Class A-12 Bonds is approximately 90% of their
initial Class Current Principal Balance (plus accrued interest), and (iii) such
Bonds are purchased on March 31, 1998.
The yield to investors in the Class A-12 Bonds will be highly
sensitive to the level of LIBOR and to the rate and timing of principal
payments (including prepayments) of the Group 1 Mortgage Loans, which generally
can be prepaid at any time without penalty.
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.
S-93
<PAGE> 94
SENSITIVITY OF THE CLASS A-12 BONDS
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY
<TABLE>
<CAPTION>
% of SPA
------------------------------------------------------------------------------------------------
LIBOR 0% 125% 250% 375% 500%
- ------------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.6875% 17.40% 17.44% 19.34% 22.89% 24.86%
4.6875% 12.96% 13.03% 14.93% 18.65% 20.66%
5.6875% 8.60% 8.70% 10.55% 14.48% 16.51%
6.6875% 4.34% 4.46% 6.22% 10.36% 12.42%
7.6500% 0.37% 0.49% 2.08% 6.45% 8.53%
</TABLE>
The yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Class A-12 Bonds would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase price of the Class A-12 Bonds indicated above and converting
such monthly rates to corporate bond equivalent rates. Such calculation does
not take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as payments of
principal of and interest on the Class A-12 Bonds and consequently does not
purport to reflect the return on any investment in the Class A-12 Bonds when
such reinvestment rates are considered.
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 1 National Plaza, Suite 0126, Chicago, Illinois 60670 (the
"CORPORATE TRUST OFFICE").
INDENTURE EVENT OF DEFAULT
Under 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 any Class of the
Subordinate Bonds or the Subordinate Optimal Principal Amount for the
Subordinate Bonds of any Bond Group 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 Senior P&I Optimal
Principal Payment Amount for the Senior Bonds of any Bond Group, 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 Indenture. For purposes of determining whether an Event of Default has
occurred, the Stated Maturity Date of each Class of Bonds shall be deemed to be
the Payment Date occurring in April 2028.
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 -- Payments on the Bonds -- Acceleration of the
Bonds" herein.
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REPORTS TO BONDHOLDERS
On each Payment Date, a written report will be provided to each holder
of Bonds setting forth certain information with respect to the composition of
the payment being made, the Class Current Principal Balance or Class Notional
Balance represented by an individual Bond following the payment and certain
other information relating to the Bonds and the Mortgage Loans.
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 Pooling and
Servicing Agreement. Requests should be addressed to the Corporate Trust
Office of the Certificate Trustee at 1 National Plaza, Suite 0126, Chicago,
Illinois 60670.
ASSIGNMENT OF MORTGAGE LOANS
The Issuer will cause the Mortgage Loans, together with all principal
and interest on the Mortgage Loans other than principal and interest due on or
before the Cut-off Date to be assigned to the Certificate Trustee. 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
Master Servicing Fee, whether a Primary Mortgage Insurance Policy has been
obtained for each Mortgage Loan, and the original value of each Mortgaged
Property.
In addition, BSMCC will, as to each Mortgage Loan, deliver or cause to
be delivered to the Certificate Trustee the original 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 (collectively, the "MORTGAGE
FILE"); provided, however, that in lieu of the foregoing, BSMCC may deliver
certain other documents under the circumstances set forth in the Pooling and
Servicing Agreement. In particular, with respect to approximately 11 Mortgage
Loans with an aggregate Scheduled Principal Balance of approximately $3,953,829
as of the Cut-off Date, BSMCC will not deliver original mortgage notes but will
provide lost note affidavits in lieu thereof.
The Certificate Trustee will review each item of the Mortgage File
within 45 days of the Closing Date (and will review each document permitted to
be delivered to the Certificate Trustee after the Closing Date, if received by
the Certificate Trustee after the initial 45-day period, promptly after its
deliver to the Certificate Trustee). If, as a result of its review, the
Certificate Trustee determines that any document is missing, does not appear
regular on its face, or appears to be unrelated to the Mortgage Loans
identified in the Mortgage Loan schedules (a "MATERIAL DEFECT"), the
Certificate Trustee shall notify BSMCC of such Material Defect. BSMCC shall
correct or cure any such Material Defect within 90 days from the date of notice
from the Certificate Trustee of the Material Defect and if BSMCC does not
correct or cure such Material Defect within such period and such defect
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, BSMCC will, within 120 days of the date of notice,
provide the Certificate Trustee with a substitute Mortgage Loan (if within two
years of the Closing Date) or purchase the related Mortgage Loan at the
applicable Repurchase Price. The foregoing repurchase obligation shall not
apply in the event that BSMCC cannot deliver such original or copy of any
document submitted for recording to the appropriate recording office in the
applicable jurisdiction because such document has not been returned by such
office; provided that BSMCC shall instead deliver a recording receipt of such
recording office or, if such receipt is not available, a certificate of a
Servicing Officer confirming that such documents have been accepted for
recording, and delivery to the Certificate Trustee shall be effected by BSMCC
within 30 days after its receipt of the original recorded document.
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The Certificate Trustee also will review the Mortgage Files within 180
days after the Closing Date. If the Certificate Trustee discovers a Material
Defect, the Certificate Trustee shall notify BSMCC of such Material Defect.
BSMCC shall correct or cure any such Material Defect within 90 days from the
date of notice from the Certificate Trustee of the Material Defect and if BSMCC
does not correct or cure such Material Defect within such period and such
defect materially and adversely affects the interests of the Certificateholders
in the related Mortgage Loan, BSMCC will, within 120 days after the date of
notice, provide the Certificate Trustee with a substitute Mortgage Loan (if
within two years of the Closing Date) or purchase the related Mortgage Loan at
the applicable Repurchase Price.
Notwithstanding the foregoing, if a Mortgage Loan is discovered to
have a defect which, had such defect been discovered before the Closing Date,
would have prevented the Mortgage Loan from being eligible to be included in a
REMIC, BSMCC shall within 90 days after the date such defect is discovered
purchase such Mortgage Loan at the applicable Repurchase Price, unless BSMCC
delivers to the Certificate Trustee an opinion of counsel to the effect that
continuing to hold such Mortgage Loan will not adversely affect the status of
each of REMIC I, REMIC II and REMIC III as a REMIC for federal income tax
purposes.
The "REPURCHASE PRICE" means, with respect to any Mortgage Loan
required to be repurchased, an amount equal to 100% of the Outstanding
Principal Balance of such Mortgage Loan plus accrued but unpaid interest on the
Outstanding Principal Balance at the related Mortgage Rate through and
including the last day of the month of repurchase.
As of any time of determination, the "OUTSTANDING PRINCIPAL BALANCE"
of a Mortgage Loan is the principal balance of such Mortgage Loan remaining to
be paid by the related Mortgagor or, in the case of an REO Property, the
principal balance of the related Mortgage Loan remaining to be paid by the
Mortgagor at the time such property was acquired by the applicable Trust, less
any insurance proceeds with respect thereto to the extent such proceeds are
applied to principal.
Buydown Funds provided by Cendant or other parties for any Buydown
Loans included in a Mortgage Pool will be deposited on the Closing Date into 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 Moody's and DCR), created, maintained and monitored by Cendant 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 of the Rating Agencies. Since Buydown Funds
may be funded at either the par values of future payment subsidies, or funded
in an 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
BSMCC may, at its option, substitute an eligible mortgage loan for a
defective Mortgage Loan in lieu of repurchasing such defective Mortgage Loan or
the related Mortgaged Property within two years after such Closing Date. 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 (as defined
herein).
REPRESENTATIONS AND WARRANTIES
In the Purchase Agreement pursuant to which CCC purchased the Mortgage
Loans from BSMCC, BSMCC made certain representations and warranties to CCC
concerning the Mortgage Loans. CCC will assign to the Issuer all of its right,
title and interest in such Purchase Agreement insofar as it relates to such
representations and warranties, as well as the remedies provided for breach of
such representations and warranties and the Issuer will, in turn, assign such
right, title and interest to the Certificate Trustee. The representations and
warranties of BSMCC include, among other things, that as of the Closing Date or
such other date as may be specified below:
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(a) The information set forth in the Mortgage Loan
Schedule is true, complete and correct in all material respects as of
the Cut-off Date;
(b) The related mortgage creates a first lien or a first
priority ownership interest in an estate in fee simple in real
property securing the related mortgage note, free and clear of all
adverse claims, liens and encumbrances having priority over the first
lien of the Mortgage subject only to certain permitted exceptions;
(c) The Mortgage Loan has not been delinquent thirty (30)
days or more on more than one occasion during the 12 months preceding
the Cut-off Date. As of the Closing Date, the Mortgage Loan is not
delinquent in payment more than 30 days and has not been dishonored;
there are no defaults under the terms of the Mortgage Loan; and,
except in the case of a Buydown Loan, BSMCC has not advanced funds, or
induced, solicited or knowingly received any advance of funds from a
party other than the owner of the Mortgaged Property subject to the
related mortgage, directly or indirectly, for the payment of any
amount required by the Mortgage Loan;
(d) There are no delinquent taxes, assessments or other
outstanding charges affecting the related Mortgaged Property;
(e) The related mortgage note and the mortgage are not
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, nor will the operation of any of the
terms of the related mortgage note and the mortgage, or the exercise
of any right thereunder, render the related mortgage note or mortgage
unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(f) The related mortgage has not been satisfied, canceled
or subordinated, in whole or in part, or rescinded, and the Mortgaged
Property has not been released from the lien of such mortgage, in
whole or in part, except with respect to certain releases in part that
do not materially affect the value of the Mortgaged Property, nor has
any instrument been executed that would effect any such satisfaction,
release, cancellation, subordination or rescission;
(g) Immediately prior to the transfer and assignment to
CCC, the related mortgage note and mortgage were not subject to an
assignment or pledge, and BSMCC had good and marketable title to and
was the sole owner of, and had full right to transfer and sell, the
Mortgage Loan to the Issuer free and clear of any encumbrance, equity,
lien, pledge, charge, claim or security interest;
(h) There is no default, breach, violation or event of
acceleration existing under the related mortgage or mortgage note and
no event, which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event permitting acceleration; and neither BSMCC
nor any prior mortgagee has waived any default, breach, violation or
event permitting acceleration;
(i) There are no mechanics' or similar liens or claims
which have been filed for work, labor or material affecting the
related Mortgaged Property which are or may be liens prior to or equal
to the lien of the related mortgage;
(j) All improvements subject to the related mortgage lie
wholly within the boundaries and building restriction lines of the
Mortgaged Property (and wholly within the project with respect to a
condominium unit) except for de minimis encroachments permitted by the
FNMA Guide (MBS Special Servicing Option) and noted on the appraisal,
and no improvements on adjoining properties encroach upon the
Mortgaged Property except those which are insured against by a title
insurance policy and all improvements on the property comply with all
applicable zoning and subdivision laws and ordinances;
(k) The Mortgaged Property at origination of the Mortgage
Loan was and currently is free of material damage and waste or any
such damage and waste is adequately covered by an insurance policy,
and
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at origination of the Mortgage Loan there was, and there currently is,
no proceeding pending for the total or partial condemnation thereof;
and
(l) No Mortgage Loan has a Loan-to-Value Ratio in excess
of 95.00%. The original Loan-to-Value Ratio of each Mortgage Loan
either was not more than 95.00% or the excess over 80.00% is insured
as to payments defaults by a Primary Mortgage Insurance Policy issued
by a primary mortgage insurer acceptable to FNMA and Freddie Mac until
the Loan-to-Value Ratio of such Mortgage Loan is reduced to 80.00%.
Upon any substitution for a Mortgage Loan, the representations and
warranties set forth above shall be deemed to be made as to any substitute
Mortgage Loan as of the date of substitution.
Upon discovery or receipt of notice by BSMCC, the Issuer, a Master
Servicer or the Certificate Trustee of a breach of any representation or
warranty set forth above which materially and adversely affects the value of
the interests of Bondholders or the Certificate Trustee in any of the Mortgage
Loans, the party discovering or receiving notice of such breach shall give
prompt written notice to the others. In the case of any such breach, within 90
days from the date of discovery by BSMCC, or the date BSMCC is notified by the
party discovering or receiving notice of such breach (whichever occurs
earlier), BSMCC will (i) cure such breach in all material respects, (ii)
purchase or cause to be purchased the affected Mortgage Loan at the applicable
Repurchase Price or (iii) if within two years of the Closing Date, substitute a
qualifying substitute Mortgage Loan in exchange for such Mortgage Loan. The
obligations of BSMCC to cure, purchase or substitute a qualifying substitute
Mortgage Loan shall constitute the Issuer's, Certificate Trustee's and the
Certificateholder's sole and exclusive remedy respecting a breach of such
representations or warranties.
COLLECTION AND OTHER SERVICING PROCEDURES
Each Master Servicer shall follow collection procedures comparable to
the collection procedures of prudent mortgage lenders servicing mortgage loans
for their own account, to the extent such procedures shall be consistent with
the Pooling and Servicing Agreement. Consistent with the foregoing, a Master
Servicer may in its discretion (i) waive or permit to be waived any late
payment charge, assumption fee or any penalty interest in connection with the
prepayment of a Mortgage Loan and (ii) suspend or temporarily reduce or permit
to be suspended or temporarily reduced regular monthly payments for a period of
up to six months or arrange or permit an arrangement with a Mortgagor for a
schedule for the liquidation of delinquencies. In the event a Master Servicer
shall consent to the deferment of due dates for payments due on a Mortgage
Note, such Master Servicer shall nonetheless continue to make advances through
liquidation of the Mortgaged Property as described herein to the same extent as
if such installment were due, owing and delinquent and had not been deferred,
but the obligation of a Master Servicer to advance shall apply only to the
extent that such Master Servicer believes, in good faith, that such advances
are recoverable from future payments on any Mortgage Loan.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor and a Master Servicer or its designee has knowledge thereof, such
Master Servicer will accelerate the maturity of the Mortgage Loan, to the
extent permitted by the terms of the related Mortgage Note and applicable law.
If it reasonably believes that the due-on-sale clause cannot be enforced under
applicable law, the Master Servicer may enter into, or cause to be entered
into, an assumption agreement with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and the Mortgagor, to the extent permitted by applicable law,
remains liable thereon. The applicable Master Servicer will retain any fee
collected for entering into an assumption agreement, as additional servicing
compensation. In regard to circumstances in which a Master Servicer may be
unable to enforce, or cause to be enforced, due-on-sale clauses, see "Certain
Legal Aspects of Mortgage Loans -- Enforceability of Certain Provisions " in
the Prospectus. In connection with any such assumption, the Mortgage Rate
borne by the related Mortgage Note may not be changed. No Mortgage Loan may be
assumed unless coverage under any existing Primary Mortgage Insurance Policy
continues as to that Mortgage Loan after such assumption.
Each Master Servicer will establish and maintain, in addition to the
Protected Account described below under "-- Protected Account", one or more
accounts (each, a "SERVICING ACCOUNT") in a depository institution the deposits
of which are insured by the FDIC to the maximum extent permitted by law. Each
Master Servicer will deposit and retain therein all collections from the
applicable Mortgagors for the payment of taxes, assessments, insurance premiums
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or comparable items as agent of the Mortgagors as provided in the Pooling and
Servicing Agreement. Amounts in any Servicing Account may relate to mortgage
loans in more than one mortgage pool or to mortgage loans not yet included in a
mortgage pool. Each Servicing Account shall be fully insured by the FDIC and
to the extent that the balance in such account exceeds the limits of such
insurance, such excess must be transferred to another fully-insured account in
another institution the accounts of which are insured by the FDIC or must be
invested in certain investments permitted by the Pooling and Servicing
Agreement ("PERMITTED INVESTMENTS"). In addition, the Master Servicer may
establish Servicing Accounts not conforming to the foregoing requirements to
the extent that such Servicing Accounts meet the requirements of each of
Moody's and DCR for the maintenance of the ratings on the Bonds. Withdrawals
of amounts from the Servicing Accounts may be made to effect timely payment of
taxes, assessments, insurance premiums, or comparable items, to reimburse the
applicable Master Servicer for any advances made with respect to such items, to
refund to any Mortgagors any sums as may be determined to be overages, to pay
interest, if required, to Mortgagors on balances in the Servicing Accounts, to
pay earnings not required to be paid to Mortgagors to the applicable Master
Servicer or to clear and terminate the Servicing Accounts at or at any time
after the termination of the Pooling and Servicing Agreement.
For each Mortgage Loan which as of the Cut-off Date was covered by a
Primary Mortgage Insurance Policy, the applicable Master Servicer will maintain
and keep, or cause to be maintained and kept, with respect to each such
Mortgage Loan, in full force and effect a Primary Mortgage Insurance Policy
with respect to the portion of each such Mortgage Loan, if any, in excess at
origination of the percentage of value set forth in the Pooling and Servicing
Agreement, at least until such excess has been eliminated. Pursuant to
applicable state law, a Master Servicer may permit the Primary Mortgage
Insurance Policy to be terminated if a reappraisal of the Mortgaged Property
indicates a new appraised value of which the then outstanding principal balance
of the Mortgage Loan does not exceed 80%. Primary Insurance Policies may be
replaced by substantially equivalent insurance but such replacement is subject
to the condition, to be evidenced by a writing from each Rating Agency, that it
would not cause the ratings on the Bonds to be downgraded or withdrawn.
Each Master Servicer will maintain errors and omissions insurance and
fidelity bonds in certain specified amounts as required under the Pooling and
Servicing Agreement.
HAZARD INSURANCE
Each Master Servicer will maintain and keep, with respect to each
Mortgage Loan for which it is acting as Master Servicer, in full force and
effect for each Mortgaged Property a hazard insurance policy equal to at least
the lesser of the Outstanding Principal Balance of the Mortgage Loan or the
current replacement cost of the Mortgaged Property and containing a standard
mortgagee clause; provided, however, that the amount of hazard insurance may
not be less than the amount necessary to prevent loss due to the application of
any co-insurance provision of the related policy. Unless a higher deductible
is required by law, the deductible on such hazard insurance policy may be no
more than $1,000 or 1% of the applicable amount of coverage, whichever is less.
In the case of a condominium unit or a unit in a planned unit development,
required hazard insurance will take the form of a multiple policy covering the
entire condominium project or planned unit development, in an amount equal to
at least 100% of the insurable value based on replacement cost. Any amounts
collected by a Master Servicer under any such hazard insurance policy (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or amounts released to the Mortgagor in accordance with normal
servicing procedures) shall be deposited in a Protected Account. Any cost
incurred in maintaining any such hazard insurance policy shall not be added to
the amount owing under the Mortgage Loan for the purpose of calculating monthly
payments to Bondholders, notwithstanding that the terms of the Mortgage Loan so
permit. Such costs shall be recoverable by a Master Servicer out of related
late payments by the Mortgagor or out of Insurance Proceeds or Liquidation
Proceeds or any other amounts in the Certificate Account. The right of a
Master Servicer to reimbursement for such costs incurred will be prior to the
right of Bondholders to receive any related Insurance Proceeds or Liquidation
Proceeds or any other amounts in the Certificate Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the mortgaged
property by fire, lightning, explosion, smoke, windstorm and hail, riot, strike
and civil commotion, subject to the conditions and exclusions particularized in
each policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical
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damage resulting from the following: war, revolution, governmental actions,
floods and other water-related causes, earth movement (including earthquakes,
landslides and mud flows), nuclear reactions, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases, vandalism and
malicious mischief. The foregoing list is merely indicative of certain kinds
of uninsured risks and is not intended to be all-inclusive. Unless required
under applicable law or regulations, no earthquake or additional insurance will
be maintained in respect of a Mortgaged Property.
Hazard insurance policies covering properties similar to the Mortgaged
Properties typically contain a clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause provides that the insurer's
liability in the event of partial loss does not exceed the greater of (i) the
replacement cost of the improvements less physical depreciation, or (ii) such
proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance to be maintained on the
improvements securing the Mortgage Loans may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to restore fully the damaged property.
Where the Mortgaged Property securing a Mortgage Loan is located at
the time of origination in a federally designated flood area, the applicable
Master Servicer will cause flood insurance, to the extent available and in
accordance with industry practices, to be maintained. Such flood insurance
will be in an amount equal to the lesser of (i) the Outstanding Principal
Balance of the related Mortgage Loan and (ii) the minimum amount required under
the terms of coverage to compensate for any damage or loss on a replacement
cost basis, but not more than the maximum amount of such insurance available
for the related Mortgaged Property under either the regular or emergency
programs of the National Flood Insurance Program (assuming that the area in
which such Mortgaged Property is located is participating in such program).
Unless applicable state law requires a higher deductible, the deductible on
such flood insurance may not exceed $1,000 or 1% of the applicable amount of
coverage, whichever is less.
Each Master Servicer, on behalf of the Certificate Trustee and
Bondholders, will present, or cause to be presented, claims to the insurer
under any applicable Primary Mortgage Insurance Policy or hazard insurance
policy. As set forth above, all collections under such policies that are not
applied to the restoration or repair of the related Mortgaged Property or
released to the Mortgagor in accordance with normal servicing procedures are to
be deposited in a Protected Account.
REALIZATION UPON DEFAULTED MORTGAGE LOANS; PURCHASES OF DEFAULTED MORTGAGE
LOANS
Each Master Servicer will use its reasonable efforts to maximize the
receipt of principal and interest on Defaulted Mortgage Loans and foreclose
upon or otherwise comparably convert the ownership of properties securing such
Defaulted Mortgage Loans as to which no satisfactory collection arrangements
can be made, provided that neither Master Servicer shall be required to
foreclose upon or otherwise comparably convert a Mortgaged Property if there is
evidence of environmental hazards or toxic waste thereon and such Master
Servicer determines that it would be imprudent to do so or not in accordance
with appropriate servicing standards. A Master Servicer will service, or cause
to be serviced, the property acquired by a Trust through foreclosure or deed in
lieu of foreclosure and use its reasonable efforts to maximize the receipt of
principal and interest on each Mortgage Loan as to which the related Mortgagor
has failed to make unexcused payment in full of three or more consecutive
scheduled payments (a "Defaulted Mortgage Loan"); provided, however, that a
Master Servicer will not be required to expend its own funds in connection with
any foreclosure or towards the restoration of any property unless it determines
in good faith (i) that such foreclosure or restoration will increase the
proceeds of liquidation of the Mortgage Loan to the Bondholders after
reimbursement to itself for such expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds or insurance proceeds
(respecting which it shall have priority for purposes of reimbursements from
the Certificate Account).
Since Insurance Proceeds cannot exceed deficiency claims and certain
expenses incurred by or on behalf of a Master Servicer, no insurance payments
will result in a recovery to Bondholders which exceeds the principal balance of
the Defaulted Mortgage Loan together with accrued interest thereon at its Net
Rate.
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The applicable Master Servicer will be entitled to a fee (the "MASTER
SERVICING FEE") which is expected to equal 0.25% per annum of the Outstanding
Principal Balance of each Mortgage Loan serviced by BAFSB and between 0.20% and
1.075% per annum of the Outstanding Principal Balance of each Mortgage Loan
serviced by Cendant, in each case payable from full payments of accrued
interest on each such Mortgage Loan, as compensation for its activities under
the Pooling and Servicing Agreement. However, Interest Shortfalls on Mortgage
Loans serviced by a Master Servicer resulting from prepayments in full or in
part in any calendar month will be offset by the applicable Master Servicer on
the Payment Date in the following calendar month to the extent such Interest
Shortfalls do not exceed the related Master Servicing Fees in connection with
such Payment Date (the amount of a Master Servicing Fee used to offset Interest
Shortfalls is referred to herein as "COMPENSATING INTEREST PAYMENTS"). No
Master Servicer will be required to make Compensating Interest Payments with
respect to Interest Shortfalls relating to Mortgage Loans of the other Master
Servicer. The remaining amount of Interest Shortfalls after applying
Compensating Interest Payments is referred to herein as "NET INTEREST
SHORTFALLS". Any Cendant Master Servicing Fee in excess of 0.20% will be set
aside to pay for lender-funded Primary Mortgage Insurance Policy premiums and
will not be treated as servicing compensation to Cendant and will not be
available to make Compensating Interest Payments.
In addition to the primary compensation described above, each Master
Servicer will retain, with respect to each Mortgage Loan for which it acts as
Master Servicer, all assumption fees, tax service fees, fees for statement of
account payoff and late payment charges, all to the extent collected from
Mortgagors. Each Master Servicer will also be entitled to retain, as
additional servicing compensation with respect to each Mortgage Loan it
services, any Excess Liquidation Proceeds (i.e., the amount, if any, by which
Liquidation Proceeds with respect to a Liquidated Mortgage Loan exceeds the sum
of (i) the Outstanding Principal Balance of such Mortgage Loan and accrued but
unpaid interest at the related Mortgage Rate through the related Liquidation
Date, plus (ii) related liquidation expenses, to the extent that such amount is
not required by law to be paid to the related Mortgagor), but only to the
extent that transfers or withdrawals from the Certificate Account with respect
thereto are permitted under the Pooling and Servicing Agreement.
Each Master Servicer will pay all expenses incurred in connection with
its servicing responsibilities (subject to limited reimbursement as described
herein).
In the event a successor Certificate Trustee is appointed by the
Bondholders pursuant to the Pooling and Servicing Agreement, that portion, if
any, of the successor Certificate Trustee's fees which exceeds the Certificate
Trustee's fees established at the time of issuance of the Bonds will be borne
by the Bondholders.
PROTECTED ACCOUNTS
Each Master Servicer will establish and maintain an account or
accounts (collectively, with respect to each Master Servicer, the "PROTECTED
ACCOUNT") into which it will deposit, or cause to be deposited, within two
Business Days after receipt all collections of principal and interest on any
Mortgage Loan, including Principal Prepayments, Insurance Proceeds, Liquidation
Proceeds, the Repurchase Price for any such Mortgage Loans repurchased, and
advances made from such Master Servicer's own funds (less servicing
compensation as permitted above). All Protected Accounts shall be held in a
depository institution, the accounts of which are insured by the FDIC to the
maximum extent permitted by law, segregated on the books of such institution
and held in trust. The amount at any time credited to a Protected Account
shall be fully insured by the FDIC to the maximum extent permitted by law or,
to the extent that such balance exceeds the limits of such insurance, such
excess must be transferred to an account meeting the requirements of the Rating
Agencies or to the Certificate Account or invested in Permitted Investments.
In addition, the Master Servicer may establish Protected Accounts not
conforming to the foregoing requirements to the extent that such Protected
Accounts meet the requirements of each of the Rating Agencies for the
maintenance of the ratings on the Bonds.
CERTIFICATE ACCOUNT
The Certificate Trustee shall establish and maintain in the name of
the Certificate Trustee, for the benefit of the Certificateholders, an account
(the "CERTIFICATE ACCOUNT") as a non-interest bearing trust account. The
Certificate Account shall have three separate subaccounts, one each for all
funds with respect to each Mortgage Loan Group.
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Not later than the 18th day of each month, or if such day is not a
Business Day, the preceding Business Day (each, a "MASTER SERVICER REMITTANCE
DATE"), each Master Servicer shall withdraw from the Protected Accounts and any
other permitted accounts and shall remit to the Certificate Trustee for deposit
into the Certificate Account amounts representing the following collections and
payments (other than with respect to principal of or interest on the Mortgage
Loans due on or before the Cut-off Date):
(i) Scheduled payments on the related Mortgage Loans
received or advanced by the related Master Servicer which were due on
the related Due Date, net of Master Servicing Fees due the related
Master Servicer and less any amounts to be withdrawn later by the
applicable Master Servicer from the applicable Buydown Accounts;
(ii) Full principal prepayments and any Liquidation
Proceeds received by or on behalf of the Master Servicer with respect
to such Mortgage Loans in the related Prepayment Period, with interest
to the date of prepayment or liquidation, net of the portion of the
Master Servicing Fees due the related Master Servicer that exceeds the
related Compensating Interest Payments;
(iii) Partial prepayments of principal received by or on
behalf of the related Master Servicer with respect to such Mortgage
Loans in the related Prepayment Period; and
(iv) any amount to be used as a Certificate Account
Advance.
The Certificate Trustee will deposit in the appropriate subaccount of
the Certificate Account, as received, the following amounts:
(i) Any amounts withdrawn from a Protected Account or
Certificate Account, a Servicing Account or other permitted account;
(ii) Any Monthly Advance and Compensating Interest
Payments;
(iii) Any Insurance Proceeds or Liquidation Proceeds
received by or on behalf of the Master Servicer which were not
deposited in a Protected Account or other permitted account less any
amounts to be withdrawn later by the applicable Master Servicer from
the applicable Buydown Accounts;
(iv) The Repurchase Price with respect to any Mortgage
Loans or REO Property repurchased and all proceeds of any Mortgage
Loans or property acquired in connection with the optional termination
of the Trust;
(v) Any amounts required to be deposited with respect to
losses on Permitted Investments; and
(vi) Any other amounts received by or on behalf of a
Master Servicer or the Certificate Trustee and required to be
deposited in the Certificate Account pursuant to the Pooling and
Servicing Agreement.
Under the Pooling and Servicing Agreement, each Master Servicer (if
such Master Servicer holds and maintains a Buydown Account) is authorized to
make withdrawals from the Buydown Account or Protected Account, of the
following amounts of Buydown Funds:
(i) to deposit in the Protected Account the amount
necessary to supplement payments received on Buydown Loans;
(ii) in the event of a Principal Prepayment of any
Mortgage Loan having a related Buydown Fund, to apply amounts
remaining in Buydown Accounts to reduce the required amount of such
Principal Prepayment (or, if the Mortgagor has made a Principal
Prepayment, to refund such remaining Buydown Fund amounts to the
person entitled thereto);
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(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 Protected Account or Certificate Account
as Liquidation Proceeds; and
(iv) to clear and terminate the portion of any account
representing Buydown Funds.
All amounts deposited to the Certificate Account shall be held by the
Certificate Trustee in the name of the Certificate Trustee in trust for the
benefit of the Certificateholders in accordance with the terms and provisions
of the Pooling and Servicing Agreement, subject to the right of each Master
Servicer to require the Certificate Trustee to make withdrawals therefrom as
provided below. The amount at any time credited to the Certificate Account
shall be in general (i) fully insured by the FDIC to the maximum coverage
provided thereby or (ii) invested, in the name of the Certificate Trustee, in
such Permitted Investments as the Certificate Trustee may select or deposited
in demand deposits with such depository institutions as selected by the
Certificate Trustee, provided that time deposits of such depository
institutions would be a Permitted Investment.
The Certificate Trustee will, from time to time on demand of the
related Master Servicer, make or cause to be made such withdrawals or transfers
from the appropriate subaccount of the Certificate Account as such Master
Servicer has designated for such transfer or withdrawal for the following
purposes:
(i) to reimburse the related Master Servicer for any
Monthly Advance of its own funds, the right of such Master Servicer to
reimbursement pursuant to this subclause (i) being limited to amounts
received on a particular Mortgage Loan (including, for this purpose,
the Repurchase Proceeds, Insurance Proceeds and Liquidation Proceeds)
which represent late payments or recoveries of the principal of or
interest on such Mortgage Loan respecting which such Monthly Advance
or advance was made;
(ii) to reimburse the related Master Servicer from
Insurance Proceeds or Liquidation Proceeds relating to a particular
Mortgage Loan for amounts expended by such Master Servicer in good
faith in connection with the restoration of the related Mortgaged
Property which was damaged by an uninsured cause or in connection with
the liquidation of such Mortgage Loan;
(iii) to reimburse the related Master Servicer to the
extent permitted by the Pooling and Servicing Agreement from Insurance
Proceeds relating to a particular Mortgage Loan for expenses incurred
with respect to such Mortgage Loan and to reimburse such Master
Servicer from Liquidation Proceeds from a particular Mortgage Loan for
liquidation expenses incurred with respect to such Mortgage Loan;
(iv) to pay the related Master Servicer to the extent
permitted by the Pooling and Servicing Agreement from Liquidation
Proceeds or Insurance Proceeds received in connection with the
liquidation of a Mortgage Loan, the amount which such Master Servicer
would have been entitled to receive under subclause (ix) below as
servicing compensation on account of each defaulted scheduled payment
on such Mortgage Loan if paid in a timely manner by the related
Mortgagor;
(v) to pay the related Master Servicer to the extent
permitted by the Pooling and Servicing Agreement from the Repurchase
Price for any Mortgage Loan, the amount which such Master Servicer
would have been entitled to receive under subclause (ix) below as
servicing compensation;
(vi) to reimburse the related Master Servicer for certain
advances of funds made to protect a Mortgaged Property, the right to
reimbursement pursuant to this subclause being limited to amounts
received on the related Mortgage Loan (including, for this purpose,
Repurchase Proceeds, Insurance Proceeds and Liquidation Proceeds)
which represent late recoveries of the payments for which such
advances were made;
(vii) to pay the related Master Servicer with respect to
each Mortgage Loan that has been repurchased, all amounts received
thereon representing recoveries of principal that reduce the
Outstanding Principal Balance of the related Mortgage Loan below the
Outstanding Principal Balance used in calculating the Repurchase Price
or representing interest included in the calculation of the Repurchase
Price or accrued after the end of the month during which such
repurchase occurs;
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(viii) to reimburse the Master Servicer for any Monthly
Advance or advance, if a Realized Loss is to be allocated with respect
to the related Mortgage Loan on the related Payment Date, if such
Monthly Advance or advance has not been reimbursed pursuant to clauses
(i) and (vi);
(ix) to pay the related Master Servicer servicing
compensation as set forth above;
(x) to reimburse the related Master Servicer for
expenses, costs and liabilities incurred by and reimbursable to it
pursuant to the Pooling and Servicing Agreement, which, if not
specifically allocable to a particular Mortgage Loan Group, shall be
allocated to each subaccount, pro rata, based on the Scheduled
Principal Balances of the Mortgage Loans in each of the Mortgage Loan
Groups;
(xi) to pay to the related Master Servicer, as additional
servicing compensation, any Excess Liquidation Proceeds;
(xii) to reimburse each Master Servicer for any amounts to
which it is entitled to reimbursement under the terms of the Pooling
and Servicing Agreement;
(xiii) to clear and terminate the Certificate Account; and
(xiv) to remove amounts deposited in error.
On each Payment Date, Available Funds for such Payment Date will be
transferred from the Certificate Account to the Collection Account as
distributions on the Certificates, and the amount payable to the Bondholders on
such Payment Date shall be paid by the Indenture Trustee from amounts on
deposit in the Collection Account in accordance with the provisions set forth
under "Description of the Bonds -- Payments on the Bonds" herein.
CERTAIN MATTERS REGARDING THE MASTER SERVICERS
The Pooling and Servicing Agreement will provide that the Master
Servicers may not resign from their respective obligations and duties
thereunder, except upon determination that the performance of such duties is no
longer permissible under applicable law. No such resignation will become
effective until the Certificate Trustee or a successor has assumed the
obligations and duties of such Master Servicer to the extent required under the
Pooling and Servicing Agreement. The Master Servicers, however, have the right
to assign, sell or transfer their respective rights and delegate their
respective duties and obligations under the Pooling and Servicing Agreement;
provided that the rating of the Bonds in effect immediately prior to such
assignment, sale, transfer or delegation is not qualified, downgraded or
withdrawn as a result of such assignment, sale, transfer or delegation and the
purchaser or transferee accepting such assignment, sale, transfer or delegation
(i) is qualified to service mortgage loans for FNMA or Freddie Mac, (ii) is
reasonably satisfactory to the Certificate Trustee, (iii) has a net worth of
not less than $10,000,000 and (iv) executes and delivers to the Certificate
Trustee an agreement, in form and substance reasonably satisfactory to the
Certificate Trustee, which contains an assumption by such purchaser or
transferee of the due and punctual performance and observance of each covenant
and condition to be performed or observed by the applicable Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement.
The Pooling and Servicing Agreement will further provide that neither
Master Servicer nor any of their directors, officers, employees and agents
shall be under any liability to the Certificate Trustee, a Trust or the
Certificateholders for taking any action or for refraining from taking any
action in good faith pursuant to the Pooling and Servicing Agreement, or for
errors in judgment; provided, however, that neither Master Servicer nor any
such person will be protected against any breach of warranties or
representations made in the Pooling and Servicing Agreement or any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. The Pooling and Servicing Agreement will
further provide that each Master Servicer and its directors, officers,
employees and agents are entitled to indemnification from each Trust and will
be held harmless thereby against any loss, liability or expense incurred in
connection with any legal proceeding relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or expense
related to its failure to perform its duties in strict compliance with the
Pooling and Servicing Agreement (except as otherwise reimbursable under the
Pooling and Servicing Agreement) or incurred
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by reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, the Pooling and Servicing Agreement will provide that
neither Master Servicer is under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its duties under the Pooling
and Servicing Agreement and which in its opinion may involve it in any expense
or liability. The Master Servicers may, however, in their discretion, with the
consent of the Certificate Trustee, undertake any such action which they may
deem necessary or desirable in respect of the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the applicable Trust, and the Master Servicer will be entitled
to be reimbursed therefor from the related Protected Account or the Certificate
Account. Any such indemnification or reimbursement to the Master Servicers
which is not specifically related to a Mortgage Loan Group shall be charged
against the subaccounts of the Certificate Account pro rata based upon the
respective Scheduled Principal Balances of the Mortgage Loans in each of the
Mortgage Loan Groups.
Any corporation into which a Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which a Master Servicer is a party, or any corporation
succeeding to the business of such Master Servicer will be the successor of
such Master Servicer under the Pooling and Servicing Agreement, provided that
any such successor to the Master Servicer shall be qualified to service
Mortgage Loans on behalf of FNMA or Freddie Mac.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement consist
of (i) failure by a Master Servicer to cause to be deposited in the Certificate
Account amounts required to be deposited by such Master Servicer pursuant to
the Pooling and Servicing Agreement, and such failure continues unremedied for
two Business Days, (ii) failure by a Master Servicer to observe or perform in
any material respect any other material covenants and agreements set forth in
the Pooling and Servicing Agreement to be performed by it, and such failure
continues unremedied for 60 days after the date on which written notice of such
failure has been given to such Master Servicer by the Certificate Trustee or to
such Master Servicer and the Certificate Trustee by the Indenture Trustee as
the sole Certificateholder, (iii) the entry against a Master Servicer of a
decree or order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days, or the commencement of an involuntary case
against a Master Servicer under any applicable insolvency or reorganization
statute which case is not dismissed within 60 days, (iv) consent by a Master
Servicer to the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to such Master Servicer or substantially all
of its property, admission by a Master Servicer in writing of its inability to
pay its debts generally as they become due, filing of a petition to take
advantage of any applicable insolvency or reorganization statute, any
assignment for the benefit of its creditors, or voluntary suspension of payment
of its obligations or (v) assignment or delegation by a Master Servicer of its
duties or rights under the Pooling and Servicing Agreement in contravention of
the provisions permitting such assignment or delegation under the Pooling and
Servicing Agreement.
In each and every such case, so long as such Event of Default with
respect to a Master Servicer shall not have been remedied, the Certificate
Trustee or the Indenture Trustee as the sole Certificateholder may in each case
by notice in writing to the applicable Master Servicer (and to the Certificate
Trustee if given by the Indenture Trustee as sole Certificateholder), with a
copy to the Rating Agencies, terminate all of the rights and obligations (but
not the liabilities) of such Master Servicer under the Pooling and Servicing
Agreement and in and to the Mortgage Loans and the proceeds thereof. Upon the
receipt by a Master Servicer of such written notice, all authority and power of
such Master Servicer under the Pooling and Servicing Agreement, whether with
respect to the Certificates, the Mortgage Loans or under any other related
agreements (but only to the extent that such other agreements relate to the
Mortgage Loans) shall, subject to the provisions of the Pooling and Servicing
Agreement, automatically and without further action pass to and be vested in
the Certificate Trustee.
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Upon the receipt by a Master Servicer of a notice of termination or an
opinion of counsel to the effect that such Master Servicer is legally unable to
act or to delegate its duties to a person which is legally able to act, the
Certificate Trustee shall automatically become the successor in all respects to
such Master Servicer in its capacity under the Pooling and Servicing Agreement
and the transactions set forth or provided for therein and shall thereafter be
subject to all the responsibilities, duties, liabilities and limitations on
liabilities relating thereto placed on such Master Servicer by the terms and
provisions hereof; provided, however, that the Certificate Trustee (i) shall be
under no obligation to repurchase any Mortgage Loan; and (ii) shall have no
obligation whatsoever with respect to any liability incurred by such Master
Servicer at or prior to the time of receipt by such Master Servicer of such
notice or of such opinion of counsel. As compensation therefor, the
Certificate Trustee shall be entitled to all funds relating to the Mortgage
Loans which such Master Servicer would have been entitled to retain if such
Master Servicer had continued to act as such, except for those amounts due the
Master Servicer as reimbursement for advances previously made. Notwithstanding
the above, the Certificate Trustee may, if it shall be unwilling so to act, or
shall, if it is legally unable so to act, appoint, or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution which is a FNMA or Freddie Mac approved servicer having a net worth
of not less than $10,000,000, as the successor to such Master Servicer under
the Pooling and Servicing Agreement in the assumption of all or any part of the
responsibilities, duties or liabilities of Master Servicer under the Pooling
and Servicing Agreement. Pending appointment of a successor to a Master
Servicer under the Pooling and Servicing Agreement, the Certificate Trustee
shall act in such capacity as provided under the Pooling and Servicing
Agreement. In connection with such appointment and assumption, the Certificate
Trustee may make such arrangements for the compensation of such successor out
of payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Certificate Trustee as provided above, and that such successor shall undertake
and assume the obligations of the Certificate Trustee to pay compensation to
any third person acting as an agent or independent contractor in the
performance of master servicing responsibilities under the Pooling and
Servicing Agreement.
MONTHLY ADVANCES
If the scheduled payment on an a Mortgage Loan which was due on a
related Due Date is delinquent other than as a result of application of the
Relief Act, the applicable Master Servicer will deposit in the Protected
Account on the applicable Master Servicer Remittance Date an amount equal to
such deficiency, net of the related Master Servicing Fee, except to the extent
the applicable Master Servicer determines any such advance to be nonrecoverable
from Liquidation Proceeds, Insurance Proceeds or from future payments on the
Mortgage Loan for which such advance was made. Subject to the foregoing, such
advances will be made through liquidation of the related Mortgaged Property.
Any amount used as a Certificate Account Advance shall be replaced by the
applicable Master Servicer by deposit in the appropriate subaccount of the
Certificate Account on or before any future date to the extent that funds in
the appropriate subaccount of the Certificate Account on such date are less
than the amount required to be transferred to the appropriate subaccount of the
Certificate Account. If applicable, on the Business Day preceding the Master
Servicer Remittance Date, the applicable Master Servicer shall present an
officer's certificate to the Certificate Trustee (i) stating that the Master
Servicer elects not to make a Monthly Advance in a stated amount and (ii)
detailing the reason it deems the advance to be nonrecoverable. Failure by a
Master Servicer to deposit in the Certificate Account any advance required to
be deposited by such Master Servicer under the Pooling and Servicing Agreement,
which failure goes unremedied for two Business Days, would constitute an Event
of Default with respect to such Master Servicer as discussed under "--Events of
Default" above.
As of any Determination Date, a "CERTIFICATE ACCOUNT ADVANCE" is the
amount on deposit in a Protected Account or another permitted account which is
not required to be transferred to the Certificate Account for payment during
the calendar month in which such Determination Date occurs but which is used to
make a payment on the Certificates during such calendar month on account of
scheduled payments on the Mortgage Loans due on the Due Date for such month not
being paid on or before the Determination Date except insofar as such unpaid
amounts are the result of application of the Relief Act.
TERMINATION
The obligations of the Master Servicers and the Certificate Trustee
created by the Pooling and Servicing Agreement will terminate upon the later of
(i) the making of the final payment or other liquidation, or any advance with
respect thereto, of the last Mortgage Loan subject thereto or the disposition
of all property acquired upon foreclosure
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or acceptance of a deed in lieu of foreclosure of any such Mortgage Loans and
(ii) the distribution to Certificateholders of all amounts required to be
distributed on the Certificates pursuant to such Pooling and Servicing
Agreement.
On any Payment Date on which the aggregate Outstanding Principal
Balance of the Mortgage Loans in any Mortgage Loan Group is less than 5% of the
aggregate Cut-off Date Scheduled Principal Balance of the Mortgage Loans in
such Mortgage Loan Group, BSMCC or its designee may repurchase from the
applicable Trust all Mortgage Loans in such Mortgage Loan Group remaining
outstanding and any REO Property remaining in such Trust relating to such
Mortgage Loan Group at a purchase price equal to (a) the aggregate Outstanding
Principal Balance of such Mortgage Loans (other than Mortgage Loans related to
REO Property) plus accrued but unpaid interest thereon at the applicable
Mortgage Rate to the next Due Date, plus (b) the appraised value of any REO
Property, less the good faith estimate of the related Master Servicer of
liquidation expenses to be incurred in connection with its disposal thereof
(but not more than the unpaid principal balance of the related Mortgage Loan,
together with accrued but unpaid interest on that balance at the applicable
Mortgage Rate to the next Due Date). Any such repurchase will result in the
retirement of the related Group of Bonds (except that all Residual Bonds will
remain outstanding until all other Bonds are retired). A Trust may also be
terminated and the related Bonds retired on any Payment Date upon the Issuer's
determination, based upon an opinion of counsel, that the real estate mortgage
investment conduit status of the related REMIC has been lost or that a
substantial risk exists that such status will be lost for the then current
taxable year.
THE CERTIFICATE TRUSTEE
The Certificate Trustee may resign at any time, in which event the
Master Servicers will be obligated to appoint a successor Certificate Trustee.
The Master Servicers 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 Certificate Trustee becomes incapable of acting,
bankrupt, insolvent or if a receiver or public officer takes charge of the
Certificate Trustee or its property. Upon becoming aware of such
circumstances, the Master Servicers will be entitled to appoint a successor
Certificate Trustee. The Certificate Trustee may also be removed at any time
by the Indenture Trustee as the sole Certificateholder. 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 R-1, CLASS R-2 AND CLASS R-3 BONDS, WHICH REPRESENT THE
RESIDUAL INTEREST IN REMIC I, REMIC II AND REMIC III, RESPECTIVELY, MAY
EXPERIENCE A HIGHLY NEGATIVE AFTER-TAX RETURN. ACCORDINGLY, PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AND CONSIDER THE
AFTER-TAX EFFECT OF OWNERSHIP OF A RESIDUAL BOND AND THE SUITABILITY OF THE
RESIDUAL BONDS TO THEIR INVESTMENT OBJECTIVES.
Holders of Class R-1, Class R-2 and Class R-3 Bonds will be treated as
owners of the "residual interest" in REMIC I, REMIC II and REMIC III,
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.
Each of REMIC I, REMIC II and REMIC III may generate income, a portion
of which will be treated as "excess inclusion" income. Excess inclusion income
(a) is taxable to a tax-exempt Class R-1, Class R-2 or Class R-3 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
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Bondholders. Furthermore, Residual Bondholders who are individuals, estates or
trusts may be subject to limitations on the deductibility of administrative
expenses of REMIC I, REMIC II or REMIC III, 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 the REMIC 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
REMIC I, REMIC II or REMIC III, as applicable. A significant purpose to impede
the assessment or collection of tax will exist if the transferor fails to
establish that it neither knew nor should have known that the transferee would
be unwilling or unable to pay taxes due on its share of the taxable income of
such REMIC. See "Certain Federal Income Tax Consequences -- Special Tax
Considerations Applicable to Residual Bonds" in the Prospectus. It is expected
that the Class R-3 Bonds would be treated as noneconomic residual interests for
purposes of the REMIC Regulations on the Closing Date. Each Class R-3
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 R-3 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 owned 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 R-3 Bonds would be treated as TAPRIs for purposes of the REMIC
Regulations on the Closing Date. A Class R-3 Bondholder should consult with
its tax counsel, before transferring the Class R-3 Bond to a foreign person, to
determine whether the Class R-3 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 the Class R-3 Bond.
The Taxpayer Relief Act of 1997 provides, for taxable years beginning
after December 31, 1997, that if an "electing large partnership" holds a
Residual 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.
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REGULAR BONDHOLDERS
Under section 166 of the Code, both corporate holders of the
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 Subordinate
Bonds become wholly or partially worthless as the result of one or more
Realized Losses. However, a noncorporate holder that does not acquire a
Subordinate Bond in connection with its trade or business will not be entitled
to deduct a loss under Code section 166 until its Subordinate Bond becomes
wholly worthless, and the loss will be characterized as a short-term capital
loss.
Each holder of a 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 a Subordinate Bond could
exceed significantly the amount of economic income actually realized by the
holder in such period. Although the holder of a 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 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 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) 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 (except, in the
case of a partnership, as otherwise provided by Treasury regulations), (c) an
estate, the income of which is includible in gross income for United States
federal income tax purposes regardless of its source, or (d) a trust whose
administration is subject to the primary
S-109
<PAGE> 110
supervision of a United States Court and which has one or more United States
persons who have authority to control all substantial decisions of the trust.
Notwithstanding the fulfillment of the prerequisites described above, the
Indenture Trustee may withhold registration of a proposed transfer if it has
actual knowledge that the proposed transferee is a Non-U.S. Person or a
disqualified organization. A transfer in violation of the restrictions set
forth herein may subject a Residual 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.
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 REGULATIONS").
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 Regulations 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 Regulations
describe 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 Regulations, 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 Regulations provide 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 Regulations, 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 have 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 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.
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<PAGE> 111
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 or
Plan Investor. Although the matter is not entirely clear, the Class B-3, Class
2-B-3 and Class 3-B-3 Bonds and the Interest Only Bonds may have "substantial
equity characteristics." Consequently, no transfer of the Class B-3, Class
2-B-3 or Class 3-B-3 Bonds or the Interest Only 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
either 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 Senior Bond, other than the Interest Only Bonds, or Class B-1,
Class B-2, Class 2-B-1, Class 2-B-2, Class 3-B-1 or Class 3-B-2 Bond that is a
Plan Investor shall be deemed to 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.
LEGAL INVESTMENT
The Senior Bonds and the Class B-1, Class 2-B-1 and Class 3-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, CLASS B-3, CLASS 2-B-2, CLASS 2-B-3, CLASS 3-B-2 AND
CLASS 3-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.
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Any financial institution that is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration, any state insurance
commission, or any other federal or state agencies with similar authority
should review any applicable rules, guidelines and regulations prior to
purchasing any 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.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "UNDERWRITING AGREEMENT") between the Issuer and Bear, Stearns &
Co. Inc. (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 in an amount
set forth on the cover page hereof. 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, as amended.
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, as amended, 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 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.
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<PAGE> 113
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 MATTERS
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.
RATING
It is a condition to the issuance of each Class of Offered Bonds that
it receives the ratings set forth below from Moody's and DCR.
<TABLE>
<CAPTION>
Class Moody's DCR
- ----- ----------------- ---------------
<S> <C> <C>
Class P Aaa AAA
Class A-1 Aaa AAA
Class A-2 Aaa AAA
Class A-3 Aaa AAA
Class A-4 Aaa AAA
Class A-5 Aaa AAA
Class A-6 Aaa AAA
Class A-7 Aaa AAA
Class A-8 Aaa AAA
Class A-9 Aaa AAA
Class A-10 Aaa AAA
Class A-11 Aaa AAA
Class A-12 Aaa AAA
Class A-13 Aaa AAA
Class A-14 Aaa AAA
Class A-15 Aaa AAA
Class A-16 Aaa AAA
Class A-17 Aaa AAA
Class A-18 Aaa AAA
Class A-19 Aaa AAA
Class X Aaa AAA
Class B-1 - AA
Class B-2 - A
Class B-3 - BBB
Class 2-A Aaa AAA
Class 2-X Aaa AAA
Class 2-B-1 - AA
Class 2-B-2 - A
Class 2-B-3 - BBB
Class 3-A Aaa AAA
Class 3-B-1 - AA
Class 3-B-2 - A
Class 3-B-3 - BBB
Class R-1 Aaa AAA
Class R-2 Aaa AAA
Class R-3 Aaa AAA
</TABLE>
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<PAGE> 114
The ratings assigned by Moody's and DCR to collateralized mortgage
obligations address the likelihood of the receipt of all payments on the
underlying collateral by the related bondholders under the agreements pursuant
to which such bonds were issued. Moody's and DCR's ratings take into
consideration the credit quality of the related mortgage pool, structural and
legal aspects associated with such bonds, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under such
bonds. Moody's and DCR's ratings on such Bonds do not, however, constitute a
statement regarding frequency of prepayments on the mortgages.
The ratings of the Rating Agencies do not address the possibility
that, as a result of principal prepayments or recoveries (i) Bondholders might
suffer a lower than anticipated yield and (ii) if there is a rapid rate of
principal payments (including principal prepayments) on the Mortgage Loans in
Mortgage Loan Group 1 or Mortgage Loan Group 2, investors in the Class A-7,
Class A-9 and Class X Bonds, in the case of Mortgage Loan Group 1, or the Class
2-X Bonds, in the case of Mortgage Loan Group 2, could fail to fully recover
their initial investment. The ratings on the Class P Bonds only address the
return of their principal balance. The ratings on the Residual Bonds address
only the return of their principal balance and interest thereon at their
respective Bond Interest Rates.
The ratings assigned to the Offered Bonds should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the Rating Agencies.
The Issuer has not requested a rating of the Offered Bonds by any
rating agency other than the Rating Agencies. However, there can be no
assurance as to whether any other rating agency will rate the Offered Bonds or,
in such event, what rating would be assigned to the Offered Bonds by such other
rating agency. The ratings assigned by such other rating agency to the Offered
Bonds may be lower than the ratings assigned by the Rating Agencies.
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<PAGE> 115
PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Accrued Bond Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
"Adjustment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
"Allocable Share" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"BA Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"BA Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-34
"BAFSB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-13, S-34
"BANTSA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-34
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Benefit Plan Opinion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
"Bond Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Bond Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-8, S-11
"Bood-Entry Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Book-Entry Termination" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
"BSMCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Buydown Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
"Buydown Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
"Buydown Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
"CCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CCC Assignment Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Cendant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-13, S-34
"Cendant Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Cendant Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-34
"Certificate Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
"Certificate Account Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-106
"Certificate Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Class 2-X Notional Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10, S-52
"Class A-15 Incremental Interest Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
"Class A-19 Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Class A-19 Pro Rata Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Class A-7 Notional Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9, S-52
"Class A-9 Notional Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9, S-52
"Class Current Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Class Notional Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Class Prepayment Payment Trigger" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Class X Notional Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10, S-52
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
"Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Compensating Interest Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53, S-101
"Companion Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Component Current Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Component P Cash Shortfall" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Component P Deferred Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Component P Deferred Payment Writedown Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Component P Principal Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
</TABLE>
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"Component P-1" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9
"Component P-1 Cash Shortfall" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Component P-2" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9
"Component P-2 Cash Shortfall" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Component P-3" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-9
"Corporate Trust Office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
"Cross-Over Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
"Current Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
"Current Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Cypress Center" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"DCR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-30
"Debt Service Reduction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Defaulted Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-100
"Deficient Valuation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Discount Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"DOL" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
"Due Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
"Due Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"Events of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-105
"Excess Recoveries" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37, S-38
"Excess Special Hazard Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20, S-62
"Flood Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Freddie Mac" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Group 1 Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Group 1 Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 1 Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-34
"Group 1 Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 1 Senior P&I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Group 1 Senior P&I Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Group 1 Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 2 Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Group 2 Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 2 Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-34
"Group 2 Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 2 Senior P&I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Group 2 Senior P&I Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Group 2 Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 3 Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Group 3 Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 3 Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-34
"Group 3 Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Group 3 Senior P&I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Group 3 Senior P&I Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Group 3 Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Group Available Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-13, S-43
"Indenture Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44, S-51
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"Indenture Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
"Interest Accrual Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"Interest Only Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Interest Shortfall" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-8
"Jumbo Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"LIBOR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"LIBOR Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"LIBOR Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Liquidated Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Loan Sale Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Loan Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Loan-to-Value Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
"Loss Allocation Limitation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Master Servicer Remittance Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-102
"Master Servicing Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
"Material Defect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Monthly Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Monthly Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Moody's" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-30
"Mortgage File" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
"Mortgage Loan Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-13
"Mortgage Loan Group 1" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Loan Group 2" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Loan Group 3" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"mortgage pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-13
"Mortgage Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
"NERDs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"Net Interest Shortfalls" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53, S-101
"Net Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Net Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16, S-33
"New Withholding Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
"No Asset, No Income Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Non-Agency Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Non-Discount Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"Non-PO Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"Non-PO Realized Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Non-SMMEA Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"Non-U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
"Offered Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-11
"Offered Subordinate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Optional Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Original Subordinate Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Other Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-12
"Outstanding Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
</TABLE>
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<TABLE>
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"P Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"PAC Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"PAC I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"PAC II Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Parties in Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
"Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-17
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-99
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29, S-110
"Plan Asset Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
"Plan Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-29
"Planned Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"PO Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"Pooling and Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-33
"Prepayment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"Primary Mortgage Insurance Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
"Principal Prepayment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"pro rata" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
"Prohibited Transaction Provisions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
"Protected Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
"PTCE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
"Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-33
"Rating Agencies" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Realized Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
"Redemption Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Reduced Documentation Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Reference Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Regular Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"REITs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Relocation Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"REMIC I" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"REMIC II" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"REMIC III" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"REO Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Repurchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
"Repurchase Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
"Reserve Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Residual Bondholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
"Residual Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Richmond Center" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
"Scheduled Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
"Senior Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Senior Class" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Senior P&I Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Senior P&I Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55, S-59
"Senior Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
"Senior Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
</TABLE>
S-118
<PAGE> 119
PRINCIPAL DEFINITIONS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Senior Prepayment Percentage Stepdown Limitation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
"Servicing Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-98
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-31, S-111
"SPA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
"Special Allocation Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Special Hazard Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
"Special Hazard Loss Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Special Hazard Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
"Standard Hazard Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Streamlined Documentation Program" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Stripped P Components" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
"Subordinate Bond Writedown Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Subordinate Bonds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
"Subordinate Optimal Principal Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58, S-59
"Subordinate Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
"Subordinate Prepayment Percentage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
"TAPRI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-108
"Title Insurance Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-33
"Trust Estate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"UBTI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28, S-107
"Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-112
"Underwriting Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
</TABLE>
S-119
<PAGE> 120
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The description herein of the Mortgage Loans and the Mortgage Loan
Groups is based upon estimates of the composition of the Mortgage Loans and the
Mortgage Loan Groups as of the Cut-off Date, as adjusted for all scheduled
principal payments due on or before the Cut-off Date. Prior to the issuance of
the Bonds, Mortgage Loans may be removed as a result of (i) Principal
Prepayments thereof in full prior to the dates on which BSMCC acquired the
Mortgage Loans, (ii) requirements of Moody's or DCR or (iii) delinquencies or
otherwise. In any such event, other mortgage loans may be included in the
Trusts. The Issuer believes that the estimated information set forth herein with
respect to the Mortgage Loans and the Mortgage Loan Groups as currently
constituted is generally representative of the characteristics of the Mortgage
Loans and the Mortgage Loan Groups as they will be constituted at the time the
Bonds are issued, although certain characteristics of the Mortgage Loans and the
Mortgage Loan Groups may vary.
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $339,483
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Principal Balance Loans Cut-off Date Loan Group
- -------------------------- ----- ------------ ----------
<S> <C> <C> <C>
Less than $100,000........................................... 8 $ 682,913 0.16%
$100,000 - $149,999.......................................... 8 995,984 0.24
$150,000 - $199,999.......................................... 3 560,512 0.13
$200,000 - $249,999.......................................... 146 34,793,244 8.37
$250,000 - $299,999.......................................... 388 105,804,328 25.44
$300,000 - $349,999.......................................... 242 77,356,952 18.60
$350,000 - $399,999.......................................... 150 55,349,567 13.31
$400,000 - $449,999.......................................... 92 38,652,400 9.29
$450,000 - $499,999.......................................... 69 32,576,691 7.83
$500,000 - $599,999.......................................... 79 42,364,451 10.19
$600,000 - $699,999.......................................... 36 22,805,620 5.48
$700,000 or greater.......................................... 5 3,979,208 0.96
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
A-1
<PAGE> 121
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $339,251
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Unpaid Principal Balance Loans Cut-off Date Loan Group
- ------------------------ ----- ------------ ----------
<S> <C> <C> <C>
Less than $100,000........................................... 8 $ 682,913 0.16%
$100,000 - $149,999.......................................... 8 995,984 0.24
$150,000 - $199,999.......................................... 3 560,512 0.13
$200,000 - $249,999.......................................... 155 37,041,066 8.91
$250,000 - $299,999.......................................... 398 109,250,833 26.27
$300,000 - $349,999.......................................... 238 76,908,628 18.49
$350,000 - $399,999.......................................... 140 52,102,050 12.53
$400,000 - $449,999.......................................... 91 38,449,652 9.24
$450,000 - $499,999.......................................... 72 34,276,813 8.24
$500,000 - $599,999.......................................... 76 41,262,328 9.92
$600,000 - $699,999.......................................... 32 20,411,883 4.91
$700,000 or greater.......................................... 5 3,979,208 0.96
----- ------------- ------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 7.503%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Mortgage Interest Rate Loans Cut-off Date Loan Group
- ---------------------- ----- ------------ ----------
<S> <C> <C> <C>
7.000% or less .............................................. 60 $ 20,025,615 4.81%
7.001% - 7.250%.............................................. 224 80,252,163 19.30
7.251% - 7.500%.............................................. 386 134,445,872 32.32
7.501% - 7.750%.............................................. 430 143,629,402 34.53
7.751% - 8.000%.............................................. 96 29,695,673 7.14
8.001% - 8.250%.............................................. 18 4,782,977 1.15
8.251% - 8.500%.............................................. 9 2,465,627 0.59
8.501% - 8.750%.............................................. 2 309,140 0.07
8.751% - 9.000%.............................................. 1 315,400 0.08
-------- ---------------- --------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
A-2
<PAGE> 122
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 73.62%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Loan-to-Value Ratio Loans Cut-off Date Loan Group
- ---------------------------- ----- ------------ ----------
<S> <C> <C> <C>
50.00% or less ........................................... 67 $ 25,396,952 6.11%
50.01% - 55.00%.............................................. 28 9,652,822 2.32
55.01% - 60.00%.............................................. 56 19,438,290 4.67
60.01% - 65.00%.............................................. 64 21,793,398 5.24
65.01% - 70.00%.............................................. 101 37,935,185 9.12
70.01% - 75.00%.............................................. 208 67,602,943 16.25
75.01% - 80.00%.............................................. 537 185,635,962 44.63
80.01% - 85.00%.............................................. 26 7,579,848 1.82
85.01% - 90.00%.............................................. 107 31,949,930 7.68
90.01% - 95.00%.............................................. 32 8,936,540 2.15
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Property Type Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
Single Family Detached....................................... 1,176 $ 400,050,615 96.18%
Two-Family to Four-Family.................................... 13 4,694,518 1.13
Condo .................................................... 33 10,112,543 2.43
PUD Attached................................................. 4 1,064,193 0.26
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Loan Purpose Loans Cut-off Date Loan Group
- ------------ ----- ------------ ----------
<S> <C> <C> <C>
Purchase..................................................... 431 $ 146,001,382 35.10%
Rate and Term Refinance...................................... 561 187,726,789 45.14
Cash Out Refinance........................................... 234 82,193,698 19.76
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
A-3
<PAGE> 123
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Occupancy Status* Loans Cut-off Date Loan Group
- ---------------- ----- ------------ ----------
<S> <C> <C> <C>
Primary Residence............................................ 1,187 $ 402,859,113 96.86%
Second/Vacation Home......................................... 33 11,320,081 2.72
Investor Owned............................................... 6 1,742,676 0.42
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
* As represented by the Mortgagor.
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 356 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Term Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
240 Months................................................... 20 $ 6,231,477 1.50%
241 - 359 Months............................................. 58 15,020,726 3.61
360 Months................................................... 1,148 394,669,666 94.89
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
CALCULATED REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 355 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Calculated Remaining Term to Maturity Loans Cut-off Date Loan Group
- ------------------------------------- ----- ------------ ----------
<S> <C> <C> <C>
181 - 240 Months............................................. 20 $ 6,231,477 1.50%
241 - 300 Months............................................. 20 4,988,760 1.20
301 - 360 Months............................................. 1,186 404,701,632 97.30
----- ------------- -------
Total............................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
A-4
<PAGE> 124
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1*
<TABLE>
<CAPTION>
Aggregate
Principal
Balance
Number of Outstanding as % of Mortgage
State Mortgage Loans of Cut-off Date Loan Group
- ----- -------------- --------------- ----------
<S> <C> <C> <C>
California.............................................. 713 $ 247,472,495 59.50%
Massachusetts........................................... 57 18,369,082 4.42
New Jersey.............................................. 41 13,128,534 3.16
Illinois................................................ 31 10,088,166 2.43
New York................................................ 30 9,689,562 2.33
Arizona................................................. 24 9,617,318 2.31
Texas................................................... 30 9,410,077 2.26
Maryland................................................ 27 9,341,280 2.25
Washington.............................................. 30 9,157,234 2.20
Virginia................................................ 27 8,933,772 2.15
Pennsylvania............................................ 22 7,484,401 1.80
Oregon.................................................. 23 6,879,013 1.65
Connecticut............................................. 20 6,737,919 1.62
Wisconsin............................................... 12 4,465,912 1.07
Michigan................................................ 14 4,229,090 1.02
Colorado................................................ 14 4,224,840 1.02
Other (no more than 1% in any one of 27 states)......... 111 36,693,175 8.82
----- ------------- -------
Total.......................................... 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
- ----------
* No more than 1.16% (Menlo Park, CA) of the Mortgage Loans in Mortgage
Loan Group 1 by unpaid principal balance will be secured by Mortgaged
Properties located in any one five-digit ZIP code area in California
and no more than 0.50% of the Mortgage Loans in Mortgage Group 1 will
be secured by Mortgage Properties located in any one five-digit ZIP
code area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Documentation Type Loans Cut-off Date Loan Group
- ------------------ ----- ------------ ----------
<S> <C> <C> <C>
Full/Alternative Documentation.................................. 1,211 $ 413,035,031 99.31%
Limited Documentation........................................... 11 2,395,052 0.58
Limited Documentation: No Ratio................................. 4 491,786 0.12
- ------------- --------
Total.................................................. 1,226 $ 415,921,869 100.00%
===== ============= =======
</TABLE>
A-5
<PAGE> 125
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
AVERAGE: $338,573
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Principal Balance Loans Cut-off Date Loan Group
- -------------------------- ----- ------------ ----------
<S> <C> <C> <C> <C>
Less than $100,000.............................................. 2 $ 145,747 0.17%
$100,000 - $149,999............................................. 2 263,342 0.30
$150,000 - $199,999............................................. 2 362,879 0.41
$200,000 - $249,999............................................. 30 7,140,956 8.09
$250,000 - $299,999............................................. 79 21,249,003 24.06
$300,000 - $349,999............................................. 60 18,938,593 21.44
$350,000 - $399,999............................................. 25 9,123,500 10.33
$400,000 - $449,999............................................. 20 8,366,922 9.47
$450,000 - $499,999............................................. 18 8,415,430 9.53
$500,000 - $599,999............................................. 15 7,809,538 8.84
$600,000 - $699,999............................................. 8 5,033,537 5.70
$700,000 or greater............................................. 2 1,468,459 1.66
--- ------------ -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============ =======
</TABLE>
UNPAID PRINCIPAL BALANCE OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
AVERAGE: $335,810
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Unpaid Principal Balance Loans Cut-off Date Loan Group
- ------------------------ ----- ------------ ----------
<S> <C> <C> <C> <C>
Less than $100,000.............................................. 2 $ 145,747 0.17%
$100,000 - $149,999............................................. 2 263,342 0.30
$150,000 - $199,999............................................. 2 362,879 0.41
$200,000 - $249,999............................................. 37 8,880,008 10.05
$250,000 - $299,999............................................. 83 22,778,522 25.79
$300,000 - $349,999............................................. 54 17,343,944 19.64
$350,000 - $399,999............................................. 23 8,640,535 9.78
$400,000 - $449,999............................................. 21 8,938,841 10.12
$450,000 - $499,999............................................. 17 8,067,003 9.13
$500,000 - $599,999............................................. 14 7,591,390 8.60
$600,000 - $699,999............................................. 7 4,532,806 5.13
$700,000 or greater............................................. 1 772,889 0.88
--- ------------ -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============ =======
</TABLE>
A-6
<PAGE> 126
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS
IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 7.113%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Mortgage Interest Rate Loans Cut-off Date Loan Group
- ---------------------- ----- ------------ ----------
<S> <C> <C> <C>
7.000% or less.................................................. 107 $ 36,304,237 41.11%
7.001% - 7.250%................................................. 91 31,627,097 35.81
7.251% - 7.500%................................................. 36 11,953,012 13.53
7.501% - 7.750%................................................. 25 7,310,770 8.28
7.751% - 8.000%................................................. 4 1,122,789 1.27
--- ------------- -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============= =======
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 69.42%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Loan-to-Value Ratio Loans Cut-off Date Loan Group
- ---------------------------- ----- ------------ ----------
<S> <C> <C> <C>
50.00% or less.................................................. 28 $ 9,504,726 10.76%
50.01% - 55.00%................................................. 10 3,807,047 4.31
55.01% - 60.00%................................................. 22 7,231,375 8.19
60.01% - 65.00%................................................. 18 7,096,830 8.04
65.01% - 70.00%................................................. 21 8,060,210 9.13
70.01% - 75.00%................................................. 42 13,963,554 15.81
75.01% - 80.00%................................................. 99 31,727,343 35.92
80.01% - 85.00%................................................. 3 786,077 0.89
85.01% - 90.00%................................................. 16 5,001,535 5.66
90.01% - 95.00%................................................. 4 1,139,208 1.29
--- ------------- -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============= =======
</TABLE>
PROPERTY TYPES MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Property Type Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
Single Family Detached.......................................... 247 $ 82,777,327 93.73%
Two-Family to Four-Family....................................... 2 735,966 0.83
Condo........................................................... 11 3,852,812 4.36
PUD Attached.................................................... 3 951,801 1.08
--- ------------ -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============ =======
</TABLE>
A-7
<PAGE> 127
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Loan Purpose Loans Cut-off Date Loan Group
- ------------ ----- ------------ ----------
<S> <C> <C> <C>
Purchase........................................................ 89 $ 28,938,652 32.77%
Rate and Term Refinance......................................... 126 44,430,893 50.31
Cash Out Refinance.............................................. 48 14,948,361 16.93
--- ------------- ------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============= =======
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Occupancy Status* Loans Cut-off Date Loan Group
- ---------------- ----- ------------ ----------
<S> <C> <C> <C>
Primary Residence............................................... 251 $ 84,801,419 96.02%
Second/Vacation Home............................................ 11 3,467,761 3.93
Investor Owned.................................................. 1 48,726 0.06
--- ------------- -------
Total.................................................. 263 $ 88,317,906 100.00%
=== ============= =======
</TABLE>
* As represented by the Mortgagor.
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 180 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Term Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
180 Months...................................................... 263 $88,317,906 100.00%
--- ----------- -------
Total.................................................. 263 $88,317,906 100.00%
=== =========== =======
</TABLE>
CALCULATED REMAINING TERMS OF MATURITY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 178 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Calculated Remaining Term to Maturity Loans Cut-off Date Loan Group
- ------------------------------------- ----- ------------ ----------
<S> <C> <C> <C>
180 Months or less.............................................. 263 $88,317,906 100.00%
--- ----------- -------
Total.................................................. 263 $88,317,906 100.00%
=== =========== =======
</TABLE>
A-8
<PAGE> 128
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 2*
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
State Loans Cut-off Date Loan Group
- ----- ----- ------------ ----------
<S> <C> <C> <C>
California.................................................. 110 $ 39,959,411 45.24%
New Jersey.................................................. 20 6,212,948 7.03
Wisconsin................................................... 19 5,623,687 6.37
Massachusetts............................................... 11 3,957,873 4.48
Florida..................................................... 9 3,309,262 3.75
Colorado.................................................... 8 2,518,024 2.85
Georgia..................................................... 6 2,238,730 2.53
Virginia.................................................... 7 2,055,730 2.33
Pennsylvania................................................ 8 1,949,483 2.21
Connecticut................................................. 5 1,796,623 2.03
Maryland.................................................... 6 1,725,050 1.95
New York ....................................................... 5 1,710,702 1.94
Washington...................................................... 5 1,649,337 1.87
Illinois........................................................ 5 1,477,350 1.67
Missouri........................................................ 4 1,439,491 1.63
Texas........................................................... 4 1,222,591 1.38
Arizona......................................................... 3 1,169,555 1.32
Louisiana....................................................... 3 1,034,690 1.17
Other (no more than 1% in any one of 19 states)................. 25 7,267,367 8.23
--- ------------ -------
Total..................................................... 263 $ 88,317,906 100.00%
=== ============ =======
</TABLE>
* No more than 1.35% (Lafayette, CA) of the Mortgage Loans in Mortgage Loan
Group 2 by unpaid principal balance will be secured by Mortgaged
Properties located in any one five-digit ZIP code area in California and
no more than 0.95% of the Mortgage Loans in Mortgage Loan Group 2 will be
secured by Mortgaged Properties located in any one five-digit ZIP code
area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Documentation Type Loans Cut-off Date Loan Group
- ------------------ ----- ------------ ----------
<S> <C> <C> <C>
Full / Alternative Documentation............................ 261 $ 87,895,078 99.52%
Limited Documentation....................................... 1 300,606 0.34
Limited Documentation: No Ratio............................ 1 122,222 0.14
--- ------------ -------
Total..................................................... 263 $ 88,317,906 100.00%
=== ============ =======
</TABLE>
A-9
<PAGE> 129
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
AVERAGE: $312,643
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Principal Balance Loans Cut-off Date Loan Group
- -------------------------- ----- ------------ ----------
<S> <C> <C> <C>
$200,000 - $249,999......................................... 65 $ 15,480,798 17.29%
$250,000 - $299,999......................................... 92 24,950,204 27.86
$300,000 - $349,999......................................... 58 18,302,612 20.44
$350,000 - $399,999......................................... 35 12,917,517 14.42
$400,000 - $449,999......................................... 16 6,739,291 7.53
$450,000 - $499,999......................................... 9 4,179,904 4.67
$500,000 - $599,999......................................... 7 3,815,110 4.26
$600,000 - $699,999......................................... 5 3,171,450 3.54
--- ------------ -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============ =======
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
AVERAGE: $312,045
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Unpaid Principal Balance Loans Cut-off Date Loan Group
- ------------------------ ----- ------------ ----------
<S> <C> <C> <C>
$200,000 - $249,999......................................... 74 $ 17,723,845 19.79%
$250,000 - $299,999......................................... 93 25,700,036 28.70
$300,000 - $349,999......................................... 53 17,055,461 19.04
$350,000 - $399,999......................................... 33 12,369,684 13.81
$400,000 - $449,999......................................... 14 5,990,675 6.69
$450,000 - $499,999......................................... 8 3,730,626 4.17
$500,000 - $599,999......................................... 8 4,413,589 4.93
$600,000 - $699,999......................................... 4 2,572,971 2.87
--- ------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============= =======
</TABLE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS
IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 7.110%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Mortgage Interest Rate Loans Cut-off Date Loan Group
- ---------------------- ----- ------------ ----------
<S> <C> <C> <C>
7.000% or less.............................................. 133 $ 42,355,776 47.29%
7.001% - 7.250%............................................. 89 27,205,721 30.38
7.251% - 7.500%............................................. 41 12,674,957 14.15
7.501% - 7.750%............................................. 22 6,721,383 7.51
7.751% - 8.000%............................................. 2 599,049 0.67
--- ------------ -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============ =======
</TABLE>
A-10
<PAGE> 130
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 79.98%
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Loan-to-Value Ratio Loans Cut-off Date Loan Group
- ---------------------------- ----- ------------ ----------
<S> <C> <C> <C>
50.00% or less.............................................. 4 $ 1,269,465 1.42%
50.01% - 55.00%............................................. 6 1,685,433 1.88
55.01% - 60.00%............................................. 2 570,767 0.64
60.01% - 65.00%............................................. 12 3,564,320 3.98
65.01% - 70.00%............................................. 12 3,484,869 3.89
70.01% - 75.00%............................................. 19 5,788,668 6.46
75.01% - 80.00%............................................. 145 47,999,627 53.60
80.01% - 85.00%............................................. 7 1,967,756 2.20
85.01% - 90.00%............................................. 57 16,558,350 18.49
90.01% - 95.00%............................................. 23 6,667,630 7.45
--- ------------ -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============ =======
</TABLE>
PROPERTY TYPES OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Property Type Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
Single Family Detached...................................... 277 $ 86,375,921 96.45%
Condo....................................................... 10 3,180,965 3.55
--- ------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============= =======
</TABLE>
LOAN PURPOSES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Loan Purpose Loans Cut-off Date Loan Group
- ------------ ----- ------------ ----------
<S> <C> <C> <C>
Purchase.................................................... 286 $ 89,259,651 99.67%
Cash Out Refinance.......................................... 1 297,235 0.33
--- ------------ -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============ =======
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Occupancy Status* Loans Cut-off Date Loan Group
- ---------------- ----- ------------ ----------
<S> <C> <C> <C>
Primary Residence........................................... 287 $ 89,556,886 100.00%
--- ------------ -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============ =======
</TABLE>
* As represented by the Mortgagor.
A-11
<PAGE> 131
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 346 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Original Term Loans Cut-off Date Loan Group
- ------------- ----- ------------ ----------
<S> <C> <C> <C>
180 Months.................................................. 22 $ 6,712,608 7.50%
240 Months.................................................. 2 586,348 0.65
360 Months.................................................. 263 82,257,930 91.85
--- ------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============= =======
</TABLE>
CALCULATED REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 3
WEIGHTED AVERAGE: 344 MONTHS
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Calculated Remaining Term to Maturity Loans Cut-off Date Loan Group
- ------------------------------------- ----- ------------ ----------
<S> <C> <C> <C>
180 Months or less.......................................... 22 $ 6,712,608 7.50%
181 - 240 Months............................................ 2 586,348 0.65
301 - 360 Months............................................ 263 82,257,930 91.85
--- ------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============= =======
</TABLE>
A-12
<PAGE> 132
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 3*
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
State Loans Cut-off Date Loan Group
- ----- ----- ------------ ----------
<S> <C> <C> <C>
California.................................................. 72 $ 24,376,919 27.22%
Illinois.................................................... 21 7,048,983 7.87
Texas....................................................... 24 6,689,614 7.47
Washington.................................................. 20 5,681,987 6.34
Georgia..................................................... 16 4,739,406 5.29
New Jersey.................................................. 16 4,433,432 4.95
Connecticut................................................. 12 4,190,629 4.68
Pennsylvania................................................ 12 3,676,719 4.11
Massachusetts............................................... 11 3,472,315 3.88
North Carolina.............................................. 11 3,303,799 3.69
Colorado.................................................... 9 2,462,376 2.75
Arizona ........................................................ 7 2,411,874 2.69
Virginia........................................................ 8 2,380,657 2.66
New York........................................................ 5 2,089,433 2.33
Florida......................................................... 6 2,016,871 2.25
Maryland........................................................ 5 1,681,413 1.88
Tennessee....................................................... 6 1,608,337 1.80
Michigan........................................................ 4 1,138,505 1.27
Other (no more than 1% in any one of 15 states)................. 22 6,153,619 6.87
--- -------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============== =======
</TABLE>
- ------------
* No more than 1.51% (Coto De Caz, CA) of the Mortgage Loans in Mortgage
Loan Group 3 by unpaid principal balance will be secured by Mortgaged
Properties located in any one five-digit ZIP code area in California and
no more than 1.46% of the Mortgage Loans in Mortgage Loan Group 3 will be
secured by Mortgaged Properties located in any one five-digit ZIP code
area outside of California.
DOCUMENTATION TYPES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 3
<TABLE>
<CAPTION>
Aggregate
Number of Principal Balance % of
Mortgage Outstanding as of Mortgage
Documentation Type Loans Cut-off Date Loan Group
- ------------------ ----- ------------ ----------
<S> <C> <C> <C>
Full / Alternative Documentation............................ 286 $ 89,129,573 99.52%
Limited Documentation....................................... 1 427,313 0.48
--- ------------- -------
Total..................................................... 287 $ 89,556,886 100.00%
=== ============= =======
</TABLE>
A-13
<PAGE> 133
ANNEX B
PLANNED BALANCES
The Planned Balance of the Bonds set forth below for each Payment Date
will be used to determine the allocation of principal and interest on the Bonds
as described in "Description of the Bonds -- Payments on the Bonds". The actual
Class Current Principal Balances of the Bonds could be substantially higher or
lower than the Planned Balance for any Payment Date set forth below.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6
PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mar-98 $11,738,000.00 $13,947,904.00 $24,555,000.00 $40,938,000.00 $24,875,000.00 $7,610,000.00
Apr-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
May-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jun-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jul-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Aug-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Sep-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Oct-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Nov-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Dec-98 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jan-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Feb-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Mar-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Apr-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
May-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jun-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jul-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Aug-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Sep-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Oct-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Nov-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Dec-99 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jan-2000 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Feb-2000 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Mar-2000 11,738,000.00 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Apr-2000 10,042,954.82 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
May-2000 8,286,884.93 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jun-2000 6,483,737.67 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jul-2000 4,635,190.44 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Aug-2000 2,746,004.94 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Sep-2000 843,073.27 13,947,904.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Oct-2000 0.00 13,259,617.82 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Nov-2000 0.00 12,025,462.10 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Dec-2000 0.00 10,799,445.17 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jan-2001 0.00 9,581,514.97 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Feb-2001 0.00 8,371,619.75 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
</TABLE>
B-1
<PAGE> 134
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6
PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mar-2001 $ 0.00 $7,169,708.11 $ 24,555,000.00 $ 40,938,000.00 $ 24,875,000.00 $ 7,610,000.00
Apr-2001 0.00 5,975,729.00 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
May-2001 0.00 4,789,631.68 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jun-2001 0.00 3,611,365.77 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Jul-2001 0.00 2,440,881.19 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Aug-2001 0.00 1,278,128.23 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Sep-2001 0.00 123,057.46 24,555,000.00 40,938,000.00 24,875,000.00 7,610,000.00
Oct-2001 0.00 0.00 22,708,337.50 40,938,000.00 24,875,000.00 7,610,000.00
Nov-2001 0.00 0.00 20,653,510.24 40,938,000.00 24,875,000.00 7,610,000.00
Dec-2001 0.00 0.00 18,612,268.05 40,938,000.00 24,875,000.00 7,610,000.00
Jan-2002 0.00 0.00 16,584,524.17 40,938,000.00 24,875,000.00 7,610,000.00
Feb-2002 0.00 0.00 14,570,192.42 40,938,000.00 24,875,000.00 7,610,000.00
Mar-2002 0.00 0.00 12,569,187.18 40,938,000.00 24,875,000.00 7,610,000.00
Apr-2002 0.00 0.00 10,581,423.39 40,938,000.00 24,875,000.00 7,610,000.00
May-2002 0.00 0.00 8,606,816.57 40,938,000.00 24,875,000.00 7,610,000.00
Jun-2002 0.00 0.00 6,645,282.76 40,938,000.00 24,875,000.00 7,610,000.00
Jul-2002 0.00 0.00 4,696,738.58 40,938,000.00 24,875,000.00 7,610,000.00
Aug-2002 0.00 0.00 2,761,101.18 40,938,000.00 24,875,000.00 7,610,000.00
Sep-2002 0.00 0.00 838,288.27 40,938,000.00 24,875,000.00 7,610,000.00
Oct-2002 0.00 0.00 0.00 39,901,838.58 24,875,000.00 7,610,000.00
Nov-2002 0.00 0.00 0.00 38,067,489.99 24,875,000.00 7,610,000.00
Dec-2002 0.00 0.00 0.00 36,245,304.09 24,875,000.00 7,610,000.00
Jan-2003 0.00 0.00 0.00 34,435,203.42 24,875,000.00 7,610,000.00
Feb-2003 0.00 0.00 0.00 32,637,110.98 24,875,000.00 7,610,000.00
Mar-2003 0.00 0.00 0.00 30,850,950.30 24,875,000.00 7,610,000.00
Apr-2003 0.00 0.00 0.00 29,180,973.18 24,875,000.00 7,610,000.00
May-2003 0.00 0.00 0.00 27,522,568.57 24,875,000.00 7,610,000.00
Jun-2003 0.00 0.00 0.00 25,875,661.74 24,875,000.00 7,610,000.00
Jul-2003 0.00 0.00 0.00 24,240,178.47 24,875,000.00 7,610,000.00
Aug-2003 0.00 0.00 0.00 22,616,045.00 24,875,000.00 7,610,000.00
Sep-2003 0.00 0.00 0.00 21,003,188.05 24,875,000.00 7,610,000.00
Oct-2003 0.00 0.00 0.00 19,125,058.69 24,875,000.00 7,610,000.00
Nov-2003 0.00 0.00 0.00 17,144,856.00 24,875,000.00 7,610,000.00
Dec-2003 0.00 0.00 0.00 15,230,152.29 24,875,000.00 7,610,000.00
Jan-2004 0.00 0.00 0.00 13,384,331.97 24,875,000.00 7,610,000.00
Feb-2004 0.00 0.00 0.00 11,605,230.30 24,875,000.00 7,610,000.00
Mar-2004 0.00 0.00 0.00 9,890,748.02 24,875,000.00 7,610,000.00
Apr-2004 0.00 0.00 0.00 8,398,441.30 24,875,000.00 7,610,000.00
May-2004 0.00 0.00 0.00 6,963,286.97 24,875,000.00 7,610,000.00
Jun-2004 0.00 0.00 0.00 5,583,425.12 24,875,000.00 7,610,000.00
Jul-2004 0.00 0.00 0.00 4,257,053.07 24,875,000.00 7,610,000.00
Aug-2004 0.00 0.00 0.00 2,982,423.63 24,875,000.00 7,610,000.00
Sep-2004 0.00 0.00 0.00 1,757,843.47 24,875,000.00 7,610,000.00
Oct-2004 0.00 0.00 0.00 581,671.48 24,875,000.00 7,610,000.00
</TABLE>
B-2
<PAGE> 135
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6
PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nov-2004 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $24,875,000.00 $ 7,062,317.21
Dec-2004 0.00 0.00 0.00 0.00 24,875,000.00 5,978,239.30
Jan-2005 0.00 0.00 0.00 0.00 24,875,000.00 4,937,944.05
Feb-2005 0.00 0.00 0.00 0.00 24,875,000.00 3,939,983.97
Mar-2005 0.00 0.00 0.00 0.00 24,875,000.00 2,982,956.38
Apr-2005 0.00 0.00 0.00 0.00 24,875,000.00 2,340,809.73
May-2005 0.00 0.00 0.00 0.00 24,875,000.00 1,728,426.97
Jun-2005 0.00 0.00 0.00 0.00 24,875,000.00 1,144,725.98
Jul-2005 0.00 0.00 0.00 0.00 24,875,000.00 588,660.33
Aug-2005 0.00 0.00 0.00 0.00 24,875,000.00 59,218.16
Sep-2005 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Oct-2005 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Nov-2005 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Dec-2005 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jan-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Feb-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Mar-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Apr-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
May-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jun-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jul-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Aug-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Sep-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Oct-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Nov-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Dec-2006 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jan-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Feb-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Mar-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Apr-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
May-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jun-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jul-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Aug-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Sep-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Oct-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Nov-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Dec-2007 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Jan-2008 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Feb-2008 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Mar-2008 0.00 0.00 0.00 0.00 24,875,000.00 0.00
Apr-2008 0.00 0.00 0.00 0.00 24,591,581.71 0.00
May-2008 0.00 0.00 0.00 0.00 23,906,275.20 0.00
Jun-2008 0.00 0.00 0.00 0.00 23,231,864.24 0.00
</TABLE>
B-3
<PAGE> 136
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6
PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jul-2008 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $22,568,180.40 $ 0.00
Aug-2008 0.00 0.00 0.00 0.00 21,915,057.85 0.00
Sep-2008 0.00 0.00 0.00 0.00 21,272,333.26 0.00
Oct-2008 0.00 0.00 0.00 0.00 20,639,845.79 0.00
Nov-2008 0.00 0.00 0.00 0.00 20,017,437.04 0.00
Dec-2008 0.00 0.00 0.00 0.00 19,404,951.06 0.00
Jan-2009 0.00 0.00 0.00 0.00 18,802,234.23 0.00
Feb-2009 0.00 0.00 0.00 0.00 18,209,135.29 0.00
Mar-2009 0.00 0.00 0.00 0.00 17,625,505.29 0.00
Apr-2009 0.00 0.00 0.00 0.00 17,051,197.53 0.00
May-2009 0.00 0.00 0.00 0.00 16,486,067.57 0.00
Jun-2009 0.00 0.00 0.00 0.00 15,929,973.17 0.00
Jul-2009 0.00 0.00 0.00 0.00 15,382,774.25 0.00
Aug-2009 0.00 0.00 0.00 0.00 14,844,332.85 0.00
Sep-2009 0.00 0.00 0.00 0.00 14,314,513.14 0.00
Oct-2009 0.00 0.00 0.00 0.00 13,793,181.36 0.00
Nov-2009 0.00 0.00 0.00 0.00 13,280,205.75 0.00
Dec-2009 0.00 0.00 0.00 0.00 12,775,456.63 0.00
Jan-2010 0.00 0.00 0.00 0.00 12,278,806.25 0.00
Feb-2010 0.00 0.00 0.00 0.00 11,790,128.80 0.00
Mar-2010 0.00 0.00 0.00 0.00 11,309,300.44 0.00
Apr-2010 0.00 0.00 0.00 0.00 10,836,199.17 0.00
May-2010 0.00 0.00 0.00 0.00 10,370,704.87 0.00
Jun-2010 0.00 0.00 0.00 0.00 9,912,699.27 0.00
Jul-2010 0.00 0.00 0.00 0.00 9,462,065.91 0.00
Aug-2010 0.00 0.00 0.00 0.00 9,018,690.07 0.00
Sep-2010 0.00 0.00 0.00 0.00 8,582,458.80 0.00
Oct-2010 0.00 0.00 0.00 0.00 8,153,260.90 0.00
Nov-2010 0.00 0.00 0.00 0.00 7,730,986.84 0.00
Dec-2010 0.00 0.00 0.00 0.00 7,315,528.79 0.00
Jan-2011 0.00 0.00 0.00 0.00 6,906,780.54 0.00
Feb-2011 0.00 0.00 0.00 0.00 6,504,637.52 0.00
Mar-2011 0.00 0.00 0.00 0.00 6,108,996.75 0.00
Apr-2011 0.00 0.00 0.00 0.00 5,719,756.84 0.00
May-2011 0.00 0.00 0.00 0.00 5,336,817.95 0.00
Jun-2011 0.00 0.00 0.00 0.00 4,960,081.74 0.00
Jul-2011 0.00 0.00 0.00 0.00 4,589,451.41 0.00
Aug-2011 0.00 0.00 0.00 0.00 4,224,831.63 0.00
Sep-2011 0.00 0.00 0.00 0.00 3,866,128.50 0.00
Oct-2011 0.00 0.00 0.00 0.00 3,513,249.61 0.00
Nov-2011 0.00 0.00 0.00 0.00 3,166,103.92 0.00
Dec-2011 0.00 0.00 0.00 0.00 2,824,601.81 0.00
Jan-2012 0.00 0.00 0.00 0.00 2,488,655.03 0.00
Feb-2012 0.00 0.00 0.00 0.00 2,158,176.67 0.00
</TABLE>
B-4
<PAGE> 137
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6
PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mar-2012 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 1,833,081.16 $ 0.00
Apr-2012 0.00 0.00 0.00 0.00 1,513,284.24 0.00
May-2012 0.00 0.00 0.00 0.00 1,198,702.94 0.00
Jun-2012 0.00 0.00 0.00 0.00 889,255.57 0.00
Jul-2012 0.00 0.00 0.00 0.00 584,861.67 0.00
Aug-2012 0.00 0.00 0.00 0.00 285,442.05 0.00
Sep-2012 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-5
<PAGE> 138
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Mar-98 $75,183,096.00 $ 3,054,625.00 $ 7,614,250.00 $ 3,500,000.00 $ 2,024,125.00
Apr-98 74,860,945.84 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-98 74,462,001.62 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-98 73,986,412.54 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-98 73,434,334.01 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-98 72,805,989.92 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-98 72,101,672.84 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-98 71,321,743.89 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-98 70,466,632.70 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-98 69,536,837.14 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-99 68,532,923.01 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-99 67,455,523.60 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-99 66,305,339.17 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-99 65,083,136.30 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-99 63,789,747.16 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-99 62,426,068.70 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-99 60,993,061.65 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-99 59,491,749.53 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-99 57,923,217.51 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-99 56,288,611.17 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-99 54,589,135.15 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-99 52,826,051.78 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2000 51,000,679.54 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2000 49,114,391.44 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2000 47,168,661.25 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2000 46,668,621.89 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2000 46,167,128.12 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2000 45,654,087.14 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2000 45,130,453.30 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2000 44,598,237.96 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2000 44,066,991.89 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2000 43,545,831.70 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2000 43,034,632.58 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2000 42,533,271.04 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2001 42,041,624.94 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2001 41,559,573.47 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2001 41,086,997.13 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2001 40,623,777.70 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2001 40,169,798.26 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2001 39,724,943.15 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2001 39,289,097.96 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2001 38,862,149.53 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
</TABLE>
B-6
<PAGE> 139
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Sep-2001 $38,443,985.94 $ 3,054,625.00 $ 7,614,250.00 $ 3,500,000.00 $ 2,024,125.00
Oct-2001 38,034,496.49 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2001 37,633,571.67 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2001 37,241,103.15 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2002 36,856,983.84 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2002 36,481,107.77 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2002 36,113,370.12 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2002 35,753,667.26 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2002 35,401,896.66 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2002 35,057,956.92 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2002 34,721,747.76 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2002 34,393,169.99 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2002 34,072,125.51 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2002 33,758,517.31 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2002 33,452,249.42 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2002 33,153,226.95 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2003 32,861,356.04 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2003 32,576,543.88 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2003 32,298,698.67 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2003 32,057,836.57 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2003 31,823,582.43 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2003 31,595,847.86 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2003 31,374,545.42 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2003 31,159,588.69 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2003 30,950,892.19 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2003 30,748,371.37 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2003 30,551,942.66 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2003 30,329,345.86 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2004 30,078,338.77 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2004 29,800,132.18 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2004 29,495,897.45 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2004 29,103,272.68 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2004 28,688,744.12 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2004 28,253,339.01 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2004 27,798,050.21 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2004 27,323,837.25 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2004 26,831,627.36 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2004 26,322,316.47 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2004 25,796,770.16 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2004 25,255,824.61 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2005 24,703,796.84 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2005 24,146,363.62 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2005 23,584,064.59 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
</TABLE>
B-7
<PAGE> 140
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Apr-2005 $22,947,830.87 $ 3,054,625.00 $ 7,614,250.00 $ 3,500,000.00 $ 2,024,125.00
May-2005 22,311,375.89 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2005 21,675,073.75 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2005 21,039,281.06 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2005 20,404,337.55 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2005 19,494,024.54 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2005 18,563,720.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2005 17,649,983.26 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2005 16,752,542.46 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2006 15,871,129.96 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2006 15,005,482.38 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2006 14,155,340.49 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2006 13,411,112.21 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2006 12,679,817.44 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2006 11,961,242.41 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2006 11,255,176.81 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2006 10,561,413.68 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2006 9,879,749.35 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2006 9,209,983.47 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2006 8,551,918.87 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2006 7,905,361.54 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2007 7,270,120.59 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2007 6,646,008.20 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2007 6,032,839.55 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2007 5,508,146.61 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2007 4,991,749.65 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2007 4,483,520.84 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2007 3,983,334.26 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2007 3,491,065.91 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2007 3,006,593.67 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2007 2,529,797.31 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2007 2,060,558.38 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2007 1,598,760.27 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2008 1,144,288.10 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2008 697,028.79 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2008 256,870.94 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
</TABLE>
B-8
<PAGE> 141
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nov-2008 $ 0.00 $ 3,054,625.00 $ 7,614,250.00 $ 3,500,000.00 $ 2,024,125.00
Dec-2008 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2009 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2010 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jun-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jul-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Oct-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Nov-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Dec-2011 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Jan-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Feb-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Mar-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Apr-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
May-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
</TABLE>
B-9
<PAGE> 142
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Jun-2012 $ 0.00 $ 3,054,625.00 $ 7,614,250.00 $ 3,500,000.00 $ 2,024,125.00
Jul-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Aug-2012 0.00 3,054,625.00 7,614,250.00 3,500,000.00 2,024,125.00
Sep-2012 0.00 3,046,678.86 7,614,250.00 3,500,000.00 2,022,989.84
Oct-2012 0.00 2,793,187.98 7,614,250.00 3,500,000.00 1,986,776.85
Nov-2012 0.00 2,543,847.98 7,614,250.00 3,500,000.00 1,951,156.85
Dec-2012 0.00 2,298,593.71 7,614,250.00 3,500,000.00 1,916,120.53
Jan-2013 0.00 2,057,361.00 7,614,250.00 3,500,000.00 1,881,658.71
Feb-2013 0.00 1,820,086.70 7,614,250.00 3,500,000.00 1,847,762.39
Mar-2013 0.00 1,586,708.61 7,614,250.00 3,500,000.00 1,814,422.66
Apr-2013 0.00 1,357,165.49 7,614,250.00 3,500,000.00 1,781,630.78
May-2013 0.00 1,131,397.03 7,614,250.00 3,500,000.00 1,749,378.15
Jun-2013 0.00 909,343.87 7,614,250.00 3,500,000.00 1,717,656.27
Jul-2013 0.00 690,947.55 7,614,250.00 3,500,000.00 1,686,456.79
Aug-2013 0.00 476,150.49 7,614,250.00 3,500,000.00 1,655,771.50
Sep-2013 0.00 264,896.02 7,614,250.00 3,500,000.00 1,625,592.29
Oct-2013 0.00 57,128.34 7,614,250.00 3,500,000.00 1,595,911.19
Nov-2013 0.00 0.00 7,513,399.76 3,453,642.73 1,566,720.36
Dec-2013 0.00 0.00 7,375,725.59 3,390,358.81 1,538,012.06
Jan-2014 0.00 0.00 7,240,328.97 3,328,121.80 1,509,778.68
Feb-2014 0.00 0.00 7,107,173.97 3,266,915.18 1,482,012.74
Mar-2014 0.00 0.00 6,976,225.21 3,206,722.69 1,454,706.84
Apr-2014 0.00 0.00 6,847,447.85 3,147,528.32 1,427,853.74
May-2014 0.00 0.00 6,720,807.61 3,089,316.30 1,401,446.27
Jun-2014 0.00 0.00 6,596,270.71 3,032,071.11 1,375,477.40
Jul-2014 0.00 0.00 6,473,803.89 2,975,777.47 1,349,940.19
Aug-2014 0.00 0.00 6,353,374.43 2,920,420.33 1,324,827.82
Sep-2014 0.00 0.00 6,234,950.08 2,865,984.87 1,300,133.56
Oct-2014 0.00 0.00 6,118,499.12 2,812,456.50 1,275,850.80
Nov-2014 0.00 0.00 6,003,990.29 2,759,820.86 1,251,973.02
Dec-2014 0.00 0.00 5,891,392.83 2,708,063.82 1,228,493.81
Jan-2015 0.00 0.00 5,780,676.46 2,657,171.44 1,205,406.84
Feb-2015 0.00 0.00 5,671,811.34 2,607,130.01 1,182,705.91
Mar-2015 0.00 0.00 5,564,768.12 2,557,926.05 1,160,384.88
Apr-2015 0.00 0.00 5,459,517.88 2,509,546.26 1,138,437.73
May-2015 0.00 0.00 5,356,032.17 2,461,977.55 1,116,858.53
Jun-2015 0.00 0.00 5,254,282.95 2,415,207.06 1,095,641.43
Jul-2015 0.00 0.00 5,154,242.65 2,369,222.09 1,074,780.68
Aug-2015 0.00 0.00 5,055,884.09 2,324,010.15 1,054,270.61
Sep-2015 0.00 0.00 4,959,180.53 2,279,558.97 1,034,105.64
Oct-2015 0.00 0.00 4,864,105.64 2,235,856.42 1,014,280.29
Nov-2015 0.00 0.00 4,770,633.50 2,192,890.60 994,789.16
Dec-2015 0.00 0.00 4,678,738.58 2,150,649.77 975,626.91
</TABLE>
B-10
<PAGE> 143
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Jan-2016 $ 0.00 $ 0.00 $ 4,588,395.76 $ 2,109,122.39 $ 956,788.31
Feb-2016 0.00 0.00 4,499,580.31 2,068,297.09 938,268.20
Mar-2016 0.00 0.00 4,412,267.84 2,028,162.65 920,061.50
Apr-2016 0.00 0.00 4,326,434.41 1,988,708.07 902,163.21
May-2016 0.00 0.00 4,242,056.39 1,949,922.50 884,568.41
Jun-2016 0.00 0.00 4,159,110.54 1,911,795.24 867,272.25
Jul-2016 0.00 0.00 4,077,573.99 1,874,315.78 850,269.97
Aug-2016 0.00 0.00 3,997,424.20 1,837,473.78 833,556.85
Sep-2016 0.00 0.00 3,918,638.99 1,801,259.02 817,128.29
Oct-2016 0.00 0.00 3,841,196.54 1,765,661.48 800,979.72
Nov-2016 0.00 0.00 3,765,075.35 1,730,671.27 785,106.66
Dec-2016 0.00 0.00 3,690,254.25 1,696,278.67 769,504.70
Jan-2017 0.00 0.00 3,616,712.41 1,662,474.10 754,169.50
Feb-2017 0.00 0.00 3,544,429.33 1,629,248.14 739,096.78
Mar-2017 0.00 0.00 3,473,384.80 1,596,591.50 724,282.33
Apr-2017 0.00 0.00 3,403,558.96 1,564,495.04 709,722.00
May-2017 0.00 0.00 3,334,932.22 1,532,949.77 695,411.71
Jun-2017 0.00 0.00 3,267,485.33 1,501,946.83 681,347.45
Jul-2017 0.00 0.00 3,201,199.31 1,471,477.50 667,525.26
Aug-2017 0.00 0.00 3,136,055.51 1,441,533.22 653,941.25
Sep-2017 0.00 0.00 3,072,035.54 1,412,105.51 640,591.58
Oct-2017 0.00 0.00 3,009,121.30 1,383,186.07 627,472.48
Nov-2017 0.00 0.00 2,947,294.98 1,354,766.71 614,580.24
Dec-2017 0.00 0.00 2,886,539.05 1,326,839.37 601,911.20
Jan-2018 0.00 0.00 2,826,843.66 1,299,399.52 589,463.31
Feb-2018 0.00 0.00 2,768,214.93 1,272,449.98 577,237.84
Mar-2018 0.00 0.00 2,710,777.15 1,246,047.87 565,260.72
Apr-2018 0.00 0.00 2,654,692.42 1,220,267.72 553,565.73
May-2018 0.00 0.00 2,599,581.05 1,194,934.98 542,073.72
Jun-2018 0.00 0.00 2,545,427.34 1,170,042.45 530,781.40
Jul-2018 0.00 0.00 2,492,215.82 1,145,583.00 519,685.55
Aug-2018 0.00 0.00 2,439,931.26 1,121,549.65 508,782.99
Sep-2018 0.00 0.00 2,388,558.65 1,097,935.49 498,070.59
Oct-2018 0.00 0.00 2,338,083.25 1,074,733.74 487,545.28
Nov-2018 0.00 0.00 2,288,490.53 1,051,937.73 477,204.04
Dec-2018 0.00 0.00 2,239,766.18 1,029,540.88 467,043.87
Jan-2019 0.00 0.00 2,191,896.13 1,007,536.72 457,061.84
Feb-2019 0.00 0.00 2,144,866.53 985,918.88 447,255.06
Mar-2019 0.00 0.00 2,098,663.71 964,681.09 437,620.69
Apr-2019 0.00 0.00 2,053,274.26 943,817.17 428,155.92
May-2019 0.00 0.00 2,008,684.97 923,321.06 418,858.00
Jun-2019 0.00 0.00 1,964,882.81 903,186.77 409,724.23
Jul-2019 0.00 0.00 1,921,854.97 883,408.40 400,751.91
</TABLE>
B-11
<PAGE> 144
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Aug-2019 $ 0.00 $ 0.00 $ 1,879,588.85 $ 863,980.17 $ 391,938.43
Sep-2019 0.00 0.00 1,838,072.05 844,896.37 383,281.20
Oct-2019 0.00 0.00 1,797,292.34 826,151.39 374,777.68
Nov-2019 0.00 0.00 1,757,237.69 807,739.69 366,425.34
Dec-2019 0.00 0.00 1,717,896.27 789,655.84 358,221.73
Jan-2020 0.00 0.00 1,679,256.44 771,894.48 350,164.42
Feb-2020 0.00 0.00 1,641,306.71 754,450.34 342,251.01
Mar-2020 0.00 0.00 1,604,035.80 737,318.23 334,479.15
Apr-2020 0.00 0.00 1,567,432.61 720,493.04 326,846.52
May-2020 0.00 0.00 1,531,486.19 703,969.75 319,350.85
Jun-2020 0.00 0.00 1,496,185.76 687,743.40 311,989.88
Jul-2020 0.00 0.00 1,461,520.75 671,809.12 304,761.41
Aug-2020 0.00 0.00 1,427,480.72 656,162.13 297,663.26
Sep-2020 0.00 0.00 1,394,055.40 640,797.70 290,693.30
Oct-2020 0.00 0.00 1,361,234.70 625,711.19 283,849.41
Nov-2020 0.00 0.00 1,329,008.65 610,898.02 277,129.52
Dec-2020 0.00 0.00 1,297,367.48 596,353.70 270,531.60
Jan-2021 0.00 0.00 1,266,301.54 582,073.79 264,053.62
Feb-2021 0.00 0.00 1,235,801.37 568,053.95 257,693.62
Mar-2021 0.00 0.00 1,205,861.95 554,291.86 251,450.54
Apr-2021 0.00 0.00 1,176,469.66 540,781.27 245,321.56
May-2021 0.00 0.00 1,147,615.46 527,518.02 239,304.78
Jun-2021 0.00 0.00 1,119,290.46 514,498.03 233,398.36
Jul-2021 0.00 0.00 1,091,485.89 501,717.26 227,600.45
Aug-2021 0.00 0.00 1,064,193.13 489,171.74 221,909.27
Sep-2021 0.00 0.00 1,037,413.40 476,862.05 216,325.06
Oct-2021 0.00 0.00 1,011,128.42 464,779.78 210,844.03
Nov-2021 0.00 0.00 985,329.98 452,921.16 205,464.45
Dec-2021 0.00 0.00 960,009.99 441,282.46 200,184.64
Jan-2022 0.00 0.00 935,160.49 429,860.03 195,002.93
Feb-2022 0.00 0.00 910,773.67 418,650.27 189,917.71
Mar-2022 0.00 0.00 886,850.36 407,653.58 184,929.13
Apr-2022 0.00 0.00 863,374.24 396,862.44 180,033.81
May-2022 0.00 0.00 840,342.36 386,275.50 175,231.12
Jun-2022 0.00 0.00 817,742.74 375,887.26 170,518.57
Jul-2022 0.00 0.00 795,568.17 365,694.40 165,894.65
Aug-2022 0.00 0.00 773,826.40 355,700.48 161,360.98
Sep-2022 0.00 0.00 752,517.14 345,905.37 156,917.50
Oct-2022 0.00 0.00 731,611.08 336,295.60 152,558.10
Nov-2022 0.00 0.00 711,101.46 326,868.06 148,281.36
Dec-2022 0.00 0.00 691,000.94 317,628.56 144,089.93
Jan-2023 0.00 0.00 671,318.01 308,581.02 139,985.58
Feb-2023 0.00 0.00 652,027.85 299,714.02 135,963.12
</TABLE>
B-12
<PAGE> 145
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Mar-2023 $ 0.00 $ 0.00 $ 633,150.96 $ 291,036.98 $ 132,026.85
Apr-2023 0.00 0.00 614,645.77 282,530.81 128,168.08
May-2023 0.00 0.00 596,521.25 274,199.61 124,388.69
Jun-2023 0.00 0.00 578,814.67 266,060.52 120,696.46
Jul-2023 0.00 0.00 561,524.63 258,112.91 117,091.08
Aug-2023 0.00 0.00 544,584.97 250,326.35 113,558.76
Sep-2023 0.00 0.00 527,991.35 242,698.85 110,098.60
Oct-2023 0.00 0.00 511,719.36 235,219.20 106,705.51
Nov-2023 0.00 0.00 495,805.01 227,903.93 103,386.99
Dec-2023 0.00 0.00 480,207.41 220,734.27 100,134.53
Jan-2024 0.00 0.00 464,914.25 213,704.55 96,945.54
Feb-2024 0.00 0.00 449,920.35 206,812.39 93,818.96
Mar-2024 0.00 0.00 435,220.63 200,055.45 90,753.73
Apr-2024 0.00 0.00 420,819.97 193,435.98 87,750.85
May-2024 0.00 0.00 406,703.31 186,947.05 84,807.19
Jun-2024 0.00 0.00 392,873.63 180,590.04 81,923.38
Jul-2024 0.00 0.00 379,332.36 174,365.60 79,099.71
Aug-2024 0.00 0.00 366,060.29 168,264.90 76,332.17
Sep-2024 0.00 0.00 353,059.57 162,288.93 73,621.21
Oct-2024 0.00 0.00 340,318.74 156,432.42 70,964.45
Nov-2024 0.00 0.00 327,833.37 150,693.34 68,360.96
Dec-2024 0.00 0.00 315,599.07 145,069.67 65,809.82
Jan-2025 0.00 0.00 303,611.52 139,559.42 63,310.13
Feb-2025 0.00 0.00 291,866.48 134,160.64 60,861.02
Mar-2025 0.00 0.00 280,359.77 128,871.42 58,461.60
Apr-2025 0.00 0.00 269,087.30 123,689.86 56,111.02
May-2025 0.00 0.00 258,045.00 118,614.11 53,808.44
Jun-2025 0.00 0.00 247,228.92 113,642.34 51,553.04
Jul-2025 0.00 0.00 236,649.82 108,779.51 49,347.05
Aug-2025 0.00 0.00 226,288.84 104,016.93 47,186.54
Sep-2025 0.00 0.00 216,142.18 99,352.88 45,070.72
Oct-2025 0.00 0.00 206,206.12 94,785.62 42,998.82
Nov-2025 0.00 0.00 196,477.02 90,313.50 40,970.07
Dec-2025 0.00 0.00 186,951.26 85,934.85 38,983.73
Jan-2026 0.00 0.00 177,631.67 81,650.96 37,040.38
Feb-2026 0.00 0.00 168,508.25 77,457.25 35,137.93
Mar-2026 0.00 0.00 159,577.57 73,352.14 33,275.67
Apr-2026 0.00 0.00 150,836.27 69,334.07 31,452.91
May-2026 0.00 0.00 142,281.01 65,401.52 29,668.93
Jun-2026 0.00 0.00 133,908.55 61,553.00 27,923.08
Jul-2026 0.00 0.00 125,715.67 57,787.02 26,214.67
Aug-2026 0.00 0.00 117,699.21 54,102.14 24,543.05
Sep-2026 0.00 0.00 109,856.06 50,496.92 22,907.57
</TABLE>
B-13
<PAGE> 146
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-13 CLASS A-14 CLASS A-16 CLASS A-16
PLANNED PLANNED PLANNED PLANNED PLANNED
PAYMENT DATE BALANCE BALANCE BALANCE BALANCE BALANCE
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Oct-2026 $ 0.00 $ 0.00 $ 102,183.18 $ 46,969.97 $ 21,307.59
Nov-2026 0.00 0.00 94,677.55 43,519.90 19,742.49
Dec-2026 0.00 0.00 87,336.20 40,145.35 18,211.65
Jan-2027 0.00 0.00 80,156.26 36,844.98 16,714.46
Feb-2027 0.00 0.00 73,134.83 33,617.48 15,250.33
Mar-2027 0.00 0.00 66,278.75 30,465.98 13,820.68
Apr-2027 0.00 0.00 59,588.30 27,390.62 12,425.56
May-2027 0.00 0.00 53,047.53 24,384.06 11,061.66
Jun-2027 0.00 0.00 46,653.78 21,445.08 9,728.41
Jul-2027 0.00 0.00 40,422.75 18,580.90 8,429.09
Aug-2027 0.00 0.00 34,333.09 15,781.70 7,159.26
Sep-2027 0.00 0.00 28,398.31 13,053.69 5,921.71
Oct-2027 0.00 0.00 22,625.59 10,400.18 4,717.97
Nov-2027 0.00 0.00 17,048.40 7,836.54 3,554.99
Dec-2027 0.00 0.00 11,658.68 5,359.08 2,431.11
Jan-2028 0.00 0.00 6,487.36 2,982.01 1,352.77
Feb-2028 0.00 0.00 1,833.22 842.67 382.27
Mar-2028 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-14
<PAGE> 147
======================================================
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>
Reports to Bondholders.......................... S-6
Table of Contents............................... S-7
Summary of Terms................................ S-8
Risk Factors.................................... S-32
Description of the Certificates................. S-33
Description of the Mortgage Loans............... S-34
The Master Servicers............................ S-34
Description of Insurance........................ S-42
Description of the Bonds........................ S-43
Yield and Prepayment Considerations............. S-64
Indenture....................................... S-94
Pooling and Servicing Agreement................. S-95
Special Tax Considerations...................... S-107
Restrictions on Purchase and Transfer of the
Residual Bonds................................ S-109
ERISA Considerations............................ S-110
Legal Investment................................ S-111
Underwriting.................................... S-112
Use of Proceeds................................. S-113
Legal Matters................................... S-113
Ratings......................................... S-113
Principal Definitions........................... S-115
Annex A......................................... A-1
Annex B......................................... B-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Available Information............................ 3
Incorporation of Certain Documents by
Reference...................................... 3
Summary of Prospectus............................ 5
Risk Factors..................................... 15
Use of Proceeds.................................. 20
Description of the Bonds......................... 20
Security for the Bonds........................... 26
Certain Legal Aspects of the Mortgage Loans...... 33
The Issuer....................................... 39
Certain Federal Income Tax Consequences.......... 40
Legal Investment................................. 57
ERISA Matters.................................... 58
The Indenture.................................... 59
Plan of Distribution............................. 63
Legal Matters.................................... 63
Experts.......................................... 63
Additional Information........................... 63
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS 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.
======================================================
======================================================
$589,490,892
(APPROXIMATE)
CMC SECURITIES
CORPORATION III
COLLATERALIZED MORTGAGE
OBLIGATIONS,
SERIES 1998-1
CMC SECURITIES CORPORATION III
ISSUER
------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
BEAR STEARNS & CO. INC.
MARCH 27, 1998
======================================================
<PAGE> 148
PROSPECTUS
$1,877,882,912
CMC SECURITIES CORPORATION III
COLLATERALIZED MORTGAGE OBLIGATIONS (ISSUABLE IN SERIES)
-------------------------
This Prospectus relates to $1,877,882,912 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 III. 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 MARCH 27, 1998.
<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 Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 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.
-3-
<PAGE> 151
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 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
III, 2711 N. Haskell Avenue, Suite 1000, Dallas, Texas 75204 (214/874-2500).
-4-
<PAGE> 152
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").
-5-
<PAGE> 153
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
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 of that Series of Bonds and will not be
insured or guaranteed by any affiliate of the
Issuer or by any other person or entity.
Issuer....................... CMC Securities Corporation III (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 2711 N. Haskell
Avenue, Suite 1000, Dallas, Texas 75204. Its
telephone number is (214) 874-2500. 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 Interes
Rate will be recalculated and the period over
which the newly calculated Variable Interest
Rate will be applicable; and
-6-
<PAGE> 154
(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
Stated Maturity of such Class of Compound
Interest Bonds have 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.
-7-
<PAGE> 155
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.
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
-8-
<PAGE> 156
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 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
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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 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 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
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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
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,
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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 otherwise specified 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 to the persons
entitled thereto free from the lien of the
Indenture 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 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
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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 "Special Considerations-- 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."
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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 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 CMC.
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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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.
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
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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 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
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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 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
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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
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
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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
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Administrator to collect all or part of the principal of or interest on the
Mortgage Loans and in addition could subject the Servicer or 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
To the extent specified in the related Prospectus Supplement, the Bonds
of each Class will bear interest 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 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
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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 specified 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 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
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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.
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
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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)
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
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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 "TimeOut 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 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.
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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 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.
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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.
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.
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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 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
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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
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
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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.
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
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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.
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 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
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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 to the persons
entitled thereto free from the lien of the Indenture 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 Series Supplement.
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.
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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
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 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
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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.
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
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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.
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.
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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 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
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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.
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
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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.
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.
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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 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) 874-2500.
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
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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.
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 newly
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
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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) 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.
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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.
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.
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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 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
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"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 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
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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 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
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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.
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.
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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. The Treasury Department has issued final regulations concerning the
amortization of premium but by their terms the regulations do not apply to REMIC
Regular Bonds and bonds like the Regular Bonds.
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 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
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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 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.
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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.
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 Bondholders who are
foreign persons are strongly urged to consult their own tax advisors with
respect to the New Withholding Regulations.
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.
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
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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, 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
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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 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)
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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 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
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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.
The Taxpayer Relief Act of 1997 provides, for taxable years beginning
after December 31, 1997, that if an "electing large partnership" holds a
Residual 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 IRS to
be so treated.
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.
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
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"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.
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.
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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 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
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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 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
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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 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.
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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
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
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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 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
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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 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
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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 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)
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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 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)
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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 & 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 III, (formerly known as
Capstead Securities Corporation VI), appearing in CMC Securities Corporation
III's Annual Report on Form 10-K for the years ended December 31, 1994, 1995 and
1996 have 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 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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GLOSSARY OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
<S> <C>
"Administrator"..................................................................................................31
"Agency Certificates"..........................................................................................1, 5
"Assumed Reinvestment Rate".......................................................................................1
"Basic Principal Payment".....................................................................................7, 22
"Beneficial Owners"..........................................................................................12, 25
"Bond Value Group"...............................................................................................22
"Bond Value"..................................................................................................7, 22
"Bondholders"....................................................................................................13
"Bonds"........................................................................................................1, 5
"Book Entry Bonds"............................................................................................7, 25
"Certificate Trustee"............................................................................................31
"Certificates"....................................................................................................5
"Claim Ceiling"..................................................................................................16
"Clearing Agency Participants"...............................................................................12, 25
"Clearing Agency"............................................................................................12, 25
"Code".......................................................................................................13, 40
"Collateral".....................................................................................................10
"Collection Account".............................................................................................11
"Commission"......................................................................................................3
"Committee Report"...............................................................................................41
"Compound Interest Bonds".........................................................................................5
"Conventional Loans".............................................................................................23
"Due Period"..................................................................................................7, 22
"ERISA"..........................................................................................................58
"Exchange Act"....................................................................................................3
"FDIC"...........................................................................................................57
"FHA Loans"......................................................................................................23
"FHLMC Act"......................................................................................................29
"FHLMC Certificate Group"........................................................................................29
"FHLMC Certificate Pool".........................................................................................29
"FHLMC Certificates"...........................................................................................1, 5
"FHLMC"...........................................................................................................5
"Final REMIC Regulations"........................................................................................40
"Floating Interest Rate Bonds"...................................................................................22
"FmHA Loans".....................................................................................................23
"FNMA"............................................................................................................5
"Garn-St Germain Act"............................................................................................36
"GNMA Certificates"............................................................................................1, 5
"GNMA Servicer"..................................................................................................26
"GNMA"............................................................................................................5
"GPM Certificates"...............................................................................................31
"Guaranty Agreement".............................................................................................27
"Housing Act"....................................................................................................26
"Indenture Trustee"...............................................................................................5
"Indenture".......................................................................................................5
"Interest Accrual Period".........................................................................................6
"Inverse Floating Interest Rate Bonds"...........................................................................22
"IRS"............................................................................................................45
"Issuer".......................................................................................................1, 6
"Maximum Variable Interest Rate".....................................................................10, 10, 22, 22
"Minimum Variable Interest Rate".............................................................................22, 22
"Mortgage Loans".............................................................................................11, 46
"Non-Agency Certificates"......................................................................................1, 5
"Non-Priority Bonds".............................................................................................17
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
"OID Regulations" ...............................................................................................42
"Optional Variable Interest Rate Bond Redemption"............................................................10, 24
"OTS"............................................................................................................57
"Owner"..........................................................................................................31
"Participating Series"...........................................................................................16
"Pass-Through Entity"............................................................................................53
"Payment Date"....................................................................................................6
"Plan"...........................................................................................................58
"Pooling and Administration Agreement"...........................................................................31
"Premium REMIC Regular Bonds"....................................................................................46
"Prepayment Assumption"..........................................................................................42
"Principal Payment Date"..........................................................................................7
"Priority Bonds".................................................................................................17
"PTCE"...........................................................................................................58
"PTC"............................................................................................................27
"Registration Statement"..........................................................................................3
"Regular Bonds"..............................................................................................13, 40
"Regulations"....................................................................................................58
"REIT"...........................................................................................................52
"REMIC Bonds".................................................................................................1, 40
"REMIC Pool".....................................................................................................40
"REMIC Regular Bonds".............................................................................................1
"REMIC"...........................................................................................................1
"Requisite Amount of the Special Hazard and Bankruptcy Account"..............................................16, 16
"Reserve Funds"..................................................................................................12
"Residual Bondholders"...........................................................................................18
"Residual Bonds"..................................................................................................1
"Retail Class Bond"..............................................................................................43
"Scheduled Amortization Amount"...................................................................................8
"Scheduled Amortization Bonds"................................................................................8, 20
"Scheduled Principal"............................................................................................30
"Series Supplement"...............................................................................................5
"Servicers"......................................................................................................31
"Servicing Agreement"............................................................................................31
"SMMEA"......................................................................................................13, 57
"Special Allocation Bonds".......................................................................................17
"Special Redemption Date".....................................................................................9, 24
"Spread"..........................................................................................................8
"Startup Day"....................................................................................................41
"TIA"............................................................................................................61
"Time-Out Period" ...............................................................................................10
"TMP"............................................................................................................41
"Underlying Mortgage Loans"......................................................................................15
"Variable Interest Rate Bonds"...................................................................................22
"Variable Interest Rate Payment Date"............................................................................10
"Variable Interest Rate Period"..............................................................................10, 22
"Variable Interest Rate"......................................................................................6, 22
</TABLE>
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