<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-47913
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 25, 1998)
$534,277,116
(APPROXIMATE)
CMC SECURITIES CORPORATION III
ISSUER
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
MASTER SERVICER
COLLATERALIZED MORTGAGE OBLIGATIONS, SERIES 1998-2
The Collateralized Mortgage Obligations, Series 1998-2 (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 Fitch IBCA, Inc. ("FITCH") the
respective ratings set forth under "Summary of Terms -- Rating".
(cover continued on next page)
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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 SERVICER,
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 SERVICER, 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 PRO-SPECTUS. 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>
$ 804,927 (1) Class P Bonds
$ 9,976,000 5.75% Class A-1 Bonds
$ 17,799,000 5.80% Class A-2 Bonds
$ 26,250,000 6.25% Class A-3 Bonds
$ 22,346,000 5.85% Class A-4 Bonds
(2) 6.75% Class A-5 Bonds
$ 80,137,588(3) (4) Class A-6 Bonds
$ 13,145,485 (5) Class A-7 Bonds
$ 2,965,000 6.75%(6) Class A-8 Bonds
$ 25,000,000 6.20% Class A-9 Bonds
(7) 0.55% Class A-10 Bonds
$ 7,630,927 (5) Class A-11 Bonds
$ 4,750,000 6.75%(8) Class A-12 Bonds
$ 134,571,000 6.75% Class A-13 Bonds
$ 1,801,000 6.50% Class A-14 Bonds
$ 3,612,000 6.75% Class A-15 Bonds
$ 1,801,000 7.00% Class A-16 Bonds
$ 1,565,000 6.50% Class A-17 Bonds
$ 9,148,000 6.75% Class A-18 Bonds
</TABLE>
<TABLE>
<CAPTION>
APPROX. INITIAL BOND INTEREST
PRINCIPAL BALANCE RATE CLASS
- ----------------- ------------- -----
<C> <C> <S>
$ 1,565,000 7.00% Class A-19 Bonds
$ 500,000 (9) Class A-20 Bonds
$ 11,551,603 (10) Class A-21 Bonds
$ 3,850,535 (11) Class A-22 Bonds
$ 44,529,962 6.75% Class A-23 Bonds
(12) (12) Class X Bonds
$ 9,796,600 6.75% Class B-1 Bonds
$ 4,453,000 6.75% Class B-2 Bonds
$ 2,003,800 6.75% Class B-3 Bonds
$ 90,521,400 6.25% Class II-A-1 Bonds
$ 53,589 (13) Class II-P Bonds
(12) (12) Class II-X-1 Bonds
(12) (12) Class II-X-2 Bonds
$ 1,588,000 6.25% Class II-B-1 Bonds
$ 373,700 6.25% Class II-B-2 Bonds
$ 186,800 6.25% Class II-B-3 Bonds
$ 50 6.75% Class R-1 Bonds
$ 100 6.25% Class R-2 Bonds
$ 50 6.75% 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 101% 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 $225,000.
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 II-P, Class II-X-2, 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 September 30, 1998.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 25, 1998
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(1) The Class P Bonds are principal only Bonds and will not bear interest.
The Class Current Principal Balance of the Class P Bonds initially
will be the amount shown above and is composed of two components
("COMPONENT P-1" and "COMPONENT P-2") having initial principal
balances equal to the PO Percentage (as defined herein) of each
Discount Mortgage Loan in Mortgage Loan Group 1 and Sub-Group 2A,
respectively, or $765,900 and 39,027, respectively.
(2) The Class A-5 Bonds are interest only Bonds. The Class Notional
Balance of the Class A-5 Bonds (the "CLASS A-5 NOTIONAL BALANCE") on
any Payment Date will be equal to the sum of (i) the product of (A)
14.8148148148% and (B) the Class Current Principal Balance of the
Class A-1 Bonds, (ii) the product of (A) 14.0740740741% 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 and (iv) the product of (A)
13.3333333333% and (B) the Class Current Principal Balance of the
Class A-4 Bonds. The Class A-5 Notional Balance as of the Cut-off
Date will equal approximately $8,906,881.
(3) The Class Current Principal Balance of the Class A-6 bonds initially
will be the amount shown above and is composed of two components
("COMPONENT A-6-1" and "COMPONENT A-6-2") equal to $50,704,015 and
$29,433,573, respectively.
(4) During the initial Interest Accrual Period, interest will accrue on
the Class A-6 Bonds at the rate of 6.156250% per annum. During each
Interest Accrual Period thereafter, interest will accrue on the Class
A-6 Bonds at a per annum rate of LIBOR plus 0.50%, determined monthly
as described herein, subject to a maximum rate of 8.50% per annum and
a minimum rate of 0.50% per annum.
(5) During the initial Interest Accrual Period, interest will accrue on
the Class A-7 and Class A-11 Bonds at the rate of 9.040179% per annum.
During each Interest Accrual Period thereafter, interest will accrue
on the Class A-7 and Class A-11 Bonds at a per annum rate equal to
30.85714% - (3.857143 x LIBOR), determined monthly as described
herein, subject to a maximum rate of 30.85714% per annum and a minimum
rate of 0.00% per annum.
(6) On each Payment Date on or before the Class A-8 Accretion Termination
Date (as defined herein), an amount equal to the Class A-8 Accrual
Amount (as defined herein) will be added to the Class A-8 Principal
Balance, and such amount will be paid as principal to Component A-6-1
and the Class A-7 Bonds as described herein and will not be paid as
interest to the Class A-8 Bonds. The Class A-8 Bonds are "Compound
Interest Bonds" as described in the Prospectus.
(7) The Class A-10 Bonds are interest only Bonds. The Class Notional
Balance of the Class A-10 Bonds (the "CLASS A-10 NOTIONAL BALANCE") on
any Payment Date will be equal to the Class Current Principal Balance
of the Class A-9 Bonds on such Payment Date.
(8) On each Payment Date on or before the Class A-12 Accretion Termination
Date (as defined herein), an amount equal to the Class A-12 Accrual
Amount (as defined herein) will be added to the Class A-12 Principal
Balance, and such amount will be paid as principal to Component-A-6-2
and the Class A-11 Bonds as described herein and will not be paid as
interest to the Class A-12 Bonds. The Class A-12 Bonds are "Compound
Interest Bonds" as described in the Prospectus.
(9) During the initial twelve Interest Accrual Periods, interest will
accrue on the Class A-20 Bonds at the rate of 7.25% per annum. During
each Interest Accrual Period thereafter, interest will accrue on the
Class A-20 Bonds at a per annum rate of 6.75%.
(10) During the initial Interest Accrual Period, interest will accrue on
the Class A-21 Bonds at the rate of 6.456250% per annum. During each
Interest Accrual Period thereafter, interest will accrue on the Class
A-21 Bonds at a per annum rate of LIBOR plus 0.80%, determined monthly
as described herein, subject to a maximum rate of 9.00% per annum and
a minimum rate of 0.80% per annum.
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(11) During the initial Interest Accrual Period, interest will accrue on
the Class A-22 Bonds at the rate of 7.631250% per annum. During each
Interest Accrual Period thereafter, interest will accrue on the Class
A-22 Bonds at a per annum rate equal to 24.6% - (3 x LIBOR),
determined monthly as described herein, subject to a maximum rate of
24.6% per annum and a minimum rate of 0.00% per annum.
(12) The Class X Bonds, Class II-X-1 Bonds and Class II-X-2 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 aggregate Scheduled Principal Balances of the Non-Discount
Mortgage Loans in Mortgage Loan Group 1, which will equal
approximately $422,314,147 as of the Cut-off Date. The Class Notional
Balance of the Class II-X-1 Bonds (the "CLASS II-X-1 NOTIONAL
BALANCE") on any Payment Date will be equal to the aggregate Scheduled
Principal Balances of the Non-Discount Mortgage Loans in Sub-Group 2A,
which will equal approximately $47,478,370 as of the Cut-off Date.
The Class Notional Balance of the Class II-X-2 Bonds (the "CLASS
II-X-2 NOTIONAL BALANCE") on any Payment Date will be equal to the
aggregate Scheduled Principal Balances of the Non-Discount Mortgage
Loans in Sub-Group 2B, which will equal approximately $41,479,705 as
of the Cut-off Date. The Class X, Class II-X-1 and Class II-X-2 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 Non-Discount Mortgage Loan in Mortgage Loan Group 1 over (b)
6.75% per annum; in the case of the Class II-X-1 Bonds, to the
weighted average of the excess, if any, of (a) the Net Rates on each
Non-Discount Mortgage Loan in Sub-Group 2A over (b) 6.25% per annum;
and in the case of the Class II-X-2 Bonds, to the weighted average of
the excess, if any, of (a) the Net Rates on each Non-Discount Mortgage
Loan in Sub- Group 2B over (b) 6.25% per annum. The Bond Interest
Rates for the Class X, Class II-X-1 and Class II-X-2 Bonds for the
initial Interest Accrual Period are expected to be approximately
0.468744%, 0.659932% and 0.523158% per annum, respectively.
(13) The Class II-P Bonds are principal only bonds and will not bear
interest. The Class Current Principal Balance of the Class II-P Bonds
initially will be the amount shown above and is equal to the PO
Percentage (as defined herein) of each Discount Mortgage Loan in
Sub-Group 2B.
___________________________
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 and having original terms to stated
maturity ranging from 10 to 30 years (the "MORTGAGE LOANS") originated or
acquired by (i) Cendant Mortgage Corporation or its affiliates ("CENDANT"),
(ii) Washington Mutual Bank, F. A. ("WMBFA"), and (iii) National City Mortgage
Company ("NCM") (each, a "LOAN SELLER" and collectively, the "LOAN SELLERS").
The Mortgage Loans will have an aggregate principal balance as of September 1,
1998, (the "CUT-OFF DATE") of $538,716,245, subject to adjustment as described
herein. The Mortgage Loans are separated into two mortgage loan groups
("MORTGAGE LOAN GROUP 1" and "MORTGAGE LOAN GROUP 2" 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 $445,299,624, subject to adjustment as described
herein. Mortgage Loan Group 2 consists of Mortgage Loans having original terms
to maturity of 10 to 15 years and having an aggregate principal balance as of
the Cut-off Date of $93,416,622, subject to adjustment as described herein.
Mortgage Loan Group 2 is further separated into two sub-groups ("SUB-GROUP 2A"
and "SUB-GROUP 2B" and each, a "SUB-GROUP"). Sub-Group 2A consists of Mortgage
Loans having an aggregate principal balance as of the Cut-off Date of
$48,893,016 and Sub-Group 2B consists of Mortgage Loans having an aggregate
principal balance as of the Cut-off date of $44,523,605. The characteristics
of the Mortgage Loans included in both 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) Cendant will have sold certain of the Mortgage Loans (the "CENDANT
MORTGAGE LOANS") to Bear Stearns Mortgage Capital Corporation ("BSMCC")
pursuant to one or more loan sale agreements (each, a "CENDANT LOAN SALE
AGREEMENT"), (ii) WMBFA will have sold certain of the Mortgage Loans (the
"WMBFA MORTGAGE LOANS") to BSMCC pursuant to one or more loan sale agreements
(each, a "WMBFA LOAN SALE AGREEMENT"), and (iii) NCM will have sold certain of
the Mortgage Loans (the "NCM MORTGAGE LOANS") to BSMCC pursuant to one or more
loan sale
S-3
<PAGE> 4
agreements (each, a "NCM LOAN SALE AGREEMENT"). 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 and
Mortgage Loan Group 2 into two 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, Norwest Bank Minnesota, National
Association ("NORWEST"), as master servicer (the "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 Master
Servicer, 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-23 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
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 and II-B-2 to receive
payments of principal and interest will be subordinate to such rights of
Classes B- 1 and II-B-1, respectively, and such rights of Classes B-3 and
II-B-3 will be similarly subordinate to such rights of Classes B-1 and B-2, and
Classes II-B-1 and II-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 October 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
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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 II-P BONDS, CLASS A-5 BONDS, CLASS A-10 BONDS, CLASS X
BONDS, CLASS II-X-1 AND CLASS II-X-2 BONDS, WILL BE SENSITIVE TO THE
RATE AND TIMING OF PRINCIPAL PAYMENTS 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 SUB-GROUP 2A, OR IN THE CASE OF THE CLASS II-P BONDS, ALL
OF THE DISCOUNT MORTGAGE LOANS IN SUB-GROUP 2B. IN ADDITION, AS A
RESULT OF THE METHOD OF CALCULATION OF THE BOND INTEREST RATES WITH
RESPECT TO THE CLASS X, CLASS II-X-1 AND CLASS II-X-2 BONDS, THE YIELD
TO MATURITY OF SUCH CLASSES WILL BE ADVERSELY AFFECTED BY PRINCIPAL
PREPAYMENTS OF THE MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1, SUB-GROUP
2A AND SUB-GROUP 2B, RESPECTIVELY, 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-5 AND CLASS
A-10 BONDS, THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1 COULD RESULT IN THE FAILURE OF
INVESTORS IN SUCH CLASSES OF BONDS TO RECOVER FULLY THEIR INITIAL
INVESTMENTS; IN THE CASE OF THE CLASS X BONDS, THE RISK THAT A RAPID
RATE OF PRINCIPAL PAYMENTS ON THE NON-DISCOUNT MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1 COULD RESULT IN A FAILURE OF INVESTORS IN SUCH
CLASS OF BONDS TO FULLY RECOVER THEIR INVESTMENTS; AND IN THE CASE OF
THE CLASS II-X-1 OR CLASS II-X-2 BONDS, THE RISK THAT A RAPID RATE OF
PRINCIPAL PREPAYMENTS ON THE NON-DISCOUNT MORTGAGE LOANS IN SUB-GROUP
2A OR SUB-GROUP 2B COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH
RESPECTIVE CLASSES OF BONDS TO RECOVER FULLY THEIR INITIAL
INVESTMENTS. THE CLASS A-5, CLASS A-10, CLASS X, CLASS II-X-1 AND
CLASS II-X-2 BONDS MAY BE SUBJECT TO SIGNIFICANT AND RAPID
FLUCTUATIONS IN VALUE.
o THE WEIGHTED AVERAGE LIVES OF ALL CLASSES OF BONDS IN BOND GROUP 1 (AS
DEFINED HEREIN) OTHER THAN THE PAC 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 SUCH PAC BONDS.
o LOW LEVELS OF LIBOR WILL SIGNIFICANTLY REDUCE THE YIELD OF THE CLASS
A-6 AND CLASS A-21 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-7, CLASS A-11 AND CLASS A-22 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 PAYMENTS ON THE CLASS P BONDS ARE DERIVED FROM PRINCIPAL
PAYMENTS ON THE DISCOUNT MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1 AND
SUB-GROUP 2A, THE YIELD TO MATURITY OF THE CLASS P BONDS WILL BE
ADVERSELY AFFECTED IF THE DISCOUNT MORTGAGE LOANS IN MORTGAGE LOAN
GROUP 1 OR SUB-GROUP 2A PREPAY MORE SLOWLY THAN ANTICIPATED. BECAUSE
THE PAYMENTS ON THE CLASS II-P BONDS ARE DERIVED FROM PRINCIPAL
PAYMENTS ON THE DISCOUNT MORTGAGE LOANS IN SUB-GROUP 2B, THE YIELD TO
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<PAGE> 6
MATURITY OF THE CLASS II-P BONDS WILL BE ADVERSELY AFFECTED IF THE
DISCOUNT MORTGAGE LOANS IN SUB-GROUP 2B 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 II-B-1, CLASS II-B-2 AND CLASS II-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 PRINCIPAL
PAYMENTS 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 II-B-2 and Class II-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
and Class II-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 or
Class II-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.
The information set forth herein under "The Master Servicer and the
Sub-Servicers" is based on information that has been provided by the Master
Servicer and each Sub-Servicer, as applicable. 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 Servicer or any
Sub-Servicer.
________________________
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 Servicer, 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 Servicer, the Certificate Trustee or the
Indenture Trustee. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy securities
other than the Offered 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
S-6
<PAGE> 7
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 SEPTEMBER 24, 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 Offered Bonds (other than the Class II-P and Class
II-X-2 Bonds and the Residual Bonds), unless and until definitive bonds are
issued, monthly reports containing information concerning the Trust Estate will
be sent to Cede & Co. ("CEDE"), as nominee of The Depository Trust Company
("DTC") and registered holder of such Bonds, pursuant to the Indenture. Such
reports may be available to beneficial owners of Offered Bonds (other than the
Class II-P and Class II-X-2 Bonds and the Residual Bonds) in accordance with
the regulations and procedures of DTC. See "Indenture--Reports to Bondholders"
herein.
_______________
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-7
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<S> <C>
REPORTS TO BONDHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
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 SERVICER AND THE
SUB-SERVICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Norwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Cendant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Cendant Underwriting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
WMBFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
WMBFA Underwriting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
NCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
NCM's Underwriting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
DESCRIPTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Principal Payments on Retail Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Payments on the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Allocation of Losses; Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
YIELD AND PREPAYMENT
CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Weighted Average Lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Interest Only Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Class A-8 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Class A-23 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Class P and Class II-P Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Prepayment Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Pricing Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Decrement Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Yield on the Class P and Class II-P Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-92
Yield on the Interest Only Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-93
Yield on the Class A-7, Class A-11 and
Class A-22 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-94
Yield on the PAC Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
Yield on the TAC Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-95
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
Indenture Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
Reports to Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-96
POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Assignment of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-97
Substitution of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-98
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-98
Collection and Other Servicing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-100
Hazard Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-101
Realization upon Defaulted Mortgage Loans;
Purchases of Defaulted Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-102
Servicing Compensation, Compensating
Interest and Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-102
Protected Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-103
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-105
Certain Matters Regarding the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-107
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-108
Monthly Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-109
SPECIAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
Residual Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-110
Regular Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-111
Non-U.S. Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
RESTRICTIONS ON PURCHASE AND
TRANSFER OF THE RESIDUAL BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-112
Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-113
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-114
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-115
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-115
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-116
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-116
PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-118
</TABLE>
S-8
<PAGE> 9
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 1998-2 (the "BONDS").
Issuer . . . . . . . . . . . . CMC Securities Corporation III (the
"ISSUER"). See "The Issuer" in
the Prospectus.
Offered Bonds . . . . . . . . . . The Classes of Bonds in the
approximate principal or notional
amounts set forth, and bearing
interest, if applicable, at the
rates set forth or calculated as
described, on the cover page of
this Prospectus Supplement.
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>
Bond Approximate Initial
Class Interest Rate Principal Balance
----- ------------- -------------------
<S> <C> <C>
B-4 6.75% $1,335,900
B-5 6.75% $1,113,300
B-6 6.75% $1,335,924
II-B-4 6.25% $327,000
II-B-5 6.25% $140,100
II-B-6 6.25% $186,905
</TABLE>
Any information contained herein with
respect to the Other Subordinate
Bonds is provided only to permit a
better understanding of the
Offered Bonds.
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 A-20, Class A-21, Class
A-22, Class A-23, Class X, Class
B-1, Class B-2, Class B-3, Class
II-A-1, Class II-P, Class II-X-1,
Class II-X-2, Class II-B-1, Class
II-B-2, Class II-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 A-20, Class A-21, Class
A-22, Class A-23, Class X, Class
R-1, Class R- 3, Class B-1, Class
B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Bonds and
Component P-1.
S-9
<PAGE> 10
Group 2 Bonds . . . . . The Class II-A-1, Class II-P, Class
II-X-1, Class II-X-2, Class
II-B-1, Class II-B-2, Class
II-B-3, Class II-B-4, Class
II-B-5, Class II-B-6 Bonds and
Class R-2 Bonds and Component P-2.
Bond Group . . . . . . . Each of the Group 1 Bonds and the
Group 2 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 A-20, Class A-21, Class
A-22, Class A-23, Class X, Class
R-1 and Class R-3 Bonds and
Component P-1.
Group 2 Senior Bonds . . The Class II-A-1, Class II-P, Class
II-X-1, Class II-X-2 and Class R-2
Bonds and Component P-2.
Senior Bonds . . . . . The Group 1 Senior Bonds and the Group
2 Senior Bonds.
Components . . . . . . . Component A-6-1, Component A-6-2,
Component P-1 and Component P-2.
P Components . . . . . . Component P-1 and Component P-2.
Interest Only Bonds . . The Class A-5, Class A-10, Class X,
Class II-X-1 and Class II-X-2
Bonds.
Principal Only Bonds . . The Class P and Class II-P Bonds.
Accrual Bonds . . . . . The Class A-8 and Class A-12 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 II-B-1, Class II-B-2, Class
II-B-3, Class II-B-4, Class II-B-5
and Class II-B-6 Bonds.
Subordinate Bonds . . . The Group 1 Subordinate Bonds and the
Group 2 Subordinate Bonds.
Offered Subordinate Bonds The Class B-1, Class B-2, Class
B-3, Class II-B-1, Class II-B-2
and Class II-B-3 Bonds.
Other Subordinate Bonds The Class B-4, Class B-5, Class B-6,
Class II-B-4, Class II-B-5 and
Class II-B- 6 Bonds. The Other
Subordinate Bonds are not offered
hereby.
PAC I Bonds . . . . . . The Class A-1, Class A-2, Class A-3
and Class A-4 Bonds.
PAC II Bonds . . . . . . The Class A-9 Bonds.
PAC Bonds . . . . . . . The PAC I Bonds and the PAC II Bonds.
TAC Bonds . . . . . . . Component A-6-2 and the Class A-11
Bonds.
S-10
<PAGE> 11
Companion Bonds . . . . Component A-6-1 and the Class A-7,
Class A-8 and Class A-12 Bonds.
LIBOR Bonds . . . . . . The Class A-6, Class A-7, Class A-11,
Class A-21 and Class A-22 Bonds.
Group 1 Senior P&I Bonds All Group 1 Senior Bonds other than
the Class A-5, Class A-10 and
Class X Bonds and Component P-1.
Group 2 Senior P&I Bonds All Group 2 Senior Bonds other than
the Class II-X-1, Class II-X-2 and
Class II-P Bonds and Component
P-2.
Senior P&I Bonds . . . The Group 1 Senior P&I Bonds and the
Group 2 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.
Retail Bonds . . . . . The Class A-14, Class A-15, Class
A-16, Class A-17, Class A-18,
Class A-19 and Class A-20 Bonds.
Physical Bonds . . . . The Class II-P and Class II-X-2 Bonds,
the Residual Bonds and the Other
Subordinate Bonds.
Book-Entry Bonds . . . . All Offered 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 DTC, and
beneficial interests will be held
by investors through the
book-entry facilities of DTC, as
described herein, in minimum
denominations of (i) in the case
of the Senior Bonds (other than
the Retail Bonds and the Residual
Bonds), $1,000 and increments of
$1.00 in excess thereof, (ii) in
the case of the Retail Bonds,
$1,000 and increments of $1,000 in
excess thereof and (iii) 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
accommodate the remainder of the
initial principal or notional
amount of the Bonds of such Class.
The Class R-1, Class R-2 and Class R-3
Bonds will each be issued in
certificated fully-registered form
in a single bond of $50, $100 and
$50, respectively.
Master Servicer . . . . . . . . Norwest Bank Minnesota, National
Association, as Master Servicer
under the Pooling and Servicing
Agreement. Norwest will also act
as custodian with respect to the
Mortgage Files. As compensation
for its services, the Master
Servicer will be entitled to
receive investment income earned
on funds deposited in certain
accounts and certain additional
servicing compensation as
described herein. The Master
Servicer is the "Administrator" as
such term is used in the
Prospectus. See "Pooling and
Servicing Agreement--Certain
Matters Regarding the Master
Servicer" herein.
S-11
<PAGE> 12
The Master Servicer will not ultimately
be responsible for the performance
of the servicing activities of the
Sub-Servicers except as described
under "The Pooling and Servicing
Agreement--Servicing Compensation,
Compensating and Payment of
Expenses" and "--Monthly
Advances." See "The Master
Servicer and the Sub-Servicers"
herein.
Sub-Servicers . . . . . . . . . . Cendant will service the Cendant
Mortgage Loans, WMBFA will service
the WMBFA Mortgage Loans, and NCM
will service the NCM Mortgage
Loans (in such capacities, each of
Cendant, WMBFA and NCM is referred
to as a "SUB- SERVICER" and
collectively, as the
"SUB-SERVICERS").
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 Cendant, WMBFA and NCM.
Cut-off Date . . . . . . . . . . September 1, 1998.
Closing Date . . . . . . . . . . On or about September 30, 1998.
The Mortgage Pool . . . . . . . The Mortgage Loans in the aggregate
(the "MORTGAGE POOL") consist
primarily of first lien, fixed
rate fully amortizing mortgage
loans secured by one- to
four-family residences and
individual condominium units and
having original terms to stated
maturity ranging from 10 to 30
years.
The Mortgage Loans have been divided
into two groups ("GROUP 1 MORTGAGE
LOANS" and "GROUP 2 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 Group. The Group 1
Mortgage Loans relate to Bond
Group 1 and the Group 2 Mortgage
Loans relate to Bond Group 2.
All of the Mortgage Loans are
conventional mortgage loans. All
but one 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 WMBFA 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 the WMBFA Mortgage
Loans, the NCM Mortgage Loans and
certain Cendant Mortgage Loans
having original terms to stated
maturity of 10 to 15 years. See
"--Description of the Mortgage
Loans" herein.
S-12
<PAGE> 13
Approximately 95.54% and 92.29% of the
Group 1 and Group 2 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 ("FANNIE
MAE") and Freddie Mac (formerly
the Federal Home Loan Mortgage
Corporation) ("FREDDIE MAC").
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 has been
received.
<TABLE>
<CAPTION>
Group 1 Mortgage Loans
----------------------
<S> <C>
Number of Mortgage Loans . . . . . . . 1,402
Aggregate Scheduled Principal
Balance . . . . . . . . . . . . . $445,299,624
Minimum Scheduled Principal Balance . $ 29,958
Maximum Scheduled Principal Balance . $ 1,496,961
Average Scheduled Principal Balance . $ 317,617
Minimum Mortgage Rate . . . . . . . . 6.000% per annum
Maximum Mortgage Rate . . . . . . . . 8.750% per annum
Weighted Average Mortgage Rate . . . . 7.407% per annum
Weighted Average Net Rate . . . . . . 7.183% 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 . . . . . 357 months
Weighted Average Original
Loan-to-Value Ratio . . . . . . . 75.89%
Location of Mortgaged Property
California . . . . . . . . . . . 55.83%
New Jersey . . . . . . . . . . . 6.07%
New York . . . . . . . . . . . . 5.66%
Massachusetts . . . . . . . . . . 3.50%
Florida . . . . . . . . . . . . . 3.20%
Other . . . . . . . . . . . . . . 25.73%
</TABLE>
<TABLE>
<CAPTION>
Group 2 Mortgage Loans
----------------------
<S> <C>
Number of Mortgage Loans . . . . . . . 316
Aggregate Scheduled Principal
Balance . . . . . . . . . . . . . $ 93,416,622
Minimum Scheduled Principal Balance . $ 26,838
</TABLE>
S-13
<PAGE> 14
<TABLE>
<S> <C>
Maximum Scheduled Principal Balance . $ 1,121,528
Average Scheduled Principal Balance . $ 295,622
Minimum Mortgage Rate . . . . . . . . 6.250% per annum
Maximum Mortgage Rate . . . . . . . . 8.250% per annum
Weighted Average Mortgage Rate . . . . 7.038% per annum
Weighted Average Net Rate . . . . . . 6.812% per annum
Minimum Remaining Term
to Stated Maturity . . . . . . . . 117 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 . . . . . . . . . . . . . . 69.77%
Location of Mortgaged Property
California . . . . . . . . . . . . 32.03%
Illinois . . . . . . . . . . . . . 5.45%
New Jersey . . . . . . . . . . . . 5.28%
Massachusetts . . . . . . . . . . 4.88%
Texas . . . . . . . . . . . . . . 4.31%
Wisconsin . . . . . . . . . . . . 4.05%
Other . . . . . . . . . . . . . . 44.00%
</TABLE>
Mortgage Loan Group 2 is further
separated into two sub-groups
("SUB-GROUP 2A" and "SUB-GROUP 2B"
and each, a "SUB-GROUP").
Sub-Group 2A consists of Mortgage
Loans having an aggregate
principal balance as of the
Cut-off Date of $48,893,016 and a
weighted average Mortgage Rate of
7.134%, and Sub-Group 2B consists
of Mortgage Loans having an
aggregate principal balance as of
the Cut-off Date of $44,523,605
and a weighted average Mortgage
Rate of 6.932%.
Net Rate . . . . . . . . . . . . The "NET RATE" for each Mortgage Loan
is the rate of interest borne by
such Mortgage Loan (the "MORTGAGE
RATE") less the applicable
Sub-Servicing Fee attributable
thereto (in each case expressed as
a per annum rate) (the "AGGREGATE
EXPENSE RATE"). It is expected
that with respect to each Payment
Date, the Sub-Servicing Fee for
each Mortgage Loan sub-serviced by
Cendant will generally be 0.20%
per annum of the Outstanding
Principal Balance of such Mortgage
Loan and the Sub-Servicing Fee for
each Mortgage Loan sub- serviced
by WMBFA and NCM will be 0.25% per
annum of the Outstanding Principal
Balance of such Mortgage Loan.
Any Cendant Sub-Servicing Fee in
excess of 0.20% per annum 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. 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.
Scheduled Principal Balance . . . 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
S-14
<PAGE> 15
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 October 1998 (each, a
"PAYMENT DATE").
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 and
the Mortgage Loans (other than NCM
Mortgage Loans that are the
subject of a voluntary prepayment
in full), the period from the
first day through the last day of
the month preceding the month in
which the Payment Date occurs, and
with respect to the NCM Mortgage
Loans which are the subject of a
voluntary prepayment in full, the
period from the eighteenth day of
the month preceding the month in
which the Payment Date occurs to
the seventeenth day of 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 Principal
Only 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
interest-bearing Class of Bonds
other than the LIBOR Bonds will be
the calendar month preceding the
month in which the Payment Date
occurs, and in the case of each
Class of LIBOR Bonds will be the
period beginning on the 25th day
of the month preceding the month
in which the Payment Date occurs
and ending on the 24th day of the
month in which the Payment Date
occurs, in each case commencing in
September 1998. Interest will be
calculated on the basis of a
360-day year comprised of twelve
30-day months.
S-15
<PAGE> 16
The Class P Bonds and Class II-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, other than the Accrual
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.
Accrued interest on the Accrual
Bonds will be paid as described
under "Description of the
Bonds--Payments on the
Bonds--Group 1 Senior Bonds"
herein. 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 Master Servicer 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".
Credit Enhancement--
General . . . . . . . . . . . Credit enhancement for the Group 1
Senior Bonds and the Group 2
Senior Bonds generally will be
provided by the Group 1
Subordinate Bonds and the Group 2
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 and the Group 2 Subordinate
Bonds to receive payments with
respect to the Group 1 Mortgage
Loans and the Group 2 Mortgage
Loans, respectively, will be
subordinated to such rights of the
holders of the Group 1 Senior
Bonds and the Group 2 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
S-16
<PAGE> 17
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 (i) 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 and
(ii) any Excess Special Hazard
Losses with respect to Mortgage
Loans in the related Mortgage Loan
Group. 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 (i) 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
0.85%, respectively, of the
aggregate Current Principal
Balances of all of the Classes of
Group 1 Bonds, and (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
0.70%, respectively, of the
aggregate Current Principal
Balances of all the Classes of
Group 2 Bonds.
In addition, to extend the period
during which the Group 1
Subordinate Bonds and the Group 2
Subordinate Bonds remain available
as credit enhancement to the Group
1 Senior Bonds and the Group 2
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-23
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 . . . . . . . . The Sub-Servicers will be obligated to
make all required advances. The
Master Servicer will be obligated
to advance delinquent scheduled
payments of principal and interest
on Mortgage Loans under certain
circumstances to the extent the
related Sub-Servicer fails to make
such advances, subject to the
Master Servicer's determination of
recoverability (each such advance
by a
S-17
<PAGE> 18
Sub-Servicer or the Master Servicer, 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 such Bond Group
(other than the P Component of
Bond Groups 1 and 2 and other than
the Class II-P Bonds), 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 P Component of Bond
Groups 1 and 2 and other than the
Class II-P Bonds) until, in each
case, the Class Current Principal
Balance of each such Class of
Bonds is reduced to zero; and (ii)
the applicable PO Percentage of
any such Realized Losses 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 designations,
through the operation of the
applicable PO Deferred Payment
Writedown Amount for the P
Component of Bond Groups 1 and 2
and the Class II-P Bonds.
Notwithstanding the foregoing, the
aggregate amount of Realized
Losses which may be allocated by
means of subordination to cover
Special Hazard Losses is initially
limited to (i) $4,452,996 for the
Group 1 Bonds and (ii) $2,243,054
for the Group 2 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 will
be allocated on a pro rata basis
among the Senior Bonds of the
related Bond Group (other than the
P Components of Mortgage Loan
Groups 1 and 2 and other than the
Class II-P Bonds) and the
Subordinate Bonds of the related
Bond Group. The principal portion
of such Excess Special Hazard
Losses on Discount Mortgage Loans
in Mortgage Loan Group 1,
Sub-Group 2A and Sub-Group 2B will
be allocated to Component P-1,
Component P-2 and the Class II-P
Bonds, respectively, in an amount
equal to the related PO Percentage
thereof, and the remainder of such
Excess Special Hazard Losses on
such Discount Mortgage Loans will
be allocated among the Senior
Bonds (other than the P Components
of Bond Group 1 and Bond Group 2
and other than the Class II-P
Bonds) and the Subordinate Bonds
of the related Bond Group on a pro
rata basis as described above.
After the applicable Cross-Over
Date, the Non-PO Realized Losses
(as defined herein) including,
without limitation, the Non-PO
Percentage of all Special Hazard
Losses, on the Mortgage Loans in a
Mortgage Loan Group will be
allocated among the Senior Bonds
of the related Bond Group
(excluding the P Component of such
Bond Group, and excluding the
Class II-P Bonds) on a pro rata
basis. The amount of any Realized
Loss (other than an Excess Special
Hazard Loss) allocated to a P
Component or the
S-18
<PAGE> 19
Class II-P Bonds on or prior to the
Cross-Over Date for the related
Bond Group will be treated as a PO
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 Servicer, 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 (if
any) 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, 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
S-19
<PAGE> 20
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
with respect to Bonds other than
the LIBOR Bonds 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 and Class
II-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.
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 the Class X Bonds
will equal or be based upon the
weighted average of the excess, if
any, of the Net Rates of the
Non-Discount Mortgage Loans in
Mortgage Loan Group 1 over a
specified percentage,
disproportionate prepayments of
Non-Discount Mortgage Loans with
higher Net Rates in Mortgage
S-20
<PAGE> 21
Loan Group 1 will adversely affect the
yield on such Class. Because the
Bond Interest Rate applicable to
the Class II-X-1 and Class II-X-2
Bonds will equal or be based upon
the weighted average of the
excess, if any, of the Net Rates
of the Non-Discount Mortgage Loans
in Sub-Group 2A and Sub-Group 2B,
respectively, over specified
percentages, disproportionate
prepayments of Non-Discount
Mortgage Loans with higher Net
Rates in Sub- Group 2A and
Sub-Group 2B, respectively, will
adversely affect the yield on such
Classes. Because 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,
the yields on the Bonds will be
adversely affected.
Subordination of Certain Classes of
Bonds. The rights of the
Bondholders of the Group 1
Subordinate Bonds and the Group 2
Subordinate Bonds to receive
payments with respect to the Group
1 Mortgage Loans and the Group 2
Mortgage Loans, respectively, will
be subordinated to such rights of
the holders of the Group 1 Senior
Bonds and the Group 2 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 four years until
the Senior P&I Bonds of such Bond
Group and the related Subordinate
Bonds share pro rata in such
allocations. Consequently, during
not less than the first nine years
after the Closing Date, any
prepayments will have the effect
of accelerating the amortization
of one or more Classes of the
Senior P&I Bonds of the related
Bond Group, while increasing the
percentage interest in such
Mortgage Loan Group evidenced by
the Subordinate Bonds of such Bond
Group. The entire amount of the
applicable PO Percentage of any
prepayment on a Discount Mortgage
Loan in Mortgage Loan Group 1,
Sub-Group 2A or Sub-Group 2B will
be allocated solely to Component
P-1, Component P-2 or the Class
II-P Bonds, respectively, as long
as the Component Current Principal
Balance or Class Current Principal
Balance of such P Component or
Class of Bonds has not been
reduced to zero. 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
S-21
<PAGE> 22
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.
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 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 "Yield and Prepayment
Considerations--Yield on 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 Class
Current Principal Balances in
accordance with their respective
Planned Balances for such Payment
Date, and, as a result, the
weighted
S-22
<PAGE> 23
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.
TAC Bonds. The Group 1 Senior Bonds
have been structured to provide
for relatively stable payments of
principal to the TAC Bonds. Using
the modeling assumptions described
in "Yield and Prepayment
Considerations--Yield on the TAC
Bonds" herein, the outstanding
principal balance of each Class
and Component of the TAC Bonds
will be reduced to its respective
Targeted Balance (as defined
herein) for each Payment Date if
prepayments on the Mortgage Loans
in Mortgage Loan Group 1 occur at
a constant rate of 250% SPA. To
the extent that prepayments on the
Group 1 Mortgage Loans occur at a
constant rate below 250% SPA, the
Group 1 Available Funds allocable
as payments of principal on each
Payment Date may be insufficient
to make payments of principal on
the TAC Bonds in amounts
sufficient to reduce their Class
Current Principal Balance and
Component Current Principal
Balance in accordance with their
respective Targeted Balances for
such Payment Date, and, as a
result, the weighted average lives
of such Class of Bonds and such
Component may be extended. To the
extent that prepayments occur at a
constant rate higher than 250%
SPA, the weighted average lives of
such Class of Bonds and such
Component may be shortened.
In addition, 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 first be paid to the Companion
Bonds until their respective Class
Current Principal Balances have
been reduced to zero and then to
the TAC Bonds. 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 TAC Bonds will not receive any
payment of principal. Accordingly,
the rate of payments on the Group 1
Mortgage Loans is expected to have
a greater effect on the weighted
average lives of the TAC Bonds than
on the weighted average lives of
the PAC Bonds.
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 and the TAC Bonds on a
Payment Date in an amount greater
than the amount necessary to
reduce the applicable Class
Current Principal Balances or
Component Current Principal
Balance to their respective
Planned Balances or Targeted
Balances for such
S-23
<PAGE> 24
Payment Date. Such excess will be
paid first to the Companion Bonds
until their respective Component
Current Principal Balance and 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 or
Component Current Principal Balance
of the PAC Bonds and the TAC Bonds
then entitled to receive principal
to their respective Planned
Balances or Targeted 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 a greater effect
on the weighted average lives of
the Companion Bonds than on the
weighted average lives of the PAC
Bonds and the TAC Bonds.
Interest Only Bonds. Because the Class
Notional Balances of the Class X,
Class II-X-1 and the Class II-X-2
Bonds will be based upon the
Scheduled Principal Balances of
the Non-Discount Mortgage Loans in
Mortgage Loan Group 1, Sub- Group
2A and Sub-Group 2B, respectively,
the yield on the Class X, Class
II- X-1 and the Class II-X-2 Bonds
will be sensitive to the rate and
timing of principal payments of
the Non-Discount Mortgage Loans in
Mortgage Loan Group 1, Sub-Group
2A and Sub-Group 2B, respectively.
The yield on the Class A-5 and
Class A-10 Bonds also will be
sensitive to the rate and timing
of principal payments of the Group
1 Mortgage Loans, because the
Class A-5 Notional Balance is
based on the Class Current
Principal Balances of the Class
A-1 through Class A-4 Bonds and
the Class A-10 Notional Balance is
based on the Class Current
Principal Balance of the Class A-9
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 A-5 and
Class A-10 Bonds, a rapid rate of
principal payments on the
Non-Discount Mortgage Loans in
Mortgage Loan Group 1 will have a
materially negative effect on the
yield to investors in the Class X
Bonds, and a rapid rate of
principal payments on the
Non-Discount Mortgage Loans in
Sub-Group 2A and Sub-Group 2B
Mortgage Loans will have a
materially negative effect on the
yield to investors in the Class
II-X-1 Bonds and the Class II-X-2
Bonds, respectively. 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-8 Bonds. Because of the
payment priorities of the Group 1
Senior Bonds, the weighted average
life of the Class A-8 Bonds will
be extremely sensitive to the rate
of prepayments on the Group 1
Mortgage Loans.
Class A-23 Bonds. As described herein,
during certain periods, no
principal payments or a
disproportionately small or large
portion
S-24
<PAGE> 25
of principal payments will be paid
to the Class A-23 Bonds. Unless
the Class Current Principal
Balances of all other Group 1
Senior P&I Bonds have been reduced
to zero, the Class A-23 Bonds will
not be entitled to receive any
payments of principal prior to the
Payment Date occurring in October
2003.
Class P and Class II-P Bonds. The
amounts payable with respect to
the Component P-1, Component P-2
and the Class II-P Bonds derive
from principal payments on the
Discount Mortgage Loans in
Mortgage Loan Group 1, Sub-Group
2A and Sub-Group 2B, respectively.
As a result, the yield on the
Component P-1, Component P-2 and
the Class II-P Bonds will be
adversely affected by slower than
expected payments of principal
(including prepayments, defaults
and liquidations) on the Discount
Mortgage Loans in Mortgage Loan
Group 1, Sub-Group 2A and
Sub-Group 2B, respectively.
Because Discount Mortgage Loans in
Mortgage Loan Group 1 and each
Sub-Group have lower Net Rates
than the Non-Discount Mortgage
Loans of such Mortgage Loan Group
or Sub-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
or Sub-Group. See "Yield and
Prepayment Considerations--Yield
on the Class P and Class II-P
Bonds" herein.
Residual Bonds. Holders of the
Residual Bonds are entitled to
receive payments of principal and
interest as described herein.
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, the 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
S-25
<PAGE> 26
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.
If on any Payment Date BSMCC or its
designee has not exercised such
option and the aggregate
outstanding principal balance of
the Mortgage Loans in any Mortgage
Loan Group is equal to or less than
2.5% of the aggregate outstanding
principal balance of the Mortgage
Loans in such Mortgage Loan Group
as of the Cut-off Date, the Master
Servicer shall also have such
option. Any Payment Date on which
BSMCC or the Master Servicer
exercises its option to purchase
the Mortgage Loans of any Mortgage
Loan Group 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, plus an amount equal to all
outstanding and unreimbursed
advances (including Monthly
Advances) made by the Master
Servicer or any Sub-Servicer and
any other amounts owed to the
Master Servicer under the Pooling
and Servicing Agreement or to a
Sub- Servicer under the applicable
Sub-Servicing Agreement. 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 1", "REMIC 2", and "REMIC
3"). 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
1, REMIC 2 and REMIC 3 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 P Components thereof
(other than the Residual Bonds)
and the Subordinate Bonds will be
designated as the "regular
interests" in REMIC 3, and the
Class R-1, Class R-2 and Class R-3
Bonds will be designated as the
"residual interests" in REMIC 1,
REMIC 2 and REMIC 3, 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 II-P, Class
A-5,
S-26
<PAGE> 27
Class A-8, Class A-10, Class A-12,
Class X, Class II-X-1 and Class
II-X-2 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. The Code and
applicable regulations do not
adequately address certain issues
relevant to the application of the
original issue discount rules to
the Class A-7, Class A-11 and Class
A-22 Bonds; however, the Trustee
intends to treat all interest on
such Classes of Bonds as original
issue discount. 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 275% of SPA (as defined
herein), with respect to the Group
1 Loans and 250% of SPA with
respect to the Group 2 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 1, REMIC 2 and REMIC
3, respectively. Holders of the
Residual Bonds ("RESIDUAL
BONDHOLDERS") will be required to
report, and will be taxed on,
their pro rata shares of such
income or loss, and such
requirements will continue until
there are no Bonds of any Class
outstanding, even though such
Bondholders previously may have
received full payment of their
stated interest and principal.
Furthermore, the taxable income of
Residual Bondholders attributable
to the Residual Bonds may exceed
the principal and interest
payments received by such
Bondholders with respect to such
Bonds during the corresponding
period, which could result in a
highly negative after-tax return
for such Bondholders. See
"Special Tax Considerations"
herein.
S-27
<PAGE> 28
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 1, REMIC 2 AND
REMIC 3, 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 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
S-28
<PAGE> 29
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
II-B-1 and Class II-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 or Class II-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 and Class II-B-3
Bonds may not be transferred to a
Plan Investor unless the Plan
Investor provides the Master
Servicer and the Indenture Trustee
with a Benefit Plan Opinion (as
defined herein). Each purchaser
of an Interest Only Bond (other
than a Class II-X-2 Bond) or a
Class B-3 or Class II-B-3 Bond, by
virtue of such purchaser's receipt
of such Bond, unless such
purchaser provides a Benefit Plan
Opinion, will be deemed to have
represented that it is not a Plan
Investor, and will be deemed to
have agreed to indemnify and hold
the Issuer, the Master Servicer,
each Sub-Servicer, the Certificate
Trustee, the Indenture Trustee and
the Underwriter harmless against
any losses, liabilities or
expenses or resulting from the
breach of such representation. In
addition, no transfer of a Class
II-X-2 Bond 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 (ii) a
Benefit Plan Opinion. See "ERISA
Considerations" herein and "ERISA
Matters" in the Prospectus.
See also "Restrictions on Purchase and
Transfer of the Residual Bonds"
herein.
Stated Maturity of the Bonds . . The "STATED MATURITY" of each Class of
Bonds will be: (i) with respect to
each Class of Group 1 Bonds and
the Class P Bonds, the Payment
Date in November 2028; and (ii)
with respect to each Class of
Group 2 Bonds, the Payment Date in
November 2013. The Stated
Maturity has been determined by
adding one
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<PAGE> 30
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
Fitch IBCA, Inc. ("FITCH").
Moody's and Fitch are referred to
herein as the "RATING AGENCIES".
<TABLE>
<CAPTION>
Rating
-----------------------
Class Moody's Fitch
----- ------- -----
<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 A-20 Bonds Aaa AAA
Class A-21 Bonds Aaa AAA
Class A-22 Bonds Aaa AAA
Class A-23 Bonds Aaa AAA
Class X Bonds Aaa AAA
Class B-1 Bonds - AA
Class B-2 Bonds - A
Class B-3 Bonds - BBB
Class II-A-1 Bonds Aaa AAA
Class II-P Bonds Aaa AAA
Class II-X-1 Bonds Aaa AAA
Class II-X-2 Bonds Aaa AAA
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C> <C>
Class II-B-1 Bonds - AA
Class II-B-2 Bonds - A
Class II-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 and
Class II-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.
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<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 Servicer, 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 Servicer, the Certificate Trustee, the Indenture Trustee or any of
their respective affiliates. The assets included in the Trust Estate will be
the sole source of payments on the Offered Bonds, and there will be no recourse
to the Issuer, CMC, CCC, BSMCC, the Loan Sellers, the Master Servicer, the
Certificate Trustee, the Indenture Trustee or any of their respective
affiliates, or any other entity, in the event that such assets are insufficient
or otherwise unavailable to make all payments provided for under the Offered
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 1, REMIC 2 and REMIC 3, 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 55.83% of the Mortgage Loans included in Mortgage Loan
Group 1 (by aggregate principal balance as of the Cut-off Date) and
approximately 32.03% of the Mortgage Loans included in Mortgage Loan Group 2
(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. 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.
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<PAGE> 33
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 applicable Sub-Servicing Agreement, each Sub-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 Sub-Servicing
Fee. See "Pooling and Servicing Agreement--Protected Accounts" herein. On or
before the 18th day of each month or, if such day is not a Business Day, the
preceding Business Day (each, a "SUB-SERVICER REMITTANCE DATE"), each
Sub-Servicer, shall withdraw all amounts from the related Protected Account
(net of any amounts which such Sub-Servicer is entitled to retain under the
applicable Sub-Servicing Agreement) and shall remit such amounts to the Master
Servicer for deposit into an account (the "MASTER SERVICER COLLECTION
ACCOUNT"). On or before each Distribution Date, the Master Servicer shall
withdraw from the Master Servicer Collection Account and remit to the
Certificate Trustee all amounts in the Master Servicer Collection Account (net
of the Master Servicer Compensation and all other amounts that the Master
Servicer is entitled to retain pursuant to the Pooling and Servicing
Agreement). The Certificate Trustee will deposit such funds into the
Certificate Account and will apply such funds 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. The Master Servicer's obligations with respect to the
Mortgage Loans will generally consist of (i) the obligation to notify the
Certificate Trustee if the documentation for any such Mortgage Loan is found by
the Master Servicer to be defective, (ii) its monitoring and supervisory
obligations under the Pooling and Servicing Agreement, (iii) its obligation to
make certain cash advances in the event of delinquencies in payments on or with
respect to such Mortgage Loans, if the related Sub-Servicer fails to make such
advances and (iv) the obligation to make certain payments with respect to
Interest Shortfalls as described under "Pooling and Servicing
Agreement--Servicing Compensation, Compensating Interest and Payment of
Expenses" herein. See "Pooling and Servicing Agreement" herein.
S-33
<PAGE> 34
DESCRIPTION OF THE MORTGAGE LOANS
The Mortgage Pool will consist of approximately 1,718 Mortgage Loans.
In general, these are, fixed rate, fully amortizing mortgage loans secured by
deeds of trust or other similar security agreements (each, a "MORTGAGE")
creating a first lien on one- to four-family residences and individual
condominium units (the "MORTGAGED PROPERTIES") and having original terms to
stated maturity ranging from 20 to 30 years (in the case of Mortgage Loan Group
1) and 10 to 15 years (in the case of Mortgage Loan Group 2). All of the
Mortgage Loans are conventional mortgage loans. All but one of the Mortgage
Loans with Loan-to-Value Ratios (as defined herein) at origination 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 two groups
("GROUP 1 MORTGAGE LOANS" and "GROUP 2 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 40.52% of the Mortgage Loans (the "WMBFA MORTGAGE
LOANS") were originated or acquired by Washington Mutual Bank, F.A. ("WMBFA").
Approximately 54.98% of the Mortgage Loans (the "CENDANT MORTGAGE LOANS") were
originated or acquired by Cendant Mortgage Corporation or its affiliates
("CENDANT"). Approximately 4.50% of the Mortgage Loans (the "NCM MORTGAGE
LOANS") were originated or acquired by National City Mortgage Company ("NCM").
As of the Cut-off Date, none of the Mortgage Loans was more than 30 days
delinquent.
Approximately 95.54% and 92.29% of the Group 1 and Group 2 Mortgage
Loans, respectively, are Jumbo Loans.
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 SERVICER AND THE SUB-SERVICERS
GENERAL
Pursuant to the Pooling and Servicing Agreement, Norwest will act as
Master Servicer with respect to the Mortgage Loans. Pursuant to various
sub-servicing agreements between each Sub-Servicer and BSMCC (each, a "SUB-
SERVICING AGREEMENT"), (i) Cendant will service the Cendant Mortgage Loans,
(ii) WMBFA will service the WMBFA Mortgage Loans, and (iii) NCM will service
the NCM Mortgage Loans, (in such capacities, each of Cendant, WMBFA, and NCM
is referred to as a "SUB-SERVICER" and collectively, as the "SUB-SERVICERS").
On the Closing Date, BSMCC will convey all of its right, title and interest
under the Sub-Servicing Agreements to CCC pursuant to the Purchase Agreement
and CCC will, in turn, simultaneously convey all of its right, title and
interest therein to the Issuer pursuant to the CCC Assignment Agreement. The
Issuer will simultaneously convey all of its right, title and interest in and
to the Sub- Servicing Agreements to the applicable Trust pursuant to the
Pooling and Servicing Agreement. The Master Servicer will not ultimately be
responsible for the performance of the servicing activities of the
Sub-Servicers except as described under "The Pooling and Servicing
Agreement--Servicing Compensation, Compensating Interest and
__________________________________
* 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 Fitch 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.
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<PAGE> 35
Payment of Expenses" and "--Monthly Advances." If a Sub-Servicer fails to
fulfill its obligations under the applicable Sub-Servicing Agreement and such
failure results in a material breach, the Master Servicer shall be entitled,
for and on behalf of the Certificateholders, to terminate such Sub-Servicer and
appoint a successor servicer that satisfies the eligibility requirements set
forth in the applicable Sub-Servicing Agreement.
The Mortgage Loans were originated under the applicable programs
described under "--Cendant Underwriting Standards", "--WMBFA Underwriting
Standards" and "--NCM Underwriting Standards" below.
The information set forth in the following paragraphs with respect to
Norwest, Cendant, WMBFA and NCM has been provided by the respective party.
None of the Issuer, BSMCC, the Underwriter, the Certificate Trustee, the
Indenture Trustee or any of their respective affiliates has made or will make
any representation as to the accuracy or completeness of such information.
NORWEST
Norwest is a national banking association, with executive offices
located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479 and
its master servicing offices located at 11000 Broken Land Parkway, Columbia,
Maryland 21044.
The Master Servicer is engaged in the business of master servicing
single family residential mortgage loans secured by properties located in all
50 states and the District of Columbia. As of June 30, 1998, the Master
Servicer master serviced more than 300,000 mortgage loans with an aggregate
outstanding principal balance of approximately $36.5 billion.
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.
Cendant's executive offices are located at 6000 Atrium Way, Mt.
Laurel, New Jersey 08054, and its telephone number is (609) 439-6000.
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-35
<PAGE> 36
DELINQUENCY AND FORECLOSURE EXPERIENCE IN CENDANT'S PORTFOLIO OF ONE- TO FOUR-
FAMILY, RESIDENTIAL MORTGAGE LOANS(1)
<TABLE>
<CAPTION>
AS OF APRIL 30, AS OF DECEMBER 31, AS OF JUNE 30,
1995 1996 1996 1997 1998
---- ---- ---- ---- ----
NO. OF PRINCIPAL NO. OF PRINCIPAL NO. OF PRINCIPAL NO. OF PRINCIPAL NO. OF PRINCIPAL
LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE
----- ------- ----- ------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 135,693 $14,319 195,224 $21,681 224,622 $24,825 262,754 $29,701.7 311,505 $ 35,906.9
Period of Delinquency2
30-59 Days 1,640 $ 184 2,115 $ 231 3,334 $ 344 5,082 $ 525.9 6,484 $ 682.6
60-89 Days 293 $ 34 472 $ 57 576 $ 71 961 $ 95.9 1,081 $ 104.9
90 Days or more3 99 $ 28 14 $ 19 0 $ 0 324 $ 28.1 430 $ 67.9
Total Delinquencies4 2,032 $ 246 2,601 $ 307 4,110 $ 415 6.367 $ 649.9 7,995 $ 855.4
Foreclosure/Bankruptcies/ 991 $ 117 1,045 $ 121 1,340 $ 149 2,105 $216.76 1,571 $ 127.3
Real Estate Owned
</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. The "Total
Delinquencies" category includes the Foreclosures/Bankruptcies/Real
Estate Owned category.
4 Entries may not add up to total due to rounding.
5 Delinquency and foreclosure information as of April 30, 1995 includes
533 loans which are associated with a portfolio of non-performing
loans which were acquired by CMC in a bulk servicing purchase.
6 The increase in foreclosures, bankruptcies and real estate owned from
December 31, 1996 to December 31, 1997 is due to an increase in FHA
and VA loans in the portfolio as well as increased foreclosures on
adjustable rate loans in 1997. Bankruptcy loans amounted to 0.40% of
the 1997 loan count (as compared to 0.31% of the 1997 loan count).
Foreclosure loans amounted to 0.35% of the 1997 loan count (as
compared to 0.24% of the 1996 loan count). REO loans amounted to
0.05% of the 1997 loan count (as compared to 0.06% of the 1996 loan
count).
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<PAGE> 37
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.
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.
WMBFA
WMBFA is a wholly-owned subsidiary of Washington Mutual, Inc. WMBFA's
primary line of business is mortgage lending and consumer banking primarily in
California and Florida. WMBFA's executive offices are located at 1201 Third
Avenue, Seattle, Washington 98101 and its telephone number is (206) 461-6475.
Delinquency and Foreclosure Experience. The following table
summarizes the delinquency and foreclosure experience, respectively, as of
December 31, 1995, December 31, 1996, December 31, 1997 with respect to
approximately $23,593,136,907, $26,726,259,653 and $30,211,858,315,
respectively, in outstanding principal balance of residential mortgage loans
serviced by WMBFA in connection with its acquisition of American Savings Bank,
F.A. (which does not include other loans serviced by WMBFA). As of June 30,
1998 WMBFA serviced approximately $77,238,273,877 in outstanding principal
balance of residential mortgage loans, including loans serviced by WMBFA in
connection with its acquisition of Great Western Bank. The delinquency and
foreclosure percentages may be affected by the size and relative lack of
seasoning of the servicing portfolio because many of such mortgage loans were
not outstanding long enough to give rise to some or all of the indicated
periods of delinquency. Accordingly, the information should not be considered
as a basis for assessing the likelihood, amount or severity of delinquency or
losses
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<PAGE> 38
on the WMBFA Mortgage Loans, and no assurances can be given that the
foreclosure and delinquency experience presented in the table below will be
indicative of such experience on the WMBFA Mortgage Loans in the future:
DELINQUENCY AND FORECLOSURE EXPERIENCE OF WMBFA
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
---------------------------------- --------
1995 1996 1998(2) 1997
<S> <C> <C> <C> <C>
Total Number of Residential Mortgage Loans in
Portfolio . . . . . . . . . . . . . . . . . . . . . . 186,686 199,470 209,326 620,161
Delinquent Mortgage Loans and Pending Foreclosures at
Period End (1):
30-59 days . . . . . . . . . . . . . . . . . . . . . . 0.36% 0.39% 0.50% 2.78%
60-89 days . . . . . . . . . . . . . . . . . . . . . . 0.12% 0.09% 0.14% 0.54%
90 days or more (excluding pending foreclosures) . . . 0.20% 0.08% 0.15% 0.19%
Total Delinquencies . . . . . . . . . . . . . 0.68% 0.56% 0.79% 3.51%
Foreclosures pending . . . . . . . . . . . . . . . . . . 0.89% 0.74% 0.52% 0.55%
Total delinquencies and foreclosures pending . 1.56% 1.30% 1.31% 4.06%
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</TABLE>
(1) As a percentage of the total outstanding principal balance of loans
serviced.
(2) Includes all loans serviced by WMBFA, including loans serviced in
connection with its acquisition of Great Western Bank.
There can be no assurance that factors beyond the control of WMBFA,
such as national or local economic conditions or downturns in the real estate
markets of its lending areas, will not result in increased rates of
delinquencies and foreclosure losses in the future.
WMBFA UNDERWRITING STANDARDS
WMBFA originates 15 and 30 year fixed rate mortgage loans with loan
balances of up to $2,500,000. Eligible properties include primary residences,
second homes and investment properties that are secured by single family
detached or attached properties, 2-4 unit properties, units in condominiums,
planned unit developments and manufactured homes.
WMBFA originates fixed rate loans with loan-to-value ratios of up to
95% for loans secured by primary residences and up to 90% for loans secured by
second homes. The maximum Loan-to-Value Ratio generally decreases with
increases in the loan balance. The maximum Loan-to-Value Ratio for fixed rate
cash out refinance loans secured by primary residences is 75%. The maximum
Loan-to-Value Ratio for fixed rate cash out refinance loans secured by second
homes or investment properties is 70%. WMBFA requires private mortgage
insurance on loans with original Loan-to-Value Ratios in excess of 80%.
WMBFA offers three documentation programs: Full Documentation,
Alternative Documentation, and Limited Documentation. Under Full
Documentation, the prospective borrower's employment, income and assets are
verified through written and telephonic communications. The Alternative
Documentation program is available to salaried borrowers only and allows for
the verification of income through pay stubs, W-2s and a telephonic
verification of employment, the verification of assets through bank statements
and the verification of the prior mortgage and/or rental payment history
through canceled checks for the previous 12 months. The Limited Documentation
Program is available to applicants who are salaried, self-employed or retired.
Although verification of income is usually not required, income stated on the
loan application will be evaluated for reasonableness based on the applicant
profile. In addition, employment is verified through telephonic communication.
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WMBFA analyzes the applicant's credit history generally over the prior
24 months unless there are major indications of derogatory credit. The credit
history will generally be considered acceptable if during the past 12 months
the applicant had: no late payments on the current mortgages and no more than
a few 30 day late payments in the past 24 months and no major derogatory
ratings in the past 5 years.
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 loans, WMBFA generally applies ratios for fixed rate loans of 28%/36%
for a loan-to-value ratio between 90.01% and 95%, and 33%/38% for loans with a
loan-to-value ratio of 90% or less.
NCM
NCM is a wholly owned subsidiary of National City Corporation with
executive offices located at 3232 Newmark Drive, Miamisburg, Ohio 45342. NCM
is engaged in the mortgage banking business, which includes the origination and
servicing of residential mortgage loans. As of December 31, 1997, NCM
originated approximately $5 billion and serviced approximately 258,000 mortgage
loans with an aggregate principal balance of approximately $24 billion.
NCM'S UNDERWRITING STANDARDS
NCM's underwriting guidelines with respect to the NCM Mortgage Loans
were generally consistent with Cendant's underwriting guidelines for similar
types of mortgage loans.
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-20 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 Loan Sale Agreement.
Payments on the Offered Bonds will be made on each Payment Date,
commencing in October 1998, to Bondholders of record on the immediately
preceding Record Date.
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The Offered Bonds (with the exception of the Class II-P and Class
II-X-2 Bonds and the Residual Bonds) will be issued as Book-Entry Bonds,
maintained and transferred on the book-entry records of DTC and its
participants. DTC is a "Clearing Agency" as referred to in the Prospectus.
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.
The Class II-P and Class II-X-2 Bonds and 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 Retail Bonds and the Residual
Bonds), $1,000 and increments of $1.00 in excess thereof, (ii) in the case of
the Retail Bonds, $1,000 and increments of $1,000 in excess thereof and (iii)
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 Class R-1 and Class R-3 Bonds
will be issued in minimum denominations of $50 and the Class R-2 Bonds will be
issued in a minimum denomination of $100.
HOLDERS OF THE BONDS CONSISTING OF COMPONENTS MAY NOT TRANSFER SUCH 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.
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None of the Issuer, the Loan Sellers, BSMCC, the Master Servicer, the
Underwriter, the Certificate Trustee, the Indenture Trustee or any of their
respective affiliates will have any liability for any actions taken by DTC or
its nominee, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Book-Entry 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 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 the 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.
RETAIL BONDS. Each Class of Retail Bonds will be represented by one
or more certificates held by or on behalf of DTC. DTC will maintain each Class
of Retail Bonds through its book-entry facilities in principal amounts of
$1,000 each ("RETAIL BOND UNITS"). DTC will record the positions held by each
Clearing Agency Participant in Retail Bond Units, whether held for the Clearing
Agency Participant's own account or for another person.
Investors in each Class of Retail Bonds will be subject to the rules
and procedures of DTC and Clearing Agency Participants in effect from time to
time. Investors in Retail Bonds will not receive certificates representing
such Bonds. Rather, each investor's ownership interest in a Class of Retail
Bonds will be recorded, in Retail Bond Units, on the records of the brokerage
firm, bank, thrift institution or other financial intermediary where the
investor maintains an account for this purpose. In turn, the financial
intermediary's interest in a Class of Retail Bonds will be recorded, in Retail
Bond Units, on the records of DTC (or of a Clearing Agency Participant that
acts as agent for the financial intermediary, if the intermediary is not itself
a Clearing Agency Participant). Investors may transfer their Retail Bond Units
only through their brokers or other financial intermediaries, in compliance
with their procedures.
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.
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AVAILABLE FUNDS
Available funds for any Payment Date will be determined separately
with respect to each Mortgage Loan Group ("GROUP 1 AVAILABLE FUNDS" and "GROUP
2 AVAILABLE FUNDS", respectively, and collectively, "AVAILABLE FUNDS" and
individually, each "GROUP AVAILABLE FUNDS") and in each case will be an amount
generally equal to the aggregate of the following with respect to the related
Mortgage Loans: (a) all previously undistributed payments on account of
principal (including the principal portion of Monthly Payments, principal
prepayments and the principal amount of Liquidation Proceeds) and all
previously undistributed payments on account of interest received after the
Cut-off Date and on or prior to the related Determination Date, (b) any Monthly
Advances (including Certificate Account Advances, as defined under "Pooling and
Servicing Agreement--Monthly Advances" herein) and Compensating Interest
Payments (as defined under "Pooling and Servicing Agreement--Servicing
Compensation, Compensating Interest and Payment of Expenses" herein) by the
Master Servicer and (c) any amount reimbursed by the Master Servicer in
connection with losses on certain eligible investments, except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments and Liquidation Proceeds
received after the applicable Prepayment Period;
(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;
(vi) amounts permitted to be withdrawn from the Certificate
Account pursuant to clauses (i) through (xii) of the third paragraph
under the caption "Pooling and Servicing Agreement--Certificate
Account" herein; and
(vii) amounts retained by a Sub-Servicer as described under
"Pooling and Servicing Agreement--Protected Accounts" herein.
In addition, on each Payment Date through the first 12 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-20 Bonds for each such Payment Date over the amount of
such Accrued Bond Interest calculated as if such Class A-20 Bonds had a Bond
Interest Rate of 6.75% (such amount, the "CLASS A-20 INCREMENTAL INTEREST
AMOUNT" with respect to such Payment Date).
PRINCIPAL PAYMENTS ON RETAIL BONDS
GENERAL. The Class I-A-14, Class I-A-15, Class I-A-16, Class I-A-17,
Class I-A-18, Class I-A-19 and Class I-A-20 Bonds are Retail Bonds. The Issuer
has arranged to make principal payments on each Class of Retail Bonds before
the Group I Cross-Over Date in $1,000 increments. These arrangements are
intended to accommodate retail investors who may not wish to receive their
principal payments in amounts smaller than $1,000, to give a limited payment
priority to investors who request early payment, and to give the first limited
payment priority to the requesting estates of deceased investors.
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In summary, principal payments on the Retail Bonds will be made as
follows:
o The Indenture Trustee will determine the amount of
principal, if any, payable on a Class of Retail Bonds
(as a whole) on each Payment Date as described below
under "Description of the Bonds--Payments on the
Bonds".
o The principal payment on a Class of Retail Bonds will
be rounded to a multiple of $1,000 using the Retail
Rounding Accounts, and the Indenture Trustee will pay
the rounded amount to DTC.
o DTC will remit the principal payment for a Class of
Retail Bonds, in multiples of $1,000, to the
applicable Clearing Agency Participants. The
Clearing Agency Participants and other financial
intermediaries in turn will remit principal payments,
also in multiples of $1,000, to investors in a Class
of Retail Bonds.
o Investors in a Class of Retail Bonds who have
properly requested early payment will be paid first,
to the extent of available principal, with a first
priority given to Deceased Owners (as defined below)
of that Class and a second priority to "Living
Owners" of that Class.
o If more principal is available for payment on a Class
of Retail Bonds than the amount covered by valid
requests for early payment, non-requesting investors
in that Class will receive principal payments in
multiples of $1,000 under procedures described below.
ROUNDING OF PRINCIPAL PAYMENTS. With respect to each Class of Retail
Bonds, the Issuer will establish with the Indenture Trustee an account (each, a
"RETAIL ROUNDING ACCOUNT"). On the Closing Date, the Issuer will deposit, or
will cause to be deposited, $1,000 into each Retail Rounding Account. Whenever
principal payments are to be made on a Class of Retail Bonds, the amount
allocable to that Class will be rounded to a multiple of $1,000. On the first
Payment Date when principal payments will be made on a Class of Retail Bonds,
the Indenture Trustee will withdraw from the Retail Rounding Account for such
Class any funds needed to round the allocable amount for such Class upward to
the next multiple of $1,000 and will pay the rounded amount on that Class. On
the next Payment Date when principal payments will be made on such Class of
Retail Bonds, the Indenture Trustee will apply the allocable amount first to
repay any amount withdrawn for that Class from the applicable Retail Rounding
Account on the previous Payment Date; then it will round the remainder of such
allocable amount upward to the next multiple of $1,000, by making another
withdrawal from the applicable Retail Rounding Account, and will pay this
amount to such Class. This process will continue on subsequent Payment Dates
until such Class of Retail Bonds has been retired.
PRINCIPAL PAYMENT REQUESTS AND WITHDRAWALS. Any Beneficial Owner of
Retail Bond Units may request that any or all of such Units be paid in full on
the earliest possible Payment Date. The Beneficial Owner must submit any
request for Retail Bond principal payments to his or her broker or other
financial intermediary, which must in turn make the request in writing to DTC.
DTC will date and time stamp all requests in accordance with its established
procedures and forward the requests to the Indenture Trustee. The Indenture
Trustee will maintain a list of those Clearing Agency Participants representing
Beneficial Owners that have requested Retail Bond principal payments, together
with the order of receipt and the amounts of the requests. Investors can get
information regarding the number of Retail Bond Units of the applicable Class
for which requests have been made and the status of their own requests by
writing the Indenture Trustee at the Corporate Trust Office.
A Beneficial Owner may withdraw a request for a Retail Bond principal
payment by notifying his or her broker or other financial intermediary, which
must in turn forward the notice of withdrawal in writing to the Indenture
Trustee. Any request for a Retail Bond principal payment will be deemed
withdrawn when the Indenture Trustee receives notice of the Beneficial Owner's
transfer of the related Retail Bond Units.
In order for a request or a notice of withdrawal to be effective for
any Payment Date, it must be received by DTC (in the case of a request) or the
Indenture Trustee (in the case of a withdrawal) by the last business day of the
preceding calendar month. Once effective, a request will remain effective for
all Payment Dates unless it is withdrawn.
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DTC will honor requests for Retail Bond principal payments to be made
on any Payment Date in accordance with the procedures described below. The
Indenture Trustee will notify DTC and the appropriate Clearing Agency
Participants which of the requests should be honored on each Payment Date. The
decisions of the Indenture Trustee and DTC concerning these matters, and any
related rules and procedures they establish, will be binding on all affected
persons.
PRINCIPAL PAYMENT ALLOCATIONS--PAYMENTS TO REQUESTING BENEFICIAL
OWNERS. For any Payment Date, priority of payment on a Class of Retail Bonds
will be given to Beneficial Owners of that Class for whom principal payment
requests are in effect. DTC will honor requests in the following order of
priority:
First, DTC will honor requests submitted on behalf of Deceased
Owners of a Class of Retail Bonds in the order of their receipt by
DTC, until such requests have been honored in an amount up to $100,000
for each requesting Deceased Owner of that Class; and
Second, DTC will honor requests submitted on behalf of Living
Owners of a Class of Retail Bonds in the order of priority established
by the random lot procedures of the Indenture Trustee, until such
requests have been honored in an amount up to $10,000 for each
requesting Living Owner of that Class.
Thereafter, DTC will honor requests submitted on behalf of each
Deceased Owner as provided in step First up to a second $100,000, and requests
submitted on behalf of each Living Owner as provided in step Second up to a
second $10,000. This sequence of priorities will be repeated until all
principal payment requests have been honored.
If the amount of principal available for payment on a Class of Retail
Bonds on a given Payment Date is insufficient to honor all requests, such
requests will be honored on succeeding Payment Dates as principal becomes
available. In the case of requests on behalf of Living Owners, the Indenture
Trustee will establish a new order of priority for each Payment Date by random
lot. This order will apply both to previously unsatisfied payment requests and
to newly submitted requests. A Retail Bond principal payment request submitted
on behalf of a Living Owner who later dies will become entitled to the priority
of a newly submitted request on behalf of a Deceased Owner. Such priority will
be effective for each subsequent Payment Date, if DTC has received appropriate
evidence of death and any requested tax waivers by the last business day of the
preceding calendar month.
PRINCIPAL PAYMENT ALLOCATIONS--PAYMENTS TO NON-REQUESTING BENEFICIAL
OWNERS. If the amount of principal available for payments on a Class of Retail
Bonds on a given Payment Date exceeds the amount needed to honor all principal
payment requests, DTC will determine which Retail Bond Units will be paid,
using its established random lot procedures. Each Clearing Agency Participant
receiving such payments, and each financial intermediary in the chain to the
Beneficial Owners, will remit payments to their customers according to their
own procedures, which may or may not be by random lot. A Clearing Agency
Participant or financial intermediary could decide to allot Retail Bond
principal payments to certain customers (which could include such Clearing
Agency Participant or intermediary) without allotting payments to others.
Investors may ask their brokers or other intermediaries what allocation
procedures they use.
BENEFICIAL OWNERS. A "DECEASED OWNER" is the estate of an individual
who beneficially owned one or more Retail Bond Units of the applicable Class at
the time of death, provided the executor or other authorized representative of
the estate furnishes to DTC evidence of death satisfactory to the Indenture
Trustee and any tax waivers requested by the Indenture Trustee. A "LIVING
OWNER" is any other Beneficial Owner of one or more Retail Bond Units.
The following rules will apply to determine beneficial ownership in
the case of Deceased Owners:
o Retail Bond Units beneficially owned by tenants by
the entirety, joint tenants or tenants in common will
be regarded as beneficially owned by a single owner.
The death of a tenant by the entirety, joint tenant
or tenant in common will be deemed the death of the
Beneficial Owner, and the Retail Bond Units
beneficially owned will become eligible for the
principal payment priority described above.
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<PAGE> 45
o Retail Bond Units beneficially owned by a trust will
be regarded as beneficially owned by each beneficiary
of the trust to the extent of that beneficiary's
interest in the trust (however, a trust's
beneficiaries collectively cannot be Beneficial
Owners of more Retail Bond Units than are owned by
the trust). The death of a beneficiary of a trust
will be deemed the death of a Beneficial Owner of the
Retail Bond Units beneficially owned by the trust to
the extent of that beneficiary's interest in the
trust.
o The death of an individual who was a tenant by the
entirety, joint tenant or tenant in common in a
tenancy which is the beneficiary of a trust will be
deemed the death of the beneficiary of the trust.
o The death of a person who, during his or her
lifetime, was entitled to substantially all of the
beneficial interest in a Retail Bond Unit will be
deemed the death of the Beneficial Owner of that
Retail Bond Unit, regardless of the registration of
ownership, if such beneficial interest can be
established to the satisfaction of the Indenture
Trustee. Such beneficial interest will exist in many
cases of street name or nominee ownership, ownership
by a trustee, ownership under the Uniform Gifts to
Minors Act and community property or other joint
ownership arrangements between spouses. Beneficial
interest will be evidenced by such factors as the
power to sell or otherwise dispose of a Retail Bond
Unit, the right to receive the proceeds of sale or
disposition and the right to receive interest and
principal payments on a Retail Bond Unit.
AFTER GROUP I CROSS-OVER DATE. After the Group I Cross-Over Date, if
any, payments on each Class of Retail Bonds will be made pro rata, without
regard to the priorities described above.
PAYMENTS ON THE BONDS
ALLOCATION OF AVAILABLE FUNDS. Interest and principal on the Bonds
will be paid monthly on each Payment Date, commencing in October 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 12 Payment Dates the Class A-20
Incremental Interest Amount with respect to such Payment Dates will be applied
solely to make payments of Accrued Bond Interest on the Class A-20 Bonds for
such Payment Dates:
first, (a) 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, the 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),
provided, however, that no such payments will be made to the Class A-8
Bonds on or before the Class A-8 Accretion Termination Date (as
defined below) or to the Class A-12 Bonds on or before the Class A-12
Accretion Termination Date (as defined below); (b) on or before the
Class A-8 Accretion Termination Date, to Component A-6-1, the Class
A-7 and Class A-8 Bonds, in the manner described below, as principal,
the Class A-8 Accrual Amount for such Payment Date; and (c) on or
before the Class A-12 Accretion Termination Date, to Component A-6-2,
the Class A-11 and Class A-12 Bonds, in the manner described below, as
principal, the Class A-12 Accrual Amount for such Payment Date;
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, subject to the
proviso in subclause (a) of clause first, subclause (b) of clause
first and subclause (c) of clause first;
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<PAGE> 46
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-5, Class A-10 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 R-1 and Class R-3 Bonds, pro rata, until
their respective Class Current Principal Balances
have been reduced to zero;
(ii) to the Class A-23 Bonds up to the Class A-23 Optimal
Principal Amount (as defined herein) for such Payment
Date, until the Class Current Principal Balance
thereof has been reduced to zero;
(iii) the portion of the Group 1 Senior P&I Optimal
Principal Amount remaining after payments as
described above, concurrently, as follows:
(A) 44.7317716816% sequentially as follows:
(1) to the Class A-13 Bonds until the
Class Current Principal Balance of
the Class A-13 Bonds has been
reduced to zero;
(2) concurrently to the Class A-14,
Class A-15 and A-16 Bonds, pro rata,
based upon their respective Class
Current Principal Balances, until
their respective Class Current
Principal Balances have been reduced
to zero, allocated among the Retail
Bond Units of each such Class as
described above under "--Principal
Payments on Retail Bonds";
(3) concurrently to the Class A-17,
Class A-18, Class A-19 and Class
A-20 Bonds, pro rata, based upon
their respective Class Current
Principal Balances, until their
respective Class Current Principal
Balances have been reduced to zero,
allocated among the Retail Bond
Units of each such Class as
described above under "--Principal
Payments on Retail Bonds"; and
(4) concurrently to the Class A-21 and
Class A-22 Bonds, pro rata, based
upon their respective Class Current
Principal Balances, until their
respective Class Current Principal
Balances have been reduced to zero;
(B) 55.2682283184% sequentially as follows:
(1) sequentially, to the Class A-1 and
Class A-2 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;
(2) concurrently to the Class A-3 and
Class A-4 Bonds, pro rata, based on
their respective Class Current
Principal Balances, 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;
(3) concurrently,
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<PAGE> 47
(x) 50% of the amount remaining after the
payments referred to in sub- clauses (1)
and (2) of this clause (B),
sequentially, as follows:
(I) to the Class A-9 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;
(II) concurrently to Component
A-6-2 and the Class A-11
Bonds, pro rata, based on
their respective Component
Current Principal Balance and
Class Current Principal
Balance, until their
respective Component Current
Principal Balance and Class
Current Principal Balance
have been reduced to their
respective Targeted Balances
(as set forth in Annex C
hereto) for such Payment
Date;
(III) to the Class A-12 Bonds until
the Class Current Principal
Balance thereof has been
reduced to zero;
(IV) concurrently to Component
A-6-2 and the Class A-11
Bonds, pro rata, based on
their respective Component
Current Principal Balance and
Class Current Principal
Balance, without regard to
their respective Targeted
Balances for such Payment
Date, until their respective
Component Current Principal
Balance and Class Current
Principal Balance have been
reduced to zero; and
(V) to the Class A-9 Bonds,
without regard to their
Planned Balance for such
Payment Date, until the Class
Current Principal Balance
thereof has been reduced to
zero; and
(y) 50% of the amount remaining after the
payments referred to in sub- clauses (1)
and (2) of this clause (B),
sequentially, as follows:
(I) if on any Payment Date, the
Adjusted Group 1 Non-PO
Mortgage Pool Balance is less
than the 250% SPA Balance for
such Payment Date, then on
such Payment Date, and on
each Payment Date thereafter,
to the Class A-8 Bonds until
the Class Current Principal
Balance thereof has been
reduced to zero;
(II) concurrently to Component
A-6-1 and the Class A-7
Bonds, pro rata, based on
their respective Component
Current Principal Balance and
Class Current Principal
Balance, until their
respective Component Current
Principal Balance and Class
Current Principal Balance
have been reduced to zero;
(III) to the Class A-8 Bonds until
the Class Current Principal
Balance thereof has been
reduced to zero;
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<PAGE> 48
(4) sequentially to the Class A-1 and
Class A-2 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;
(5) concurrently to the Class A-3 and
Class A-4 Bonds, pro rata, based on
their respective Class Current
Principal Balances, without regard
to their respective Planned Balances
for such Payment Date, until their
respective Class Current Principal
Balances have been reduced to zero;
(b) the PO 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 PO 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 PO 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-5, Class A-10, 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 PO 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 PO 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-5, Class A-10 and Class X Bonds) on the basis of such reduced
amounts. Notwithstanding any reduction in principal payable to the Component
P-1 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 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" with respect to such Payment Date). The Component P-1 Cash
Shortfall with respect to any Payment Date will be added to the PO Deferred
Amount applicable to Component P-1.
The "CLASS A-23 OPTIMAL PRINCIPAL AMOUNT" for any Payment Date
occurring prior to the Payment Date in October 2003 will equal zero. The Class
A-23 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-23 Pro Rata Optimal Principal
Amount (as defined below) for such Payment Date; and, for any Payment Date
thereafter, 100% of the Class A-23 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-23 Bonds and Component P-1) has been reduced to zero, the Class A-23
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.
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<PAGE> 49
For any Payment Date, the "CLASS A-23 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-23
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.
For any Payment Date, the "250% SPA BALANCE" means the amount for such
Payment Date shown in the table of the 250% SPA Adjusted Group 1 Non-PO
Mortgage Pool Balances as of the Cut-off Date set forth in Annex D attached
hereto. The percentages set forth in such table were derived assuming that 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 assuming the Group 1 Mortgage Loans prepay at a
constant rate of 250% SPA.
The "ADJUSTED GROUP 1 NON-PO MORTGAGE POOL BALANCE" means the sum for
each Group 1 Mortgage Loan of the product of (i) the Scheduled Principal
Balance as of such Payment Date and (ii) the Non-PO Percentage for such
Mortgage Loan.
CLASS A-8 ACCRUAL. The "CLASS A-8 ACCRETION TERMINATION DATE" is the
earlier to occur of (i) the Payment Date on which the Component Current
Principal Balance and Class Current Principal Balance, respectively, of
Component A-6-1 and of the Class A-7 Bonds have been reduced to zero and (ii)
the Group 1 Cross-Over Date. On each Payment Date on or before the Class A-8
Accretion Termination Date, an amount (the "CLASS A-8 ACCRUAL AMOUNT") equal to
the accrued interest that would otherwise be payable in respect of the Class
A-8 Bonds on such Payment Date will be added to the Class Current Principal
Balance of the Class A-8 Bonds (such amount to thereafter accrue interest at
the Class A-8 Bond Interest Rate) and such amount will be paid, as principal,
as follows:
first, concurrently to Component A-6-1 and the Class A-7 Bonds, pro
rata, based on their respective Component Current Principal Balance and
Class Current Principal Balance, until their respective Component
Current Principal Balance and Class Current Principal Balance have been
reduced to zero; and
second, to the Class A-8 Bonds, until the Class Current Principal
Balance thereof has been reduced to zero.
CLASS A-12 ACCRUAL. The "CLASS A-12 ACCRETION TERMINATION DATE" is
the earlier to occur of (i) the Payment Date on which the Component Current
Principal Balance and Class Current Principal Balance, respectively, of
Component A- 6-2 and the Class A-11 Bonds have been reduced to zero and (ii)
the Group 1 Cross-Over Date. On each Payment Date on or before the Class A-12
Accretion Termination Date, an amount (the "CLASS A-12 ACCRUAL AMOUNT") equal
to the accrued interest that would otherwise be payable in respect of the Class
A-12 Bonds on such Payment Date will be added to the Class Current Principal
Balance of the Class A-12 Bonds (such amount to thereafter accrue interest at
the Class A-12 Bond Interest Rate) and such amount will be paid, as principal,
as follows:
first, concurrently to Component A-6-2 and the Class A-11 Bonds, pro
rata, based on their respective Component Current Principal Balance
and Class Current Principal Balance, until their respective Component
Current Principal Balance and Class Current Principal Balance have
been reduced to zero; and
second, to the Class A-12 Bonds, until the Class Current Principal
Balance thereof has been reduced to zero.
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.
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<PAGE> 50
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 the Group 2 Senior Bonds,
the Accrued Bond Interest on each such Class for such Payment Date; as
described below, the Accrued Bond Interest on each such Class of the
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 II-X-1 and
Class II-X-2 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 II-A-1 Bonds until the Class
Current Principal Balance thereof has been
reduced to zero;
(b) the PO 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;
(c) the PO Principal Payment Amount for the Class II-P
Bonds for such Payment Date, to the Class II-P Bonds,
until the Class Current Principal Balance thereof has
been reduced to zero; and
fourth, concurrently to Component P-2 and the Class II-P Bonds, the PO
Deferred Amounts for such Payment Date for Component P-2 and the Class
II-P Bonds, respectively, such amounts to be paid, pro rata, based on
such amounts; 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 or the Class Current Principal Balance of the Class II-P Bonds and
(iii) no payment will be made in respect of the PO Deferred Amounts
for Component P-2 or the Class II-P Bonds 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, the PO Principal Payment Amount for Component P-2 and the PO
Principal Payment Amount for the Class II-P Bonds 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 II-X-1 and
Class II-X-2 Bonds) on the basis of such reduced amounts. Notwithstanding any
reduction in principal payable to the Class P Bonds or the Class II-P Bonds
pursuant to this paragraph: (i) the Component Current Principal Balance of
Component P-2 shall be reduced not only by principal so paid but also by the
difference between (x) principal payable to the Class P Bonds with respect to
Component P-2 in accordance with clause (b) of priority third above and (y)
principal actually paid to the Class P Bonds with respect to Component P-2
after giving effect to this paragraph (such difference, the
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<PAGE> 51
"COMPONENT P-2 CASH SHORTFALL" with respect to such Payment Date) and (ii) the
Class Current Principal Balance of the Class II-P Bonds shall be reduced not
only by principal so paid but also by the difference between (x) principal
payable to the Class II-P Bonds in accordance with clause (c) of priority third
above and (y) principal actually paid to the Class II-P Bonds after giving
effect to this paragraph (such difference, the "CLASS II-P CASH SHORTFALL", and
the Component P-1 Cash Shortfall, the Component P-2 Cash Shortfall and the
Class II-P Cash Shortfall, each a "PO CASH SHORTFALL"). The Component P-2 Cash
Shortfall with respect to any Payment Date will be added to the PO Deferred
Amount applicable to Component P-2, and the Class II-P Cash Shortfall with
respect to any Payment Date will be added to the PO Deferred Amount applicable
to the Class II-P Bonds.
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 II-B-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class
II-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
Component will be made in proportion to the then Class Current Principal
Balance of such Classes and Component Current Principal Balances of each such
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 and Class II-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 other than the LIBOR 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 of such Bonds
until the 25th day (or if such day is not a Business Day, then on the next
succeeding Business Day) of the month following the month in which interest
accrues on the Mortgage Loans. See "Yield and Prepayment Considerations"
herein.
The Class P and Class II-P Bonds are principal only Bonds and will not
bear interest.
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<PAGE> 52
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" and the "GROUP 2
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 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 Class
designations commencing with the Class B-6 and Class II-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 PO Deferred Payment Writedown Amount, in each case for previous
Payment Dates, and as increased by, in the case of an Accrual Bond, amounts
added to the principal balance of such Bond as described under "--Group 1
Senior Bonds". 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 Component, the "COMPONENT CURRENT PRINCIPAL BALANCE" thereof will equal
such Component's initial principal amount on the Closing Date, as reduced by
(i) all amounts paid on previous Payment Dates on such Component (other than
with respect to PO Deferred Amounts, in the case of a P Component), (ii) the
principal portion of all Realized Losses previously allocated to such Component
(taking account of the Loss Allocation Limitation applicable to the Bond Group
of such Component) and (iii) in the case of a P Component, any applicable PO
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 PO Deferred Payment Writedown
Amount and PO 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 PO 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 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-5 Bonds (the "CLASS A-5 NOTIONAL
BALANCE") on any date will be equal to the sum of (i) the product of (A)
14.8148148148% and (B) the Class Current Principal Balance of the Class A-1
Bonds, (ii) the product of (A) 14.0740740741% and (B) the Class Current
Principal Balance
S-52
<PAGE> 53
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 and (iv) the product of
(A) 13.3333333333% and (B) the Class Current Principal Balance of the Class A-4
Bonds. The Class Notional Balance of the Class A-10 Bonds (the "CLASS A-10
NOTIONAL BALANCE") on any date will be equal to the Class Current Principal
Balance of the Class A-9 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 each Non-Discount Mortgage
Loan in Mortgage Loan Group 1 on the second preceding Due Date, after giving
effect to payments due on such date. The Class Notional Balance of the Class
II-X-1 Bonds (the "CLASS II-X-1 NOTIONAL BALANCE") immediately prior to a given
Payment Date will be equal to the aggregate of the Scheduled Principal Balances
of each Non-Discount Mortgage Loan in Sub-Group 2A on the second preceding Due
Date, after giving effect to payments due on such date. The Class Notional
Balance of the Class II-X-2 Bonds (the "CLASS II-X-2 NOTIONAL BALANCE")
immediately prior to a given Payment Date will be equal to the aggregate of the
Scheduled Principal Balances of each Non-Discount Mortgage Loan in Sub-Group 2B
on the second preceding Due Date, after giving effect to payments due on such
date.
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 will be offset to the extent of certain
Compensating Interest Payments (as defined under "Pooling and Servicing
Agreement--Servicing Compensation, Compensating Interest and Payment of
Expenses" herein). Interest Shortfalls net of Compensating Interest Payments
are referred to herein as "NET INTEREST SHORTFALLS".
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 Group 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 Servicer, the Sub-Servicers or otherwise,
except to the extent of applicable Compensating Interest Payments.
CALCULATION OF LIBOR. Commencing on October 22, 1998, with respect to
the Class A-6, Class A-7, Class A-11, Class A-21 and Class A-22 Bonds, and
monthly thereafter on the second business day prior to the first day of the
related Interest Accrual Period for such Classes of Bonds (each, a "LIBOR
DETERMINATION DATE"), until the Class Current Principal Balances of such
Classes of Bonds have been reduced to zero, the Master Servicer will request
each of the designated reference banks meeting the criteria set forth herein
(the "REFERENCE BANKS") to inform the Master Servicer 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 Master Servicer, 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.
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LIBOR will be established by the Master Servicer on each LIBOR
Determination Date as follows:
(1) 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%).
(2) 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 Master Servicer determines to be either (i)
the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/32%) of the one-month United States dollar lending rates
that New York City banks selected by the 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 Master Servicer, being so made,
or (ii) in the event that the Master Servicer can determine no such
arithmetic mean, the lowest one-month United States dollar lending
rate which New York City banks selected by the Master Servicer are
quoting on such LIBOR Determination Date to leading European banks.
(3) If on the first LIBOR Determination Date, the Master
Servicer is required but is unable to determine the Reserve Interest
Rate in the manner provided in paragraph (b) above, LIBOR shall be
5.65625%. If on any subsequent LIBOR Determination Date, the Master
Servicer 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 Issuer,
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 Master
Servicer should terminate the appointment of any such Reference Bank, the
Master Servicer 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 Master Servicer's calculation of the rate of interest
applicable to the Class A-6, Class A-7, Class A-11, Class A-21 and Class A-22
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 Sub-Group 2A 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 Sub-Group 2B 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) the Class II-P Bonds, on the
other, in each case based on the applicable Non-PO Percentage and the
applicable PO Percentage, respectively, of such amounts.
The "NON-PO PERCENTAGE" with respect to any Mortgage Loan in Mortgage
Loan Group 1, Sub-Group 2A or Sub-Group 2B with a Net Rate less than 6.75%,
6.25% or 6.25%, respectively, per annum (each such Mortgage Loan, a "DISCOUNT
MORTGAGE LOAN") will be equal to the Net Rate thereof divided by 6.75%, 6.25%
or 6.25%, respectively. The "NON-PO PERCENTAGE" with respect to any Mortgage
Loan in Mortgage Loan Group 1, Sub-Group 2A or Sub-Group 2B with a Net Rate
equal to or greater than 6.75%, 6.25% or 6.25%, respectively, per annum (each
such Mortgage Loan, a "NON-DISCOUNT MORTGAGE LOAN") will be 100%. The "PO
PERCENTAGE" with respect to any Discount Mortgage Loan in Mortgage Loan Group
1, Sub-Group 2A or Sub-Group 2B will be the fraction, expressed as a
percentage, equal to 6.75%, 6.25% or 6.25%, respectively, minus the Net Rate
thereof divided by 6.75%, 6.25% or
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6.25%, respectively. The "PO PERCENTAGE" with respect to any Non-Discount
Mortgage Loan in Mortgage Loan Group 1, Sub- Group 2A or Sub-Group 2B 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 PO Principal
Payment Amount for Component P-1 for such Payment Date.
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 PO 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, (ii) the Component Current Principal
Balance of Component P-2 and the Class Current Principal Balance of the Class
II-P Bonds 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, Component
P-2 and the Class II-P Bonds in an aggregate amount not to exceed the sum of
the Group 2 Senior P&I Optimal Principal Amount, the PO Principal Payment
Amount for Component P-2 and the PO Principal Payment Amount for the Class II-P
Bonds 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 PO Deferred Amounts for Component
P-2 and the Class II-P Bonds 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.
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
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 voluntary prepayment in full received by the related
Sub-Servicer during the preceding Prepayment Period;
(iii) the applicable Senior Prepayment Percentage of the
applicable Non-PO Percentage of all partial prepayments allocated to
principal received by the related Sub-Servicer during the applicable
Prepayment Period with respect to each Mortgage Loan in the related
Mortgage Loan Group;
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(iv) the lesser of (a) the applicable Senior Prepayment
Percentage of the applicable Non-PO 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 immediately
preceding calendar month (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
immediately preceding calendar month 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 immediately preceding calendar month (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 Amounts with respect to Bond Group 1
and Bond Group 2 are referred to herein as the "GROUP 1 SENIOR P&I OPTIMAL
PRINCIPAL AMOUNT" and the "GROUP 2 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 and Group 2
Bonds are expected to be approximately 95.49% and 97.00%, 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>
October 1998 - September 2003. . . . . . . . . . . . . 100%
October 2003 - September 2004 . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 70%
of the Subordinate Percentage for such Bond Group
October 2004 - September 2005 . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 60%
of the Subordinate Percentage for such Bond Group
October 2005 - September 2006 . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 40%
of the Subordinate Percentage for such Bond Group
October 2006 - September 2007 . . . . . . . . . . . . . Senior Percentage for the related Bond Group plus 20%
of the Subordinate Percentage for such Bond Group
October 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 October 2003 and
September 2004, (b) 35% of the applicable Original Subordinate Principal
Balance if such Payment Date occurs between and including October 2004 and
September 2005, (c) 40% of the applicable Original Subordinate Principal
Balance if such Payment Date occurs between and including October 2005 and
September 2006, (d) 45% of the applicable Original Subordinate Principal
Balance if such Payment Date occurs between and including October 2006 and
September 2007, and (e) 50% of the applicable Original Subordinate Principal
Balance if such Payment Date occurs during or after October 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 "PO PRINCIPAL PAYMENT AMOUNT" for each of Component P-1, Component
P-2 and the Class II-P Bonds 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 Loan Group (as defined below) on the related Due Date as
specified in the amortization schedule at the time applicable thereto
(after adjustment for previous principal prepayments but
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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 PO Percentage of the Scheduled
Principal Balance of each Discount Mortgage Loan in the related Loan
Group which was the subject of a voluntary prepayment in full received
by the related Sub-Servicer during the preceding Prepayment Period;
(iii) the applicable PO Percentage of all partial
prepayments allocated to principal of each Discount Mortgage Loan in
the related Loan Group received by the related Sub-Servicer during the
preceding 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
Loan Group which became a Liquidated Mortgage Loan during the
immediately preceding calendar month (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 Loan Group purchased by an insurer from the Certificate
Trustee during the immediately preceding calendar month 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 Loan
Group which became a Liquidated Mortgage Loan during the immediately
preceding calendar month (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 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 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 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 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.
For purposes of the foregoing definition, the "RELATED LOAN GROUP" with respect
to the Class P-1 Component, the Class P- 2 Component and the Class II-P Bonds
is Mortgage Loan Group 1, Sub-Group 2A and Sub-Group 2B, respectively.
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 and Group 2 Subordinate Bonds are
expected to be approximately 4.51% and 3.00%, respectively.
The "SUBORDINATE OPTIMAL PRINCIPAL AMOUNT" for the Subordinate Bonds
of each Bond Group with respect to each Payment Date will be an amount, 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,
equal to the excess, if any, of (a) the sum of
(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
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<PAGE> 59
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 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 voluntary prepayment in full received by the related
Sub-Servicer during the preceding Prepayment Period;
(iii) the applicable Subordinate Prepayment Percentage of
the applicable Non-PO Percentage of all partial prepayments of
principal received by the related Sub-Servicer during the immediately
preceding Prepayment Period with respect to each Mortgage Loan in the
related Mortgage Loan Group;
(iv) the excess, if any, of (A) the applicable Non-PO
Percentage of 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) 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";
(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 has been reduced to zero, 100% of any applicable Senior P&I
Optimal Principal Amount
over (b) the PO Deferred Payment Writedown Amount payable on such Payment Date
with respect to (x) in the case of the Group 1 Subordinate Bonds, Component P-1
or (y) in the case of the Group 2 Subordinate Bonds, Component P-2 and the
Class II-P Bonds.
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 Class 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 the Classes of Subordinate Bonds
of the related Bond Group having lower numerical Class designations. 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 of the
related Bond Group in reduction of their respective Class Current Principal
Balances, sequentially, in the order of their numerical Class designations.
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"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
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.
A "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 CLASS CURRENT PRINCIPAL BALANCES OF THE
PAC BONDS. The Class A-1, Class A-2, Class A-3, and Class A-4 Bonds are
planned amortization class securities and are sometimes collectively referred
to as the "PAC I BONDS". The Class A-9 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 for such Payment Date to the planned balance (each, a "PLANNED
BALANCE") for such Class set forth in Annex B hereof.
PAYMENTS IN REDUCTION OF THE CLASS CURRENT PRINCIPAL BALANCE AND
COMPONENT PRINCIPAL BALANCE OF THE TAC BONDS. Component A-6-2 and the Class
A-11 Bonds are targeted amortization class securities and are sometimes
collectively referred to as the "TAC 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 TAC 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 Balance or Component Current Principal Balance of the TAC
Bonds on each Payment Date, each Class and Component of the TAC Bonds will be
entitled to receive the amount, if any, required to reduce the outstanding
Class Current Principal Balance or Component Current Principal Balance thereof
for such Payment Date to the targeted balance (each, a "TARGETED BALANCE") for
such Class set forth in Annex C hereof.
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 Sub-Servicer has determined that all amounts
which it expects to recover from or on account of such Mortgage Loan have been
recovered.
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"LIQUIDATION PROCEEDS" are amounts received by the applicable
Sub-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 applicable
Sub-Servicer or the Master Servicer, as the case may be, Monthly Advances and
expenses incurred by the applicable Sub-Servicer or the Master Servicer, as the
case may be, 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 applicable Sub-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, Sub-Group 2A or Sub-Group 2B and any PO Cash Shortfall relating to Component
P- 1, Component P-2 or the Class II-P Bonds will be allocated to Component
P-1, Component P-2 and the Class II-P Bonds, respectively, until the Component
Current Principal Balance of each such P Component, or the Class Current
Principal Balance of the Class II-P Bonds, 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, Component P-2 or the
Class II-P Bonds, as applicable, on such date in respect of any Realized Losses
(other than Excess Special Hazard Losses) on Mortgage Loans in Mortgage Loan
Group 1, Sub-Group 2A or Sub-Group 2B, respectively, and any related PO Cash
Shortfalls and all amounts previously allocated in respect of such Realized
Losses or related PO Cash Shortfalls and not paid on prior Payment Dates will
be the applicable "PO DEFERRED AMOUNT" for Component P-1, Component P-2 and the
Class II-P Bonds, 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 PO 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
"PO DEFERRED PAYMENT WRITEDOWN AMOUNT"). No interest will accrue on any PO
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 Class designation in such Bond
Group then outstanding will be reduced by the amount of any payments in respect
of the applicable PO 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 Group 1, no more payments will be made in respect of,
and applicable Realized Losses and PO Cash Shortfalls allocable to the
Component P-1 will not be added to, the PO Deferred Amount for Component P-1.
After the Cross-Over Date with respect to Bond Group 2, no more payments will
be made in respect of, and applicable Realized Losses and PO Cash Shortfalls
allocable to Component P-2 and the Class II-P Bonds will not be added to, the
respective PO Deferred Amounts for Component P-2 and the Class II-P Bonds.
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 immediately
preceding calendar month (other than Excess Special Hazard Losses) will be
allocated among the outstanding Classes of Subordinate Bonds in such 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 (i.e., such
Realized Losses will be allocated first to the Class B-6 and Class II-B-6
Bonds, respectively, while such Bonds are outstanding, second, to
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the Class B-5 and Class II-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, among the
Senior Bonds of such Bond Group (excluding the P Component of such Bond Group,
and excluding the Class II-P Bonds). 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 P Components of the Class P Bonds, and the Class II-P, Class A-5, Class
A-10, Class X, Class II-X-1 and Class II-X-2 Bonds) based on their Class
Current Principal Balances. 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 Balance
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 or the
Component Current Principal Balance of any Component. 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 their numerical Class
designation 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 Group 1, Sub-Group 2A and
Sub-Group 2B to be allocated to Component P-1, Component P-2 and the Class II-P
Bonds, 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 related PO Deferred Amount for such Payment Date.
The interest portion of Realized Losses will be allocated among the
outstanding Classes of Offered Bonds 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 1% of the aggregate of the
Scheduled Principal Balances as of the Cut-off Date of the Group 1 Mortgage
Loans (or approximately $4,452,996) and the "Special Hazard Loss Amount" for
the Group 2 Mortgage Loans will equal twice the outstanding principal balance
of the Mortgage Loan in Mortgage Loan Group 2 which has the largest outstanding
principal balance as of the Cut-off Date (or approximately $2,243,054). 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
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approved by each of Moody's and Fitch, 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 Offered Subordinate Bonds which are
part of the Group 1 Subordinate Bonds and of the Other Subordinate Bonds which
are part of the Group 1 Subordinate Bonds will equal approximately 3.65% and
0.85%, respectively, of the aggregate Class Current Principal Balances of all
of the Classes of Group 1 Bonds and (ii) the aggregate of the Class Current
Principal Balances of the Offered Subordinate Bonds which are part of the Group
2 Subordinate Bonds and of the Other Subordinate Bonds which are part of the
Group 2 Subordinate Bonds will equal approximately 2.30% and 0.70%,
respectively, of the aggregate of the Class Current Principal Balances of all
the Classes of Group 2 Bonds.
The rights of the holders of each Class of the Group 1 Subordinate
Bonds and the Group 2 Subordinate Bonds to receive payments with respect to the
Group 1 Mortgage Loans and the Group 2 Mortgage Loans, respectively, will be
subordinated to such rights of the holders of the Group 1 Senior Bonds and the
Group 2 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 on Mortgages Loans in the related Mortgage Loan Group in excess
of the total subordination amount, and of Excess Special Hazard Losses on
Mortgage Loans in the related Mortgage Loan Group. The allocation of Non-PO
Realized Losses and the applicable PO Deferred Payment Writedown Amounts 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 the Non-PO Percentage
of 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.
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
Group Available Funds for the related Mortgage Loan Group, prior to any payment
being made on such date on each
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Class of Subordinate Bonds of such Bond Group with a higher numerical
designation. In addition, except as described herein, Non-PO Realized Losses
for all Bond Groups and the applicable PO 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 PO Deferred
Payment Writedown Amounts to a Class of Subordinate Bonds of any Bond Group
will be to reduce future payments allocable to such Class and increase the
relative portion of payments allocable to the Classes of Subordinate Bonds of
such Bond Group with a lower numerical Class designation.
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 the Classes of Subordinate Bonds of such
Bond Group 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 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 the Classes of
Bonds of such Bond Group with a lower numerical Class designation 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 the applicable Group Available Funds
to various related 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 Maturity" for payments on each Class of Group 1 Bonds and
the Class P Bonds, is the Payment Date in November 2028 and the Stated Maturity
for payments on each Class of Group 2 Bonds is the Payment Date in November
2013, 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 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
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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
Because the Class X Notional Balance, the Class II-X-1 Notional
Balance and the Class II-X-2 Notional Balance will be based upon the Scheduled
Principal Balances of the Non-Discount Mortgage Loans in Mortgage Loan Group 1,
Sub- Group 2A and the Sub-Group 2B, respectively, the yield on the Class X,
Class II-X-1 and Class II-X-2 Bonds will be sensitive to the rate and timing of
principal payments of the Non-Discount Mortgage Loans in Mortgage Loan Group 1,
Sub- Group 2A and Sub-Group 2B, respectively. The yield on the Class A-5 and
Class A-10 Bonds also will be sensitive to the rate and timing of principal
payments on the Group 1 Mortgage Loans, because the Class A-5 Notional Balance
is based on the Class Current Principal Balances of the Class A-1 through Class
A-4 Bonds, and the Class A-10 Notional Balance is based on the Class Current
Principal Balance of the Class A-9 Bonds. The Class A-1 through A-4 Bonds and
the Class A-9 Bonds are PAC Bonds. See "--Yield on the PAC Bonds" below. A
rapid rate of principal payments with respect to the applicable Mortgage Loan
Group or Sub-Group may 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,
Class II-X-1 and Class II-X-2 Bonds to the extent the Non-Discount Mortgage
Loans in the Mortgage Loan Group 1, Sub-Group 2A or Sub-Group 2B, respectively,
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-8 BONDS
Because of the payment priorities of the Group 1 Senior Bonds, the
weighted average life of Class A-8 Bonds will be extremely sensitive to the
rate of principal prepayments on the Group 1 Mortgage Loans.
CLASS A-23 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-23 Bonds. Unless the Class Current Principal Balances of all
other Group 1 Senior P&I Bonds have been reduced to zero, the Class A-23 Bonds
will not be entitled to receive any payments of principal prior to the Payment
Date occurring in October 2003.
CLASS P AND CLASS II-P BONDS
The amounts payable with respect to Component P-1, Component P-2 and
the Class II-P Bonds derive from principal payments on the Discount Mortgage
Loans in Mortgage Loan Group 1, Sub-Group 2A and Sub-Group 2B, respectively.
As a result, the yield on the Class P Bonds and the Class II-P Bonds will be
adversely affected by slower than expected payments of principal (including
prepayments, defaults and liquidations) on the related Discount Mortgage Loans.
Because the Discount Mortgage Loans of each Mortgage Loan Group 1 and each such
Sub-Group have lower Net Rates than the Non-Discount Mortgage Loans of such
Mortgage Loan Group and Sub-Group, and because the Mortgage Loans with lower
Net Rates are likely to have lower Mortgage Rates, the Discount Mortgage Loans
of each Mortgage Loan Group 1 and each such Sub-Group are generally likely to
prepay at a slower rate than the Non-Discount Mortgage Loans of Mortgage Loan
Group 1 and each such Sub-Group.
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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 0.50% per annum
in month one, 1% per annum in month two, reaching 15% per annum in month 30 and
remaining constant at 15% per annum thereafter. A 0% SPA assumes no
prepayments.
PRICING ASSUMPTIONS
The Bonds were structured assuming, among other things, a 275% SPA
with respect to the Group 1 Bonds and a 250% SPA with respect to the Group 2
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
Mortgage Loan Group 1, Sub-Group 2A and Sub-Group 2B consist of Mortgage Loans
having the characteristics set forth below:
<TABLE>
<CAPTION>
Mortgage
Loan Group Cut-off Date Original Term Remaining Term
or Scheduled to Maturity to Maturity
Sub-Group Principal Balance (in months) (in months) Mortgage Rate Net Rate
--------- ----------------- ----------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
1 $ 22,985,478 355 354 6.735353092% 6.525082976%
1 $ 422,314,147 358 357 7.443344453% 7.218744209%
2A $ 1,414,646 179 175 6.327574129% 6.077574129%
2A $ 47,478,370 179 177 7.158198241% 6.909932178%
2B $ 3,043,900 179 179 6.339966298% 6.139966298%
2B $ 41,479,705 180 179 6.975292964% 6.773158166%
</TABLE>
(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 October 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 September 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
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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 October 1998, (x)
the Offered Bonds are purchased on September 30, 1998 and (xi) neither BSMCC,
its designee nor the Master Servicer 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
September 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.
S-67
<PAGE> 68
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS P BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 99 97 95 92 90
September 2000 ................................... 97 92 83 75 67
September 2001 ................................... 96 85 69 54 43
September 2002 ................................... 94 79 57 39 27
September 2003 ................................... 93 73 46 28 17
September 2004 ................................... 91 67 38 20 11
September 2005 ................................... 89 62 31 14 7
September 2006 ................................... 87 57 25 10 4
September 2007 ................................... 85 52 21 7 3
September 2008 ................................... 83 48 17 5 2
September 2009 ................................... 80 44 14 4 1
September 2010 ................................... 78 40 11 3 1
September 2011 ................................... 75 36 9 2 *
September 2012 ................................... 72 32 7 1 *
September 2013 ................................... 69 29 6 1 *
September 2014 ................................... 66 26 5 1 *
September 2015 ................................... 63 24 4 * *
September 2016 ................................... 59 21 3 * *
September 2017 ................................... 56 18 2 * *
September 2018 ................................... 52 16 2 * *
September 2019 ................................... 48 14 1 * *
September 2020 ................................... 44 12 1 * *
September 2021 ................................... 39 10 1 * *
September 2022 ................................... 34 8 1 * *
September 2023 ................................... 29 7 * * *
September 2024 ................................... 23 5 * * *
September 2025 ................................... 17 3 * * *
September 2026 ................................... 11 2 * * *
September 2027 ................................... 4 1 * * *
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 18.8 11.1 6.0 4.1 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-68
<PAGE> 69
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 74 0 0 0 0
September 2002 ................................... 46 0 0 0 0
September 2003 ................................... 15 0 0 0 0
September 2004 ................................... 0 0 0 0 0
September 2005 ................................... 0 0 0 0 0
September 2006 ................................... 0 0 0 0 0
September 2007 ................................... 0 0 0 0 0
September 2008 ................................... 0 0 0 0 0
September 2009 ................................... 0 0 0 0 0
September 2010 ................................... 0 0 0 0 0
September 2011 ................................... 0 0 0 0 0
September 2012 ................................... 0 0 0 0 0
September 2013 ................................... 0 0 0 0 0
September 2014 ................................... 0 0 0 0 0
September 2015 ................................... 0 0 0 0 0
September 2016 ................................... 0 0 0 0 0
September 2017 ................................... 0 0 0 0 0
September 2018 ................................... 0 0 0 0 0
September 2019 ................................... 0 0 0 0 0
September 2020 ................................... 0 0 0 0 0
September 2021 ................................... 0 0 0 0 0
September 2022 ................................... 0 0 0 0 0
September 2023 ................................... 0 0 0 0 0
September 2024 ................................... 0 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 3.8 2.4 2.3 2.3 2.3
</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-69
<PAGE> 70
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-2 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 68 51 51 51
September 2002 ................................... 100 0 0 0 0
September 2003 ................................... 100 0 0 0 0
September 2004 ................................... 91 0 0 0 0
September 2005 ................................... 72 0 0 0 0
September 2006 ................................... 52 0 0 0 0
September 2007 ................................... 32 0 0 0 0
September 2008 ................................... 10 0 0 0 0
September 2009 ................................... 0 0 0 0 0
September 2010 ................................... 0 0 0 0 0
September 2011 ................................... 0 0 0 0 0
September 2012 ................................... 0 0 0 0 0
September 2013 ................................... 0 0 0 0 0
September 2014 ................................... 0 0 0 0 0
September 2015 ................................... 0 0 0 0 0
September 2016 ................................... 0 0 0 0 0
September 2017 ................................... 0 0 0 0 0
September 2018 ................................... 0 0 0 0 0
September 2019 ................................... 0 0 0 0 0
September 2020 ................................... 0 0 0 0 0
September 2021 ................................... 0 0 0 0 0
September 2022 ................................... 0 0 0 0 0
September 2023 ................................... 0 0 0 0 0
September 2024 ................................... 0 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.1 3.2 3.0 3.0 3.0
</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-70
<PAGE> 71
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-3 AND CLASS A-4 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 100 100 100 100
September 2002 ................................... 100 94 82 82 67
September 2003 ................................... 100 65 49 49 16
September 2004 ................................... 100 39 20 20 0
September 2005 ................................... 100 15 3 3 0
September 2006 ................................... 100 0 0 0 0
September 2007 ................................... 100 0 0 0 0
September 2008 ................................... 100 0 0 0 0
September 2009 ................................... 95 0 0 0 0
September 2010 ................................... 86 0 0 0 0
September 2011 ................................... 76 0 0 0 0
September 2012 ................................... 65 0 0 0 0
September 2013 ................................... 54 0 0 0 0
September 2014 ................................... 41 0 0 0 0
September 2015 ................................... 28 0 0 0 0
September 2016 ................................... 13 0 0 0 0
September 2017 ................................... 0 0 0 0 0
September 2018 ................................... 0 0 0 0 0
September 2019 ................................... 0 0 0 0 0
September 2020 ................................... 0 0 0 0 0
September 2021 ................................... 0 0 0 0 0
September 2022 ................................... 0 0 0 0 0
September 2023 ................................... 0 0 0 0 0
September 2024 ................................... 0 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)**................ 15.1 5.7 5.1 5.1 4.4
</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-71
<PAGE> 72
PERCENT OF INITIAL CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-5 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 96 75 70 70 70
September 2002 ................................... 91 52 46 46 37
September 2003 ................................... 86 36 27 27 9
September 2004 ................................... 81 22 11 11 0
September 2005 ................................... 76 8 2 2 0
September 2006 ................................... 70 0 0 0 0
September 2007 ................................... 64 0 0 0 0
September 2008 ................................... 58 0 0 0 0
September 2009 ................................... 53 0 0 0 0
September 2010 ................................... 47 0 0 0 0
September 2011 ................................... 42 0 0 0 0
September 2012 ................................... 36 0 0 0 0
September 2013 ................................... 30 0 0 0 0
September 2014 ................................... 23 0 0 0 0
September 2015 ................................... 15 0 0 0 0
September 2016 ................................... 7 0 0 0 0
September 2017 ................................... 0 0 0 0 0
September 2018 ................................... 0 0 0 0 0
September 2019 ................................... 0 0 0 0 0
September 2020 ................................... 0 0 0 0 0
September 2021 ................................... 0 0 0 0 0
September 2022 ................................... 0 0 0 0 0
September 2023 ................................... 0 0 0 0 0
September 2024 ................................... 0 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 11.3 4.4 4.1 4.1 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-72
<PAGE> 73
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-6 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 98 96 94 91 86
September 2000 ................................... 97 90 74 57 40
September 2001 ................................... 96 90 61 28 7
September 2002 ................................... 95 89 51 11 0
September 2003 ................................... 95 88 44 6 0
September 2004 ................................... 94 87 40 4 0
September 2005 ................................... 93 87 35 3 0
September 2006 ................................... 92 84 29 2 0
September 2007 ................................... 91 79 24 1 0
September 2008 ................................... 90 74 20 * 0
September 2009 ................................... 89 69 16 * 0
September 2010 ................................... 88 62 12 * 0
September 2011 ................................... 87 54 9 * 0
September 2012 ................................... 86 47 6 * 0
September 2013 ................................... 84 39 4 * 0
September 2014 ................................... 83 32 3 * 0
September 2015 ................................... 81 25 3 * 0
September 2016 ................................... 80 18 2 * 0
September 2017 ................................... 77 11 2 * 0
September 2018 ................................... 71 6 1 * 0
September 2019 ................................... 65 3 1 * 0
September 2020 ................................... 58 0 1 * 0
September 2021 ................................... 51 0 1 * 0
September 2022 ................................... 42 0 * * 0
September 2023 ................................... 27 0 * * 0
September 2024 ................................... 12 0 * * 0
September 2025 ................................... 3 0 * * 0
September 2026 ................................... 0 0 * * 0
September 2027 ................................... 0 0 * * 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 20.8 12.8 5.9 2.6 1.9
</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-73
<PAGE> 74
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-7 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 98 95 95 90 86
September 2000 ................................... 96 86 74 57 44
September 2001 ................................... 95 85 61 33 11
September 2002 ................................... 95 85 51 17 0
September 2003 ................................... 94 84 45 9 0
September 2004 ................................... 94 84 41 7 0
September 2005 ................................... 94 83 37 5 0
September 2006 ................................... 93 81 29 3 0
September 2007 ................................... 92 73 23 1 0
September 2008 ................................... 92 66 19 1 0
September 2009 ................................... 91 59 16 * 0
September 2010 ................................... 91 52 13 * 0
September 2011 ................................... 90 46 10 * 0
September 2012 ................................... 89 40 8 * 0
September 2013 ................................... 88 35 7 * 0
September 2014 ................................... 87 29 5 * 0
September 2015 ................................... 86 24 4 * 0
September 2016 ................................... 85 19 3 * 0
September 2017 ................................... 84 14 3 * 0
September 2018 ................................... 76 9 2 * 0
September 2019 ................................... 68 4 2 * 0
September 2020 ................................... 59 0 1 * 0
September 2021 ................................... 50 0 1 * 0
September 2022 ................................... 40 0 1 * 0
September 2023 ................................... 29 0 * * 0
September 2024 ................................... 17 0 * * 0
September 2025 ................................... 5 0 * * 0
September 2026 ................................... 0 0 * * 0
September 2027 ................................... 0 0 * * 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 21.3 12.1 6.1 2.8 1.9
</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-74
<PAGE> 75
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-8 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 107 107 0 0 0
September 2000 ................................... 114 114 0 0 0
September 2001 ................................... 122 122 0 0 0
September 2002 ................................... 131 131 0 0 0
September 2003 ................................... 140 140 0 0 0
September 2004 ................................... 150 150 0 0 0
September 2005 ................................... 160 160 0 0 0
September 2006 ................................... 171 171 0 0 0
September 2007 ................................... 183 183 0 0 0
September 2008 ................................... 196 196 0 0 0
September 2009 ................................... 210 210 0 0 0
September 2010 ................................... 224 224 0 0 0
September 2011 ................................... 240 240 0 0 0
September 2012 ................................... 257 257 0 0 0
September 2013 ................................... 274 274 0 0 0
September 2014 ................................... 294 294 0 0 0
September 2015 ................................... 314 314 0 0 0
September 2016 ................................... 336 336 0 0 0
September 2017 ................................... 359 359 0 0 0
September 2018 ................................... 384 384 0 0 0
September 2019 ................................... 411 411 0 0 0
September 2020 ................................... 440 435 0 0 0
September 2021 ................................... 470 368 0 0 0
September 2022 ................................... 503 305 0 0 0
September 2023 ................................... 538 245 0 0 0
September 2024 ................................... 576 188 0 0 0
September 2025 ................................... 616 134 0 0 0
September 2026 ................................... 475 83 0 0 0
September 2027 ................................... 209 34 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 28.6 25.6 0.4 0.3 0.3
</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-75
<PAGE> 76
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE
OR CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-9 AND A-10 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 95 88 88 88 88
September 2000 ................................... 91 65 63 63 63
September 2001 ................................... 91 65 55 55 29
September 2002 ................................... 91 65 48 44 0
September 2003 ................................... 91 65 43 22 0
September 2004 ................................... 91 65 39 17 0
September 2005 ................................... 91 65 31 14 0
September 2006 ................................... 91 59 19 6 0
September 2007 ................................... 91 41 8 2 0
September 2008 ................................... 91 24 1 2 0
September 2009 ................................... 91 8 0 1 0
September 2010 ................................... 91 0 0 1 0
September 2011 ................................... 91 0 0 1 0
September 2012 ................................... 91 0 0 * 0
September 2013 ................................... 91 0 0 * 0
September 2014 ................................... 91 0 0 * 0
September 2015 ................................... 91 0 0 * 0
September 2016 ................................... 91 0 0 * 0
September 2017 ................................... 89 0 0 * 0
September 2018 ................................... 72 0 0 * 0
September 2019 ................................... 55 0 0 * 0
September 2020 ................................... 36 0 0 * 0
September 2021 ................................... 16 0 0 * 0
September 2022 ................................... 0 0 0 * 0
September 2023 ................................... 0 0 0 * 0
September 2024 ................................... 0 0 0 * 0
September 2025 ................................... 0 0 0 * 0
September 2026 ................................... 0 0 0 * 0
September 2027 ................................... 0 0 0 * 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 19.6 6.7 4.5 3.7 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).
S-76
<PAGE> 77
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-11 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 99 99 92 92 88
September 2000 ................................... 98 98 74 56 33
September 2001 ................................... 97 97 60 19 0
September 2002 ................................... 96 96 49 0 0
September 2003 ................................... 95 95 41 0 0
September 2004 ................................... 94 93 37 0 0
September 2005 ................................... 92 92 34 0 0
September 2006 ................................... 91 91 29 0 0
September 2007 ................................... 89 89 26 0 0
September 2008 ................................... 88 88 23 0 0
September 2009 ................................... 86 86 16 0 0
September 2010 ................................... 84 80 11 0 0
September 2011 ................................... 82 68 6 0 0
September 2012 ................................... 80 57 2 0 0
September 2013 ................................... 78 47 0 0 0
September 2014 ................................... 75 36 0 0 0
September 2015 ................................... 73 26 0 0 0
September 2016 ................................... 70 16 0 0 0
September 2017 ................................... 67 7 0 0 0
September 2018 ................................... 64 0 0 0 0
September 2019 ................................... 60 0 0 0 0
September 2020 ................................... 56 0 0 0 0
September 2021 ................................... 53 0 0 0 0
September 2022 ................................... 44 0 0 0 0
September 2023 ................................... 24 0 0 0 0
September 2024 ................................... 2 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 19.9 14.1 5.5 2.2 1.7
</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-77
<PAGE> 78
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-12 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 107 107 97 29 0
September 2000 ................................... 114 114 82 0 0
September 2001 ................................... 122 122 64 0 0
September 2002 ................................... 131 131 55 0 0
September 2003 ................................... 140 140 54 0 0
September 2004 ................................... 150 150 58 0 0
September 2005 ................................... 160 160 62 0 0
September 2006 ................................... 171 171 67 0 0
September 2007 ................................... 183 183 71 0 0
September 2008 ................................... 196 196 76 0 0
September 2009 ................................... 210 210 81 0 0
September 2010 ................................... 224 224 87 0 0
September 2011 ................................... 240 240 93 0 0
September 2012 ................................... 257 257 100 0 0
September 2013 ................................... 274 274 90 0 0
September 2014 ................................... 294 294 72 0 0
September 2015 ................................... 314 314 58 0 0
September 2016 ................................... 336 336 46 0 0
September 2017 ................................... 359 359 36 0 0
September 2018 ................................... 384 362 28 0 0
September 2019 ................................... 411 316 22 0 0
September 2020 ................................... 440 272 17 0 0
September 2021 ................................... 470 230 13 0 0
September 2022 ................................... 503 190 9 0 0
September 2023 ................................... 538 153 7 0 0
September 2024 ................................... 576 117 5 0 0
September 2025 ................................... 450 84 3 0 0
September 2026 ................................... 296 52 2 0 0
September 2027 ................................... 131 21 1 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 28.0 24.3 13.4 0.8 0.6
</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-78
<PAGE> 79
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-13 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 99 96 93 89 85
September 2000 ................................... 97 89 76 64 53
September 2001 ................................... 96 80 55 34 17
September 2002 ................................... 94 71 37 11 0
September 2003 ................................... 92 62 22 0 0
September 2004 ................................... 90 55 11 0 0
September 2005 ................................... 88 48 3 0 0
September 2006 ................................... 86 42 0 0 0
September 2007 ................................... 84 36 0 0 0
September 2008 ................................... 82 31 0 0 0
September 2009 ................................... 79 26 0 0 0
September 2010 ................................... 76 22 0 0 0
September 2011 ................................... 73 18 0 0 0
September 2012 ................................... 70 14 0 0 0
September 2013 ................................... 67 10 0 0 0
September 2014 ................................... 63 7 0 0 0
September 2015 ................................... 59 3 0 0 0
September 2016 ................................... 55 * 0 0 0
September 2017 ................................... 51 0 0 0 0
September 2018 ................................... 46 0 0 0 0
September 2019 ................................... 41 0 0 0 0
September 2020 ................................... 35 0 0 0 0
September 2021 ................................... 29 0 0 0 0
September 2022 ................................... 22 0 0 0 0
September 2023 ................................... 15 0 0 0 0
September 2024 ................................... 8 0 0 0 0
September 2025 ................................... 0 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 17.5 7.6 3.5 2.5 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-79
<PAGE> 80
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-14, CLASS A-15 AND CLASS A-16 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 100 100 100 100
September 2002 ................................... 100 100 100 100 0
September 2003 ................................... 100 100 100 1 0
September 2004 ................................... 100 100 100 0 0
September 2005 ................................... 100 100 100 0 0
September 2006 ................................... 100 100 30 0 0
September 2007 ................................... 100 100 0 0 0
September 2008 ................................... 100 100 0 0 0
September 2009 ................................... 100 100 0 0 0
September 2010 ................................... 100 100 0 0 0
September 2011 ................................... 100 100 0 0 0
September 2012 ................................... 100 100 0 0 0
September 2013 ................................... 100 100 0 0 0
September 2014 ................................... 100 100 0 0 0
September 2015 ................................... 100 100 0 0 0
September 2016 ................................... 100 100 0 0 0
September 2017 ................................... 100 48 0 0 0
September 2018 ................................... 100 0 0 0 0
September 2019 ................................... 100 0 0 0 0
September 2020 ................................... 100 0 0 0 0
September 2021 ................................... 100 0 0 0 0
September 2022 ................................... 100 0 0 0 0
September 2023 ................................... 100 0 0 0 0
September 2024 ................................... 100 0 0 0 0
September 2025 ................................... 89 0 0 0 0
September 2026 ................................... 0 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 27.3 19.0 7.9 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-80
<PAGE> 81
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-17, CLASS A-18, CLASS A-19 AND CLASS A-20 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 100 100 100 100
September 2002 ................................... 100 100 100 100 87
September 2003 ................................... 100 100 100 100 0
September 2004 ................................... 100 100 100 0 0
September 2005 ................................... 100 100 100 0 0
September 2006 ................................... 100 100 100 0 0
September 2007 ................................... 100 100 68 0 0
September 2008 ................................... 100 100 34 0 0
September 2009 ................................... 100 100 5 0 0
September 2010 ................................... 100 100 0 0 0
September 2011 ................................... 100 100 0 0 0
September 2012 ................................... 100 100 0 0 0
September 2013 ................................... 100 100 0 0 0
September 2014 ................................... 100 100 0 0 0
September 2015 ................................... 100 100 0 0 0
September 2016 ................................... 100 100 0 0 0
September 2017 ................................... 100 100 0 0 0
September 2018 ................................... 100 97 0 0 0
September 2019 ................................... 100 69 0 0 0
September 2020 ................................... 100 43 0 0 0
September 2021 ................................... 100 18 0 0 0
September 2022 ................................... 100 0 0 0 0
September 2023 ................................... 100 0 0 0 0
September 2024 ................................... 100 0 0 0 0
September 2025 ................................... 100 0 0 0 0
September 2026 ................................... 58 0 0 0 0
September 2027 ................................... 0 0 0 0 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 28.1 21.8 9.6 5.5 4.2
</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-81
<PAGE> 82
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-21 AND A-22 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 100 100 100 100
September 2002 ................................... 100 100 100 100 100
September 2003 ................................... 100 100 100 100 41
September 2004 ................................... 100 100 100 98 0
September 2005 ................................... 100 100 100 44 0
September 2006 ................................... 100 100 100 17 0
September 2007 ................................... 100 100 100 6 0
September 2008 ................................... 100 100 100 5 0
September 2009 ................................... 100 100 100 3 0
September 2010 ................................... 100 100 85 2 0
September 2011 ................................... 100 100 69 2 0
September 2012 ................................... 100 100 56 1 0
September 2013 ................................... 100 100 45 1 0
September 2014 ................................... 100 100 36 1 0
September 2015 ................................... 100 100 29 * 0
September 2016 ................................... 100 100 23 * 0
September 2017 ................................... 100 100 18 * 0
September 2018 ................................... 100 100 14 * 0
September 2019 ................................... 100 100 11 * 0
September 2020 ................................... 100 100 8 * 0
September 2021 ................................... 100 100 6 * 0
September 2022 ................................... 100 95 5 * 0
September 2023 ................................... 100 76 3 * 0
September 2024 ................................... 100 59 2 * 0
September 2025 ................................... 100 42 1 * 0
September 2026 ................................... 100 26 1 * 0
September 2027 ................................... 65 11 * * 0
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 29.2 26.6 15.7 7.3 5.0
</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-82
<PAGE> 83
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-23 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 100 100 100 100 100
September 2000 ................................... 100 100 100 100 100
September 2001 ................................... 100 100 100 100 100
September 2002 ................................... 100 100 100 100 100
September 2003 ................................... 100 100 100 100 100
September 2004 ................................... 100 98 94 91 73
September 2005 ................................... 99 95 87 80 39
September 2006 ................................... 98 90 78 65 21
September 2007 ................................... 96 85 66 50 12
September 2008 ................................... 94 78 54 36 7
September 2009 ................................... 92 71 44 25 5
September 2010 ................................... 90 65 36 18 3
September 2011 ................................... 87 60 29 13 2
September 2012 ................................... 84 54 24 9 1
September 2013 ................................... 82 49 19 6 1
September 2014 ................................... 78 45 15 4 *
September 2015 ................................... 75 40 12 3 *
September 2016 ................................... 71 36 10 2 *
September 2017 ................................... 67 32 8 1 *
September 2018 ................................... 63 28 6 1 *
September 2019 ................................... 58 24 5 1 *
September 2020 ................................... 54 21 4 * *
September 2021 ................................... 48 18 3 * *
September 2022 ................................... 42 15 2 * *
September 2023 ................................... 36 12 1 * *
September 2024 ................................... 30 9 1 * *
September 2025 ................................... 23 6 1 * *
September 2026 ................................... 15 4 * * *
September 2027 ................................... 7 2 * * *
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 21.4 15.9 11.5 9.6 7.2
</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-83
<PAGE> 84
PERCENT OF INITIAL CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS X BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 99 98 95 92 90
September 2000 ................................... 98 93 84 75 68
September 2001 ................................... 97 86 70 55 44
September 2002 ................................... 96 80 57 40 28
September 2003 ................................... 94 74 47 28 17
September 2004 ................................... 93 69 39 21 11
September 2005 ................................... 92 64 32 15 7
September 2006 ................................... 90 59 26 11 4
September 2007 ................................... 88 54 21 8 3
September 2008 ................................... 86 50 18 5 2
September 2009 ................................... 84 46 14 4 1
September 2010 ................................... 82 42 12 3 1
September 2011 ................................... 80 38 9 2 *
September 2012 ................................... 77 35 8 1 *
September 2013 ................................... 75 32 6 1 *
September 2014 ................................... 72 29 5 1 *
September 2015 ................................... 69 26 4 * *
September 2016 ................................... 65 23 3 * *
September 2017 ................................... 62 20 2 * *
September 2018 ................................... 58 18 2 * *
September 2019 ................................... 54 16 2 * *
September 2020 ................................... 49 14 1 * *
September 2021 ................................... 44 11 1 * *
September 2022 ................................... 39 9 1 * *
September 2023 ................................... 33 8 * * *
September 2024 ................................... 27 6 * * *
September 2025 ................................... 21 4 * * *
September 2026 ................................... 14 3 * * *
September 2027 ................................... 6 1 * * *
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 20.0 11.6 6.1 4.1 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-84
<PAGE> 85
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS B-1, CLASS B-2 AND CLASS B-3 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 99 99 99 99 99
September 2000 ................................... 98 98 98 98 98
September 2001 ................................... 97 97 97 97 97
September 2002 ................................... 96 96 96 96 96
September 2003 ................................... 94 94 94 94 94
September 2004 ................................... 93 91 88 85 82
September 2005 ................................... 92 88 81 74 67
September 2006 ................................... 90 83 71 60 51
September 2007 ................................... 88 77 60 46 35
September 2008 ................................... 86 71 49 33 22
September 2009 ................................... 84 65 40 23 14
September 2010 ................................... 82 60 33 17 8
September 2011 ................................... 80 55 27 12 5
September 2012 ................................... 77 50 22 8 3
September 2013 ................................... 75 45 17 6 2
September 2014 ................................... 72 41 14 4 1
September 2015 ................................... 69 37 11 3 1
September 2016 ................................... 65 33 9 2 *
September 2017 ................................... 62 29 7 1 *
September 2018 ................................... 58 26 5 1 *
September 2019 ................................... 53 22 4 1 *
September 2020 ................................... 49 19 3 * *
September 2021 ................................... 44 16 2 * *
September 2022 ................................... 39 13 2 * *
September 2023 ................................... 33 11 1 * *
September 2024 ................................... 27 8 1 * *
September 2025 ................................... 21 6 1 * *
September 2026 ................................... 14 4 * * *
September 2027 ................................... 6 2 * * *
September 2028 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 19.9 14.9 10.9 9.1 8.3
</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-85
<PAGE> 86
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS II-A-1 BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 96 94 92 90 86
September 2000 ................................... 92 87 79 71 62
September 2001 ................................... 87 77 64 51 37
September 2002 ................................... 82 68 51 36 22
September 2003 ................................... 77 60 40 25 12
September 2004 ................................... 71 52 31 17 7
September 2005 ................................... 65 45 24 12 4
September 2006 ................................... 59 38 18 8 2
September 2007 ................................... 52 31 14 5 1
September 2008 ................................... 44 25 10 3 1
September 2009 ................................... 36 19 7 2 *
September 2010 ................................... 28 14 5 1 *
September 2011 ................................... 19 9 3 1 *
September 2012 ................................... 9 4 1 * *
September 2013 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.7 6.8 4.9 3.8 2.9
</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-86
<PAGE> 87
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS II-P BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 96 95 93 91 88
September 2000 ................................... 91 87 80 74 65
September 2001 ................................... 87 78 65 54 41
September 2002 ................................... 82 69 52 39 24
September 2003 ................................... 76 60 41 27 15
September 2004 ................................... 71 53 33 19 9
September 2005 ................................... 64 45 25 13 5
September 2006 ................................... 58 38 19 9 3
September 2007 ................................... 51 32 14 6 2
September 2008 ................................... 44 25 11 4 1
September 2009 ................................... 36 20 7 2 *
September 2010 ................................... 28 14 5 1 *
September 2011 ................................... 19 9 3 1 *
September 2012 ................................... 9 4 1 * *
September 2013 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.6 6.8 5.0 3.9 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-87
<PAGE> 88
PERCENT OF INITIAL CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS II-X-1 BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 96 94 92 89 86
September 2000 ................................... 92 87 79 71 62
September 2001 ................................... 87 77 64 52 38
September 2002 ................................... 82 69 51 37 23
September 2003 ................................... 77 60 41 26 14
September 2004 ................................... 71 53 32 19 8
September 2005 ................................... 65 45 25 13 5
September 2006 ................................... 59 38 19 9 3
September 2007 ................................... 52 32 14 6 2
September 2008 ................................... 44 25 10 4 1
September 2009 ................................... 36 20 7 2 *
September 2010 ................................... 27 14 5 1 *
September 2011 ................................... 18 9 3 1 *
September 2012 ................................... 8 4 1 * *
September 2013 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.7 6.8 5.0 3.8 2.9
</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-88
<PAGE> 89
PERCENT OF INITIAL CLASS NOTIONAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS II-X-2 BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 96 95 92 90 87
September 2000 ................................... 92 87 80 73 64
September 2001 ................................... 87 78 65 53 39
September 2002 ................................... 82 69 52 38 24
September 2003 ................................... 77 61 41 27 14
September 2004 ................................... 72 53 33 19 8
September 2005 ................................... 66 46 25 13 5
September 2006 ................................... 59 39 19 9 3
September 2007 ................................... 52 32 15 6 2
September 2008 ................................... 45 26 11 4 1
September 2009 ................................... 37 20 7 2 *
September 2010 ................................... 28 15 5 1 *
September 2011 ................................... 19 9 3 1 *
September 2012 ................................... 10 4 1 * *
September 2013 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.8 6.9 5.0 3.9 3.0
</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 OUTSTANDING
<TABLE>
<CAPTION>
CLASS II-B-1, CLASS II-B-2 AND CLASS II-B-3 BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 1999 ................................... 96 96 96 96 96
September 2000 ................................... 92 92 92 92 92
September 2001 ................................... 87 87 87 87 87
September 2002 ................................... 82 82 82 82 82
September 2003 ................................... 77 77 77 77 77
September 2004 ................................... 71 70 68 66 63
September 2005 ................................... 65 63 58 54 48
September 2006 ................................... 59 54 48 41 33
September 2007 ................................... 52 46 37 29 20
September 2008 ................................... 44 37 27 19 11
September 2009 ................................... 36 28 19 12 6
September 2010 ................................... 28 20 12 7 3
September 2011 ................................... 19 13 7 3 1
September 2012 ................................... 9 6 3 1 *
September 2013 ................................... 0 0 0 0 0
Weighted Average Life (in years)** ............... 8.7 8.2 7.6 7.2 6.7
</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-90
<PAGE> 91
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS R-1 AND R-3 BONDS
PAYMENT DATE 0% 100% 275% 450% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 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).
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS R-2 BONDS
PAYMENT DATE 0% 100% 250% 400% 600%
- ------------ --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage ............................... 100 100 100 100 100
September 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 THE CLASS P AND CLASS II-P BONDS
The Class P and Class II-P Bonds will be "principal only" Bonds, will not
bear interest and will be offered at a substantial discount to their respective
initial Class Current Principal Balances. 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 and Class II-P Bonds.
The significance of the effects of prepayments on the Class P and Class
II-P Bonds is illustrated in the following tables entitled "Sensitivity of the
Class P Bonds to Prepayments" and "Sensitivity of the Class II-P Bonds to
Prepayments", which show the pre-tax yield (on a corporate bond equivalent
basis) to the holders of the applicable Bonds under different constant
percentages of SPA. 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) in the case of the Class P Bonds, the purchase price of
the Class P Bonds is approximately 70% of the initial Class Current Principal
Balance of the Class P Bonds, (ii) the purchase price of the Class II-P Bonds is
approximately 74.80% of the initial Class Current Principal Balance of the Class
II-P Bonds and (iii) in either case, such Bonds are purchased on September 30,
1998.
It is not likely that the Discount Mortgage Loans in Mortgage Loan Group
1, Sub-Group 2A and Sub-Group 2B 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 Group 1, Sub-Group 2A and Sub-Group 2B will
prepay at any of the rates shown in the applicable 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 or Class II-P Bond and
there can be no assurance that the pre-tax yield to an investor in the Class P
or Class II-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 or Class
II-P Bond.
SENSITIVITY OF THE CLASS P BONDS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-------------------------------------------
0% 100% 275% 450% 600%
---- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity ....................... 1.97% 3.54% 6.76% 9.85% 12.29%
</TABLE>
SENSITIVITY OF THE CLASS II-P BONDS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-------------------------------------------
0% 100% 275% 400% 600%
---- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity 3.52% 4.56% 6.29% 8.08% 10.39%
</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 P or Class II-P Bonds, as applicable,
would cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price of the Class P or Class II-P Bonds, as
applicable, 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 or Class II-P Bonds, as applicable,
and consequently does not purport to reflect the return on any investment in the
Class P or Class II-P Bonds when such reinvestment rates are considered.
S-92
<PAGE> 93
YIELD ON THE INTEREST ONLY BONDS
The significance of the effects of prepayments on the Class A-5, Class
A-10, Class X, Class II-X-1 and Class II-X-2 Bonds is illustrated in the
following tables entitled "Sensitivity of the Class A-5, Class A-10, and Class X
Bonds to Prepayments" and "Sensitivity of the Class II-X-1 and Class II-X-2
Bonds to Prepayments", which show 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 tables were
calculated using the assumptions specified above under "--Decrement Tables" and
assuming that the purchase prices of the Class A-5, Class A-10, Class X, Class
II-X-1 and Class II-X-2 Bonds are approximately 18%, 1.3750%, 1%, 1.3750% and
1.10730%, respectively, of the related initial Class Notional Balance (plus
accrued interest) and such Bonds are purchased on September 30, 1998.
As indicated in the following tables, the yield to investors in the Class
A-5, Class A-10, Class X, Class II-X-1 and Class II-X-2 Bonds will be highly
sensitive to the rate of principal payments (including prepayments) on (i) in
the case of the Class A-5, Class A-10 and Class X Bonds, the Group 1 Mortgage
Loans (especially, in the case of the Class X Bonds, those with high Net Rates),
(ii) in the case of the Class II-X-1 Bonds, the Sub-Group 2A Mortgage Loans
(especially those with high Net Rates) and (iii) in the case of the Class II-X-2
Bonds, the Sub-Group 2B 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-5, Class A-10, Class X, Class II-X-1 and Class II-X-2 Bonds would be 0% if
prepayments were to occur at a constant rate of approximately 944%, 545%, 1004%,
927% and 949% 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 tables 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-5, Class A-10,
Class X, Class II-X-1 or Class II-X-2 Bond and there can be no assurance that
the pre-tax yield to an investor in the Class A-5, Class A-10, Class X, Class
II-X-1 or Class II-X-2 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-5, Class A-10, Class X, Class II-X-1 or Class II-X-2 Bond.
SENSITIVITY OF THE CLASS A-5, CLASS A-10 AND CLASS X BONDS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-------------------------------------------
0% 100% 275% 450% 600%
---- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Class A-5 Bonds .................................. 36.33% 22.50% 19.69% 19.69% 16.28%
Class A-10 Bonds ................................. 39.26% 28.67% 20.67% 15.66% (6.07)%
Class X Bonds .................................... 48.61% 44.00% 35.81% 27.45% 20.17%
</TABLE>
SENSITIVITY OF THE CLASS II-X-1 AND CLASS II-X-2 BONDS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
-------------------------------------------
0% 100% 250% 400% 600%
---- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Class II-X-1 Bonds ............................... 45.00% 40.44% 33.46% 26.33% 16.58%
Class II-X-2 Bonds ............................... 44.19% 39.77% 33.05% 26.18% 16.84%
</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-5, Class A-10, Class X, Class II-X-1 and
Class II-X-2 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-5, Class A-10, Class X,
Class II-X-1 and Class II-X-2 Bonds and consequently does not purport to reflect
the return on any investment in the Class A-5, Class A-10, Class X, Class II-X-1
and Class II-X-2 Bonds when such reinvestment rates are considered.
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<PAGE> 94
YIELD ON THE CLASS A-7, CLASS A-11 AND CLASS A-22 BONDS
The significance of the effects of prepayments and changes in LIBOR on
the Class A-7, Class A-11 and Class A-22 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 prices of the Class A-7, Class A-11 and Class
A-22 Bonds are approximately 98.50%, 99% and 90% of their initial respective
Class Current Principal Balances (plus accrued interest), and (iii) such Bonds
are purchased on September 30, 1998.
The yield to investors in the Class A-7, Class A-11 and Class A-22 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
in each case 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.
SENSITIVITY OF THE CLASS A-7 BONDS
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
--------------------------------------------------------
LIBOR 0% 100% 275% 450% 600%
- ------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3.6500% 17.57% 17.60% 17.71% 17.89% 18.03%
4.6500% 13.47% 13.51% 13.64% 13.88% 14.06%
5.6500% 9.41% 9.47% 9.62% 9.91% 10.14%
6.6500% 5.41% 5.48% 5.65% 5.99% 6.26%
8.0000% and higher 0.10% 0.18% 0.36% 0.78% 1.11%
</TABLE>
SENSITIVITY OF THE CLASS A-11 BONDS
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
--------------------------------------------------------
LIBOR 0% 100% 275% 450% 600%
- ------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3.6500% 17.47% 17.47% 17.54% 17.66% 17.72%
4.6500% 13.39% 13.40% 13.50% 13.69% 13.79%
5.6500% 9.36% 9.37% 9.51% 9.77% 9.90%
6.6500% 5.37% 5.40% 5.56% 5.90% 6.07%
8.0000% and higher 0.08% 0.12% 0.30% 0.75% 0.96%
</TABLE>
SENSITIVITY OF THE CLASS A-22 BONDS
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% of SPA
--------------------------------------------------------
LIBOR 0% 100% 275% 450% 600%
- ------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3.6500% 15.60% 15.61% 15.79% 16.44% 17.06%
4.6500% 12.14% 12.16% 12.38% 13.08% 13.73%
5.6500% 8.74% 8.77% 9.02% 9.77% 10.44%
6.6500% 5.40% 5.43% 5.72% 6.50% 7.19%
8.2000% and higher 0.38% 0.42% 0.71% 1.53% 2.24%
</TABLE>
S-94
<PAGE> 95
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-7, Class A-11 and Class A-22 Bonds would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase prices of the Class A-7, Class A-11 and Class A-22 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-7, Class A-11 and
Class A-22 Bonds and consequently does not purport to reflect the return on any
investment in the Class A-7, Class A-11 and Class A-22 Bonds when such
reinvestment rates are considered.
YIELD ON THE PAC BONDS
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 in the second paragraph under
"Yield and Prepayment Considerations--Decrement Tables" herein as used for the
computation of weighted average lives, (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 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.
YIELD ON THE TAC BONDS
The Targeted Balances of each Class and Component of TAC 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 in the
second paragraph under "Yield and Prepayment Considerations--Decrement Tables"
herein as used for the computation of weighted average lives, (ii) such Mortgage
Loans are prepaid at constant rate of 250% SPA and (iii) the initial Class
Current Principal Balance and the initial Component Current Principal Balance of
the TAC 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 or Component Current Principal Balance of any Class or
Component of the TAC Bonds will conform on any Payment Date to the applicable
level set forth in such table. If the Mortgage Loans in Mortgage Loan Group 1
prepay at rates that are generally below 250% of the SPA, the TAC Bonds will not
be reduced to their Targeted Balances schedules and the weighted average lives
of the TAC Bonds may be extended, perhaps significantly. If the Mortgage Loans
in Mortgage Loan Group 1 prepay at rates that are generally above 250% of the
SPA, the weighted average lives of the TAC Bonds may be shortened, perhaps
significantly. In addition, if the Group 1 Senior P&I Optimal Principal Amount
exceeds the amount necessary to pay the amounts necessary to reduce the TAC
Bonds to their respective Targeted
S-95
<PAGE> 96
Balances, on any Payment Date, the excess will be allocated on such Payment Date
to payments in reduction of the Class 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 of 250% SPA, the amount available on subsequent Payment Dates for
payment of each Class or Component of the TAC Bonds may be less than the amounts
necessary to reduce their Class Current Principal Balance or Component Current
Principal Balance to their Targeted 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 or Component Current Principal Balance of any Class of TAC Bonds may
reduce the Current Principal Balance or Component Current Principal Balance of
such TAC Bonds to zero significantly earlier or later than the Payment Date
specified herein.
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,
on written request, a copy (without exhibits) of the Indenture. Requests should
be addressed to the Corporate Trust Office of the Indenture Trustee at One First
National Plaza, 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 November 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.
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.
S-96
<PAGE> 97
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, on written
request, a copy (without exhibits) of the Pooling and Servicing Agreement.
Requests should be addressed to the Corporate Trust Office of the Certificate
Trustee at One First National Plaza, Suite 0126, Chicago, Illinois 60670.
SERVICING
The Mortgage Loans will be serviced by the Sub-Servicers, under the
supervision of the Master Servicer, in accordance with the provisions of the
applicable Sub-Servicing Agreements.
Notwithstanding anything to the contrary in the Prospectus, the Master
Servicer will not ultimately be responsible for the performance of the servicing
activities by the Sub-Servicers, except as described under "--Servicing
Compensation, Compensating Interest and Payment of Expenses" and "--Monthly
Advances" below. If a Sub-Servicer fails to fulfill its obligations under the
applicable Sub-Servicing Agreement and such failure results in a material
breach, the Master Servicer shall be entitled, for and on behalf of the
Certificateholders, to terminate such Sub-Servicer and appoint a successor
servicer that satisfies the eligibility requirements set forth in such
Sub-Servicing Agreement.
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
Sub-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 Master Servicer, as the custodian for the Certificate Trustee
(the "CUSTODIAN"), the original Mortgage Note, endorsed without recourse to the
order of the Certificate Trustee and showing an unbroken chain of endorsements
from the original payee thereof to the person endorsing it to the Certificate
Trustee; the original Mortgage which shall have been recorded, with evidence of
such recording indicated thereon; the assignment (which may be in the form of a
blanket assignment) to the Certificate Trustee of the Mortgage; all intervening
assignments of the Mortgage available to BSMCC, if any, with evidence of
recording thereon; the original or a copy of the policy or certificate of
primary mortgage guaranty insurance, if any; originals of all available
assumption and modification agreements, 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
Purchase Agreement. In particular, with respect to approximately 17 Mortgage
Loans with an aggregate Scheduled Principal Balance of approximately $5,796,277
as of the Cut-off Date, BSMCC will not deliver original mortgage notes but will
provide lost note affidavits in lieu thereof. BSMCC will cause the Mortgage and
intervening assignments, if any, and the assignment of the Mortgage to be
recorded not later than 180 days after the Closing Date.
The Custodian 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 Custodian after the Closing Date, if received by the Certificate Trustee
after the initial 45-day period, promptly after its deliver to the Custodian).
If, as a result of its review, the Custodian 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 Custodian shall notify BSMCC and the Certificate Trustee of such Material
Defect. BSMCC shall correct or cure any such Material Defect within 90 days from
the date of notice from the Custodian of the Material Defect and if BSMCC does
not correct or cure such Material
S-97
<PAGE> 98
Defect within such period and such defect materially and adversely affects the
interests of the Certificateholders in the related Mortgage Loan, BSMCC will,
within 180 days of the date of notice, provide the Custodian 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 Custodian shall be effected by BSMCC
within 30 days after its receipt of the original recorded document.
The Custodian also will review the Mortgage Files within 180 days after
the Closing Date. If the Custodian discovers a Material Defect, the Custodian
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 Custodian 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 Custodian 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 Custodian and 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 (i) 100% of the Outstanding Principal
Balance of such Mortgage Loan plus accrued but unpaid interest on the
Outstanding Principal Balance at the related Mortgage Rate through and including
the last day of the month of repurchase and (ii) all advances (excluding Monthly
Advances) relating to such Mortgage Loan.
As of any time of determination, the "OUTSTANDING PRINCIPAL BALANCE" of a
Mortgage Loan is the principal balance of such Mortgage Loan remaining to be
paid by the 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.
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:
(i) The information set forth in the Mortgage Loan Schedule is
true, complete and correct in all material respects as of the Cut-off
Date;
S-98
<PAGE> 99
(ii) 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 promissory note or other evidence of indebtedness with
respect to the related Mortgage Loan (the "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;
(iii) 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
material defaults under the terms of the Mortgage Loan (except for
payment defaults of not more than 30 days); and 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;
(iv) There are no delinquent taxes, assessments or other
outstanding charges affecting the related Mortgaged Property;
(v) The related Mortgage Note and 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 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;
(vi) 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;
(vii) 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 CCC
free and clear of any encumbrance, equity, lien, pledge, charge, claim or
security interest;
(viii) 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;
(ix) 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;
(x) 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 Fannie Mae
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;
(xi) 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 at
origination of the Mortgage Loan there was, and there currently is, no
proceeding pending for the total or partial condemnation thereof; and
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<PAGE> 100
(xii) The original Loan-to-Value Ratio of each Mortgage Loan
either was not more than 95.00% or, with the exception of one Mortgage
Loan, 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 Fannie Mae 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, the 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 Certificateholders'
sole and exclusive remedy respecting a breach of such representations or
warranties.
COLLECTION AND OTHER SERVICING PROCEDURES
Each Sub-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 Sub-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 Sub-Servicer shall consent to the
deferment of due dates for payments due on a Mortgage Note, such Sub-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 the
related Sub-Servicer to advance shall apply only to the extent that such
Sub-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 Sub-Servicer or its designee has knowledge thereof, such
Sub-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 Sub-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 Sub-Servicer will retain any fee collected for
entering into an assumption agreement, as additional servicing compensation. In
regard to circumstances in which a Sub-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 Sub-Servicer will establish and maintain, in addition to the
Protected Account described below under "--Protected Account", one or more
accounts (each, a "SERVICING ACCOUNT"), each of which generally must satisfy the
criteria for Protected Accounts as described in "--Protected Accounts" below.
Each Sub-Servicer will deposit and retain therein all collections from the
applicable Mortgagors for the payment of taxes, assessments, insurance premiums
or comparable items as agent of the Mortgagors as provided in the applicable
Sub-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. Withdrawals of amounts from the Servicing Accounts may be made to
effect timely payment of
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taxes, assessments, insurance premiums, or comparable items, to reimburse the
related Sub-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 Sub-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 (each, a "PRIMARY MORTGAGE INSURANCE POLICY"),
the applicable Sub-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 applicable Sub-Servicing Agreement, at least until such excess has
been eliminated. Pursuant to applicable state law, a Sub-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.
The Master Servicer and each Sub-Servicer will maintain errors and
omissions insurance and fidelity bonds in certain specified amounts as required
under the Pooling and Servicing Agreement or the applicable Sub-Servicing
Agreements.
HAZARD INSURANCE
Each Sub-Servicer will maintain and keep, with respect to each Mortgage
Loan for which it is acting as Sub-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 Sub-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 Sub-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 Sub-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 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.
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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
Sub-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 Sub-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 Sub-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.
A Sub-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 Sub-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 Sub-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.
SERVICING COMPENSATION, COMPENSATING INTEREST AND PAYMENT OF EXPENSES
The applicable Sub-Servicer will be entitled to a fee (the "SUB-SERVICING
FEE") which will generally be 0.20% per annum of the Outstanding Principal
Balance of each Mortgage Loan serviced by Cendant and will be 0.25% per annum of
the Outstanding Principal Balance of each Mortgage Loan serviced by WMBFA and
NCM, in each case payable from full payments of accrued interest on each such
Mortgage Loan, as compensation for its activities under the related
Sub-Servicing Agreement. Any Cendant Sub-Servicing Fee in excess of 0.20% will
be set aside to pay for
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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 as described below.
Interest Shortfalls on Mortgage Loans sub-serviced by Cendant or WMBFA
resulting from prepayments in full or in part in the related Prepayment Period
will be offset by the applicable Sub-Servicer on the Payment Date in the
following calendar month to the extent such Interest Shortfalls do not exceed
the related Sub-Servicing Fees in connection with such Payment Date. NCM will be
obligated to remit to the Master Servicer on each Sub-Servicer Remittance Date
any Interest Shortfalls on Mortgage Loans sub-serviced by NCM resulting from
prepayments in full or in part, other than voluntary prepayments in full, in the
preceding Prepayment Period. The Master Servicer will be obligated to remit to
the Master Servicer Collection Account, for deposit in the Certificate Account
on the next succeeding Payment Date, the amount of any Interest Shortfalls on
Mortgage Loans sub-serviced by NCM resulting from voluntary prepayments in full
in the related Prepayment Period. Any amounts required to be offset or paid by a
Sub-Servicer with respect to Interest Shortfalls resulting from voluntary
prepayment in full, as described above, and not so offset or paid by such
Sub-Servicer will be paid by the Master Servicer, to the extent the aggregate of
such amounts does not exceed the compensation payable to the Master Servicer for
the applicable Payment Date, through a reduction in the amount of such
compensation. The amounts offset by Cendant and WMBFA against and the amounts
paid by NCM and the Master Servicer with respect to Interest Shortfalls as
described above are referred to herein as "COMPENSATING INTEREST PAYMENTS". The
remaining amount of Interest Shortfalls after applying Compensating Interest
Payments is referred to herein as "NET INTEREST SHORTFALLS". No Sub-Servicer
will be required to make Compensating Interest Payments with respect to Interest
Shortfalls relating to Mortgage Loans of any other Sub-Servicer.
In addition to the primary compensation described above, each
Sub-Servicer will retain, with respect to each Mortgage Loan for which it acts
as Sub-Servicer, all prepayment charges, if any, all assumption fees, tax
service fees, fees for statement of account payoff and late payment charges, all
to the extent collected from Mortgagors. Each Sub-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 Sub-Servicer will pay all expenses incurred in connection with its
servicing responsibilities (subject to limited reimbursement as described
herein). The Master Servicer will pay the Certificate Trustee and the Indenture
Trustee the fees to which they are entitled.
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 Sub-Servicer will establish and maintain an account or accounts
(collectively, with respect to each Sub-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 Sub-Servicer's own funds (less servicing compensation as permitted above).
Each Protected Account must be maintained in accordance with the terms of the
applicable Sub-Servicing Agreement, which generally require that (i) Protected
Accounts must be (a) established with depository institutions whose short term
debt obligations or deposit ratings are in one of the two highest rating
categories of Standard & Poor's Ratings Services, Moody's, Fitch and Duff &
Phelps Credit Rating Company or (b) whose deposits are fully insured by the FDIC
or the National Credit Union Share Insurance Fund (the "NCUSIF"); (ii) if such
Protected Account is not maintained with a depository institution as described
in clause (i)(a) above, deposits in such Protected Account must be fully insured
by the FDIC or the NCUSIF or, to the extent not so insured, invested in certain
investments permitted by the applicable Sub-Servicing Agreement ("PERMITTED
INVESTMENTS") or remitted to the Master Servicer. In addition, the Master
Servicer may permit a Sub-
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Servicer to establish a Protected Account not conforming to the foregoing
requirements to the extent that such Protected Account meets the requirements of
each of the Rating Agencies for the maintenance of the ratings on the Bonds.
Each Sub-Servicer may, from time to time, make withdrawals from its
Protected Account for the following purposes:
(i) to make payments to the Master Servicer as described below;
(ii) to reimburse itself for Monthly Advances, such Sub-Servicer's right
to reimburse itself pursuant to this subclause (ii) being limited to amounts
received on the related Mortgage Loan which represent late collections (net of
the related Sub-Servicing Fees) of principal and/or interest respecting which
any such advance was made;
(iii) to reimburse itself for unreimbursed advances (including Monthly
Advances) and any such unpaid Servicing Fees, such Sub-Servicer's right to
reimburse itself pursuant to this subclause (iii) with respect to any Mortgage
Loan being limited to liquidation proceeds, condemnation proceeds and insurance
proceeds related to such Mortgage Loan;
(iv) to pay to itself as servicing compensation (a) any interest earned
on funds in the Protected Account and (b) the applicable Sub-Servicing Fee from
that portion of any payment or recovery which represents interest with respect
to a particular Mortgage Loan;
(v) to pay to itself with respect to each Mortgage Loan that has been
repurchased by such Sub-Servicer pursuant to the applicable Sub-Servicing
Agreement all amounts received thereon and not distributed (or proposed to be
included in the Repurchase Price) as of the date on which the related Repurchase
Price is determined;
(vi) to remove funds inadvertently placed in the Protected Account in
error by such Sub-Servicer;
(vii) to clear and terminate the Protected Account.
On the 18th day of each month, or if such day is not a Business Day, the
preceding Business Day (each a "SUB-SERVICER REMITTANCE DATE"), each
Sub-Servicer shall withdraw from the related Protected Account and any other
permitted accounts and shall remit to the Master Servicer, for deposit into an
account (the "MASTER SERVICER COLLECTION ACCOUNT"), amounts on deposit in such
Sub-Servicer's Protected Account (excluding principal of or interest on the
Mortgage Loans due on or before the Cut-off Date and amounts permitted to be
retained by such Sub-Servicer as described above or as otherwise permitted by
the related Sub-Servicing Agreement), which will be generally equal to:
(i) Scheduled payments on the related Mortgage Loans received or
advanced by the related Sub-Servicer which were due on the related Due Date, net
of the portions of the Sub-Servicing Fee due the related Sub-Servicer that
exceeds the related Compensating Interest Payments;
(ii) Full principal prepayments and any Liquidation Proceeds received by
or on behalf of the Sub-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 Sub-Servicing Fee due the related
Sub-Servicer that exceeds the related Compensating Interest Payments; and
(iii) Partial prepayments of principal received by or on behalf of the
Sub-Servicer for such Mortgage Loans in the related Prepayment Period.
Notwithstanding the foregoing, NCM will be obligated to remit to the Master
Servicer on a daily basis any voluntary principal prepayments in full with
respect to the Mortgage Loans sub-serviced by NCM.
The Master Servicer Collection Account shall be an Eligible Account. An
"ELIGIBLE ACCOUNT" is either (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company acceptable to
the Rating Agencies or (ii) an account or accounts the deposits in which are
insured by the FDIC to the limits established by such corporation, provided that
any such deposits not so insured shall be maintained in an account at a
depository
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institution or trust company whose commercial paper or other short term debt
obligations (or, in the case of a depository institution or trust company which
is the principal subsidiary of a holding company, the commercial paper or other
short term debt or deposit obligations of such holding company or depository
institution, as the case may be) have been rated by each Rating Agency in its
highest short-term rating category, or (iii) a segregated trust account or
accounts (which shall be a "special deposit account") maintained with the
Certificate Trustee or any other federal or state chartered depository
institution or trust company, acting in its fiduciary capacity, in a manner
acceptable to the Certificate Trustee and the Rating Agencies. Eligible Accounts
may bear interest.
As its compensation (the ""), the Master Servicer shall be entitled to
receive all investment earnings on amounts in the Master Servicer Collection
Account and the Certificate Account and, in the case of the NCM Mortgage Loans,
all interest paid by the related Mortgagors in connection with voluntary
prepayments in full received during the first 17 days of any month. On or before
each Payment Date, the Master Servicer shall withdraw from the Master Servicer
Collection Account and remit to the Certificate Trustee for deposit in the
Certificate Account all amounts in the Master Servicer Collection Account, net
of the Master Servicer Compensation and other amounts permitted to be withdrawn
by the Master Servicer pursuant to the Pooling and Servicing Agreement.
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 an Eligible Account. The Certificate Account shall
have two separate subaccounts, one each for all funds with respect to each
Mortgage Loan Group. 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, the Master
Servicing Collection 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;
(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 the Master
Servicer, a Sub-Servicer or the Certificate Trustee and required to be
deposited in the Certificate Account pursuant to the Pooling and
Servicing Agreement.
All amounts deposited to the Certificate Account shall be held by the
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 the 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 Master
Servicer, make or cause to be made such withdrawals or transfers from the
appropriate subaccount of the Certificate Account as the Master Servicer has
designated for such transfer or withdrawal for the following purposes:
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(i) to reimburse the Master Servicer or the related Sub-Servicer
for any Monthly Advance of its own funds, the right of the Master
Servicer or related Sub-Servicer to reimbursement pursuant to this
subclause (1) being limited to amounts received on a particular Mortgage
Loan (including, for this purpose, the Repurchase Proceeds, Insurance
Proceeds and Liquidation Proceeds) which represent late payments or
recoveries of the principal of or interest on such Mortgage Loan
respecting which such Monthly Advance or advance was made;
(ii) to reimburse the Master Servicer or the related Sub-Servicer
from Insurance Proceeds or Liquidation Proceeds relating to a particular
Mortgage Loan for amounts expended by the Master Servicer or the related
Sub-Servicer in good faith in connection with the restoration of the
related Mortgaged Property which was damaged by an uninsured cause or in
connection with the liquidation of such Mortgage Loan;
(iii) to reimburse the Master Servicer or the related Sub-Servicer
to the extent permitted by the Pooling and Servicing Agreement or the
related Sub-Servicing Agreement from Insurance Proceeds relating to a
particular Mortgage Loan for expenses incurred with respect to such
Mortgage Loan and to reimburse the Master Servicer or related
Sub-Servicer from Liquidation Proceeds from a particular Mortgage Loan
for liquidation expenses incurred with respect to such Mortgage Loan;
(iv) to pay the related Sub-Servicer to the extent permitted by
the Pooling and Servicing Agreement or the related Sub-Servicing
Agreement from Liquidation Proceeds or Insurance Proceeds received in
connection with the liquidation of a Mortgage Loan, the amount which such
Sub-Servicer would have been entitled to receive under subclause (ix)
below as servicing compensation on account of each defaulted scheduled
payment on such Mortgage Loan if paid in a timely manner by the related
Mortgagor;
(v) to pay the related Sub-Servicer to the extent permitted by the
Pooling and Servicing Agreement or the related Sub-Servicing Agreement
from the Repurchase Price for any Mortgage Loan, the amount which such
Sub-Servicer would have been entitled to receive under subclause (ix)
below as servicing compensation;
(vi) to reimburse the Master Servicer or the related Sub-Servicer
for certain advances of funds made to protect a Mortgaged Property, the
right to reimbursement pursuant to this subclause being limited to
amounts received on the related Mortgage Loan (including, for this
purpose, 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 Sub-Servicer with respect to each
Mortgage Loan that has been repurchased, all amounts received thereon
representing recoveries of principal that reduce the Outstanding
Principal Balance of the related Mortgage Loan below the Outstanding
Principal Balance used in calculating the Repurchase Price or
representing interest included in the calculation of the Repurchase Price
or accrued after the end of the month during which such repurchase
occurs;
(viii) to reimburse the Master Servicer or the related
Sub-Servicer for any Monthly Advance or advance, if a Realized Loss is to
be allocated with respect to the related Mortgage Loan on the related
Payment Date, if such Monthly Advance or advance has not been reimbursed
pursuant to subclauses (i) and (vi) above;
(ix) to pay the related Sub-Servicer servicing compensation as set
forth above;
(x) to reimburse the Master Servicer, a Sub-Servicer or the
Certificate Trustee 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 Sub-Servicer, as additional servicing
compensation, any Excess Liquidation Proceeds;
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(xii) to reimburse a Sub-Servicer for any amounts to which it is
entitled to reimbursement under the terms of its Sub-Servicing Agreement;
(xiii) to clear and terminate the Certificate Account; and
(xiv) to remove amounts deposited in error.
Amounts to be paid or reimbursed to a Sub-Servicer as described above will only
be paid or reimbursed to such Sub-Servicer to the extent such amounts were not
previously retained by such Sub-Servicer as described under "--Protected
Accounts" above.
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 SERVICER
The Pooling and Servicing Agreement will provide that the Master Servicer
may not resign from its 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 the Master
Servicer to the extent required under the Pooling and Servicing Agreement. The
Master Servicer, however, has the right to assign, sell or transfer its rights
and delegate its 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 Fannie Mae 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 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 the
Master Servicer, any Sub-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 the Master Servicer,
any Sub-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 the Master Servicer and each Sub-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 (i) 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 (ii)
incurred 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. In addition, the Pooling and Servicing Agreement will
provide that neither the Master Servicer nor any Sub-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 Servicer and
the Sub-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 or the applicable
Sub-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
and the Sub-Servicers will be entitled to
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be reimbursed therefor from the related Protected Account, the Master Servicer
Collection Account or the Certificate Account. Any such indemnification or
reimbursement to the Master Servicer or the Sub-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 the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer is a party, or any corporation
succeeding to the business of the Master Servicer will be the successor of the
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 Fannie Mae or Freddie Mac.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement consist of
(i) failure by the Master Servicer to cause to be deposited in the Certificate
Account amounts required to be deposited by the Master Servicer pursuant to the
Pooling and Servicing Agreement, and such failure continues unremedied for two
Business Days, (ii) failure by the 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 the Master Servicer by the Certificate Trustee or to
the Master Servicer and the Certificate Trustee by the Indenture Trustee as the
sole Certificateholder, (iii) the entry against the 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 the
Master Servicer under any applicable insolvency or reorganization statute which
case is not dismissed within 60 days, (iv) consent by the 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 the Master Servicer or substantially all of its
property, admission by the 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 the 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 the 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 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 the Master Servicer under the Pooling and Servicing Agreement
and in and to the Mortgage Loans and the proceeds thereof. Upon the receipt by
the Master Servicer of such written notice, all authority and power of the
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.
Upon the receipt by the Master Servicer of a notice of termination or an
opinion of counsel to the effect that the Master Servicer is legally unable to
act or to delegate its duties to a person which is legally able to act, the
Certificate Trustee shall automatically become the successor in all respects to
the Master Servicer in its capacity under the Pooling and Servicing Agreement
and the transactions set forth or provided for therein and shall thereafter be
subject to all the responsibilities, duties, liabilities and limitations on
liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof; provided, however, that the Certificate Trustee (i) shall be
under no obligation to repurchase any Mortgage Loan (nor will the Master
Servicer at any time have such an obligation) and (ii) shall have no obligation
whatsoever with respect to any liability incurred by the Master Servicer at or
prior to the time of receipt by the Master Servicer of such notice or of such
opinion of counsel. As compensation therefor, the Certificate Trustee shall be
entitled
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to all funds relating to the Mortgage Loans which the Master Servicer would have
been entitled to retain if the Master Servicer had continued to act as such,
except for those amounts due the Master Servicer prior to the date of
termination. 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 Fannie Mae 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 the Master
Servicer under the Pooling and Servicing Agreement. Pending appointment of a
successor to the Master Servicer under the Pooling and Servicing Agreement, the
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 Sub-Servicer will remit to the Master Servicer for deposit in the
Master Servicer Collection Account on the applicable Sub-Servicer Remittance
Date an amount equal to such deficiency, net of the related Sub-Servicing Fee,
except to the extent the applicable Sub-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. On each Payment
Date, the Master Servicer will be obligated to make any unpaid Monthly Advance,
required to be made by a Sub-Servicer but which such Sub-Servicer fails to make,
except to the extent that the Master Servicer determines any such advance to be
nonrecoverable from Liquidation Proceeds, Insurance Proceeds or from future
payments on the Mortgage Loan for which such advance was made. Subject to the
foregoing, such advances by each Sub-Servicer, or upon the failure of a
Sub-Servicer to make such advances, by the Master Servicer, will be made through
liquidation of the related Mortgaged Property. If applicable, on the Business
Day preceding each Payment Date, the 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.
TERMINATION
The obligations of the Master Servicer 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 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
the applicable Redemption Price. If on any Payment Date BSMCC or its designee
has not exercised such option and the aggregate outstanding principal balance of
the Mortgage Loans in any Mortgage Loan Group is equal to or less than 2.5% of
the aggregate outstanding principal balance of the Mortgage Loans in such
Mortgage Loan Group as of the Cut-off Date, the Master Servicer shall also have
such option. 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
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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
Servicer will be obligated to appoint a successor Certificate Trustee. The
Master Servicer 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 Servicer 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 1, REMIC 2 AND REMIC 3, 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 1, REMIC 2 and REMIC 3, 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 1, REMIC 2 and REMIC 3 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 Bondholders. Furthermore, Residual Bondholders
who are individuals, estates or trusts may be subject to limitations on the
deductibility of administrative expenses of REMIC 1, REMIC 2 or REMIC 3, 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
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REMIC 1, REMIC 2 or REMIC 3, 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 860E(e) of the Code. An exception to this tax,
otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity that does not know such
affidavits are false, is not available to an electing large partnership. An
"electing large partnership" is a partnership that had 100 or more partners
during the preceding taxable year and that has filed an election with the
Internal Revenue Service to be so treated.
REGULAR BONDHOLDERS
Under section 166 of the Code, both corporate holders of the 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
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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, 1999, subject to
certain transition rules. Prospective Non-U.S. Holders are strongly 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 or partnership entity treated as a corporation or partnership for
U.S. federal income tax purposes created in the United States or organized under
the laws of the United States or any state thereof or the District of Columbia
(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 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
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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, regulatory 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, the Master Servicer, a Sub-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,
the Master Servicer, a Sub-Servicer, the Certificate Trustee, the Indenture
Trustee, the Underwriter or any of their respective affiliates (a) has
investment or administrative discretion with respect to such Plan assets; (b)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such Plan assets, for a fee and pursuant to an agreement or
understanding that such advice (i) will serve as a primary basis for investment
decisions with respect to such Plan assets and (ii) will be based on the
particular investment needs for such Plan; or (c) is an employer maintaining or
contributing to such Plan.
If the 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 Servicer, the Sub-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, regulatory 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 and
Class II-B-3 Bonds and the Interest Only Bonds may have "substantial equity
characteristics." Consequently, the Interest Only Bonds and the Class B-3 and
Class II-B-3 Bonds may not be transferred to a Plan Investor unless the Plan
Investor provides the Master Servicer and the Indenture Trustee with a Benefit
Plan Opinion. Each purchaser of an Interest Only Bond (other than a Class II-X-2
Bond) or a Class B-3 or Class II-B-3 Bond, by virtue of such purchaser's receipt
of such Bond, unless such purchaser provides a Benefit Plan Opinion, will be
deemed to have represented that it is not a Plan Investor,
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and will be deemed to have agreed to indemnify and hold the Issuer, the Master
Servicer, each Sub-Servicer, the Certificate Trustee, the Indenture Trustee and
the Underwriter harmless against any losses, liabilities or expenses or
resulting from the breach of such representation. In addition, no transfer of a
Class II-X-2 Bond 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 (ii) a
Benefit Plan Opinion. A "BENEFIT PLAN OPINION" is an opinion of counsel
satisfactory to the Indenture Trustee and the Issuer to the effect that the
purchase and holding of the applicable Bonds will not constitute or result in a
prohibited transaction under ERISA or the Code and will not subject the Issuer,
the Master Servicer, any Sub-Servicer, the Certificate Trustee, the Indenture
Trustee 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.
In addition, without regard to whether the Bonds are considered to be
equity interests in the Issuer, certain affiliates of the Issuer, the Master
Servicer or a Sub-Servicer 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 II-B-1, Class II-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 and Class II-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 II-B-2 AND CLASS II-B-3 BONDS WILL NOT
CONSTITUTE "MORTGAGE RELATED SECURITIES" FOR PURPOSES OF SMMEA, BECAUSE THOSE
CLASSES ARE NOT RATED IN THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY
RECOGNIZED RATING ORGANIZATION.
Any financial institution that is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the National Credit Union Administration, any state insurance
commission, or any other federal or state agencies with similar authority should
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.
S-114
<PAGE> 115
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 proceeds to the Issuer from the sale of the Offered Bonds to the
Underwriter will be in an amount set forth on the cover page hereof. The
distribution 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 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.
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.
S-115
<PAGE> 116
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 Fitch.
<TABLE>
<CAPTION>
Class Moody's Fitch
- ----- ------------- ---------
<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 A-20 Aaa AAA
Class A-21 Aaa AAA
Class A-22 Aaa AAA
Class A-23 Aaa AAA
Class X Aaa AAA
Class B-1 -- AA
Class B-2 -- A
Class B-3 -- BBB
Class II-A-1 Aaa AAA
Class II-P Aaa AAA
Class II-X-1 Aaa AAA
Class II-X-2 Aaa AAA
Class II-B-1 -- AA
Class II-B-2 -- A
Class II-B-3 -- BBB
Class R-1 Aaa AAA
Class R-2 Aaa AAA
Class R-3 Aaa AAA
</TABLE>
The ratings assigned by Moody's and Fitch 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 Fitch'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
S-116
<PAGE> 117
mortgage pool is adequate to make payments required under such bonds. Moody's
and Fitch'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 (A) the Mortgage Loans in Mortgage
Loan Group 1, investors in the Class A-5 and Class A-10 Bonds could fail to
fully recover their investment, (B) the Non-Discount Mortgage Loans Group 1,
investors in the Class X Bonds could fail to fully recover their investment, (C)
the Non-Discount Mortgage Loans in Sub-Group 2A, investors in the Class II-X-1
Bonds could fail to fully recover their investment or (D) the Non-Discount
Mortgage Loans in Sub-Group 2B, investors in the Class II-X-2 Bonds could fail
to fully recover their investment. The ratings on the Class P and Class II-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.
S-117
<PAGE> 118
PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accrual Bonds..................................................................................................S-10
Accrued Bond Interest..........................................................................................S-52
Adjusted Group 1 Non-PO Mortgage Pool Balance..................................................................S-49
Adjustment Amount..............................................................................................S-62
Aggregate Expense Rate.........................................................................................S-14
Allocable Share................................................................................................S-59
Available Funds................................................................................................S-42
Beneficial Owner...............................................................................................S-40
Benefit Plan Opinion..........................................................................................S-114
Bond Group.....................................................................................................S-10
Bond Interest Rate.............................................................................................S-15
Bonds......................................................................................................S-1, S-9
Book-Entry Bonds...............................................................................................S-11
Book-Entry Termination.........................................................................................S-41
BSMCC...........................................................................................................S-3
CCC.............................................................................................................S-4
CCC Assignment Agreement........................................................................................S-4
Cede............................................................................................................S-7
Cendant...................................................................................................S-3, S-34
Cendant Loan Sale Agreement.....................................................................................S-3
Cendant Mortgage Loans....................................................................................S-3, S-34
Certificate Account...........................................................................................S-105
Certificate Trustee.............................................................................................S-4
Certificateholders.............................................................................................S-33
Certificates....................................................................................................S-3
Class A-10 Notional Balance...............................................................................S-2, S-53
Class A-12 Accretion Termination Date..........................................................................S-49
Class A-20 Incremental Interest Amount.........................................................................S-45
Class A-23 Optimal Principal Amount............................................................................S-48
Class A-23 Pro Rata Optimal Principal Amount...................................................................S-48
Class A-5 Notional Balance......................................................................................S-2
Class A-8 Accretion Termination Date...........................................................................S-49
Class Current Principal Balance................................................................................S-52
Class II-P Cash Shortfall......................................................................................S-51
Class II-X-1 Notional Balance..................................................................................S-65
Class II-X-2 Notional Balance..................................................................................S-65
Class Notional Balance.........................................................................................S-52
Class Prepayment Payment Trigger...............................................................................S-59
Class X Notional Balance..................................................................................S-3, S-53
Closing Date....................................................................................................S-3
CMC.............................................................................................................S-4
Code...........................................................................................................S-26
Collection Account.............................................................................................S-33
Commission......................................................................................................S-7
Companion Bonds................................................................................................S-23
Compensating Interest Payments................................................................................S-103
Component Current Principal Balance............................................................................S-52
Component P-1 Cash Shortfall...................................................................................S-48
Component P-2 Cash Shortfall...................................................................................S-51
Components.....................................................................................................S-10
</TABLE>
S-118
<PAGE> 119
PRINCIPAL DEFINITIONS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Corporate Trust Office.........................................................................................S-96
Cross-Over Date................................................................................................S-52
Current Income................................................................................................S-111
Current Principal Balance......................................................................................S-52
Custodian......................................................................................................S-97
Cut-off Date....................................................................................................S-3
Debt Service Reduction.........................................................................................S-61
Deceased Owner.................................................................................................S-44
Defaulted Mortgage Loan.......................................................................................S-102
Deficient Valuation............................................................................................S-61
Determination Date.............................................................................................S-60
Discount Mortgage Loan.........................................................................................S-54
DOL...........................................................................................................S-113
DTC.............................................................................................................S-7
Due Date.......................................................................................................S-14
Due Period.....................................................................................................S-15
ERISA..........................................................................................................S-29
Events of Default.............................................................................................S-108
Excess Special Hazard Loss...............................................................................S-18, S-62
Fannie Mae.....................................................................................................S-13
Fitch.....................................................................................................S-1, S-30
Freddie Mac....................................................................................................S-13
Group 1 Available Funds........................................................................................S-42
Group 1 Bonds...................................................................................................S-9
Group 1 Cross-Over Date........................................................................................S-52
Group 1 Mortgage Loans...................................................................................S-12, S-34
Group 1 Senior Bonds...........................................................................................S-10
Group 1 Senior P&I Bonds.......................................................................................S-11
Group 1 Senior P&I Optimal Principal Amount....................................................................S-56
Group 1 Subordinate Bonds......................................................................................S-10
Group 2 Available Funds........................................................................................S-42
Group 2 Bonds..................................................................................................S-10
Group 2 Cross-Over Date........................................................................................S-52
Group 2 Mortgage Loans...................................................................................S-12, S-34
Group 2 Senior Bonds...........................................................................................S-10
Group 2 Senior P&I Bonds.......................................................................................S-11
Group 2 Senior P&I Optimal Principal Amount....................................................................S-56
Group 2 Subordinate Bonds......................................................................................S-10
Group Available Funds..........................................................................................S-42
Highest Priority Junior Class..................................................................................S-51
Indenture......................................................................................................S-4
Indenture Event of Default...............................................................................S-41, S-51
Indenture Trustee...............................................................................................S-4
Insurance Proceeds.............................................................................................S-60
Interest Accrual Period........................................................................................S-15
Interest Only Bonds............................................................................................S-10
Interest Shortfall.............................................................................................S-53
Issuer.....................................................................................................S-4, S-9
Jumbo Loans....................................................................................................S-13
LIBOR..........................................................................................................S-16
LIBOR Bonds....................................................................................................S-11
LIBOR Determination Date.......................................................................................S-53
Liquidated Mortgage Loan.......................................................................................S-60
</TABLE>
S-119
<PAGE> 120
PRINCIPAL DEFINITIONS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Liquidation Proceeds...........................................................................................S-61
Living Owner...................................................................................................S-44
Loan Seller.....................................................................................................S-3
Loan Sellers....................................................................................................S-3
Loan-to-Value Ratio............................................................................................S-34
Loss Allocation Limitation.....................................................................................S-62
Master Servicer.................................................................................................S-4
Master Servicer Collection Account............................................................................S-104
Master Servicer Compensation..................................................................................S-105
Material Defect................................................................................................S-97
Monthly Advance................................................................................................S-18
Monthly Payment................................................................................................S-60
Moody's...................................................................................................S-1, S-30
Mortgage.......................................................................................................S-34
Mortgage File..................................................................................................S-97
Mortgage Loan Group.......................................................................................S-3, S-12
Mortgage Loan Group 1...........................................................................................S-3
Mortgage Loan Group 2...........................................................................................S-3
Mortgage Loans..................................................................................................S-3
Mortgage Note..................................................................................................S-99
Mortgage Pool.............................................................................................S-3, S-12
Mortgage Rate............................................................................................S-14, S-33
Mortgaged Properties...........................................................................................S-34
NCM.......................................................................................................S-3, S-34
NCM Loan Sale Agreement.........................................................................................S-4
NCM Mortgage Loans........................................................................................S-4, S-34
NERDs..........................................................................................................S-28
Net Interest Shortfalls.................................................................................S-53, S-103
Net Liquidation Proceeds.......................................................................................S-61
Net Rate.................................................................................................S-14, S-33
New Withholding Regulations...................................................................................S-112
No Asset, No Income Program....................................................................................S-37
Non-Agency Certificates.........................................................................................S-4
Non-Discount Mortgage Loan.....................................................................................S-54
Non-PO Percentage..............................................................................................S-54
Non-PO Realized Losses.........................................................................................S-61
Non-U.S. Person...............................................................................................S-112
Norwest.........................................................................................................S-4
Offered Bonds...................................................................................................S-1
Offered Subordinate Bonds......................................................................................S-10
Optional Redemption Date.......................................................................................S-26
Original Subordinate Principal Balance.........................................................................S-57
Other Subordinate Bonds.........................................................................................S-9
Outstanding Principal Balance..................................................................................S-98
P Components...................................................................................................S-10
PAC Bonds......................................................................................................S-60
PAC I Bonds....................................................................................................S-60
PAC II Bonds...................................................................................................S-60
Parties in Interest...........................................................................................S-113
Payment Date..............................................................................................S-4, S-15
Permitted Investments.........................................................................................S-103
Physical Bonds.................................................................................................S-11
Plan....................................................................................................S-29, S-112
</TABLE>
S-120
<PAGE> 121
PRINCIPAL DEFINITIONS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Plan Asset Regulations........................................................................................S-113
Plan Investor.............................................................................................S-6, S-29
Planned Balance................................................................................................S-60
PO Cash Shortfall..............................................................................................S-51
PO Deferred Payment Writedown Amount...........................................................................S-61
PO Percentage............................................................................................S-54, S-55
PO Principal Payment Amount....................................................................................S-57
Pooling and Servicing Agreement...........................................................................S-4, S-33
Prepayment Period..............................................................................................S-15
Primary Mortgage Insurance Policy.............................................................................S-101
principal prepayment...........................................................................................S-60
Principal Only Bonds...........................................................................................S-10
pro rata.......................................................................................................S-51
Prohibited Transaction Provisions..............................................................................S-29
Protected Account.............................................................................................S-103
PTCE..........................................................................................................S-114
Purchase Agreement........................................................................................S-4, S-33
Rating Agencies................................................................................................S-30
Realized Loss..................................................................................................S-60
Record Date....................................................................................................S-15
Redemption Price...............................................................................................S-26
Reduced Documentation Program..................................................................................S-37
Reference Banks................................................................................................S-53
Regular Bonds..................................................................................................S-11
REITs..........................................................................................................S-27
Related Loan Group.............................................................................................S-58
Relief Act.....................................................................................................S-53
REMIC...........................................................................................................S-6
REMIC 1........................................................................................................S-26
REMIC 2........................................................................................................S-26
REMIC 3........................................................................................................S-26
REMIC Regulations..............................................................................................S-28
REO Property...................................................................................................S-60
Repurchase Price...............................................................................................S-98
Repurchase Proceeds............................................................................................S-60
Reserve Interest Rate..........................................................................................S-54
Residual Bondholders...........................................................................................S-27
Residual Bonds.................................................................................................S-11
Retail Bond Units..............................................................................................S-41
Retail Bonds...................................................................................................S-11
Retail Rounding Account........................................................................................S-43
Rules..........................................................................................................S-40
Scheduled Principal Balance....................................................................................S-14
Senior Bonds....................................................................................................S-4
Senior Class....................................................................................................S-4
Senior P&I Bonds...............................................................................................S-11
Senior P&I Optimal Principal Amount............................................................................S-55
Senior Percentage..............................................................................................S-56
Senior Prepayment Percentage...................................................................................S-57
Senior Prepayment Percentage Stepdown Limitation...............................................................S-57
Servicing Account.............................................................................................S-100
SMMEA..............................................................................................S-6, S-31, S-114
SPA............................................................................................................S-66
</TABLE>
S-121
<PAGE> 122
PRINCIPAL DEFINITIONS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Special Hazard Loss............................................................................................S-61
Special Hazard Loss Amount.....................................................................................S-62
Special Hazard Termination Date................................................................................S-62
Stated Maturity..........................................................................................S-29, S-64
Streamlined Documentation Program..............................................................................S-37
Sub-Group.......................................................................................................S-3
Sub-Group 2A..............................................................................................S-3, S-14
Sub-Group 2B..............................................................................................S-3, S-14
Sub-Servicer Remittance Date..................................................................................S-104
Sub-Servicers............................................................................................S-12, S-34
Sub-Servicing Fee.............................................................................................S-102
Subordinate Bond Writedown Amount..............................................................................S-52
Subordinate Bonds..............................................................................................S-10
Subordinate Optimal Principal Amount..........................................................................S-58
Subordinate Percentage.........................................................................................S-58
Subordinate Prepayment Percentage..............................................................................S-58
250% SPA Balance...............................................................................................S-49
TAC Bonds......................................................................................................S-60
TAPRI.........................................................................................................S-111
Targeted Balance...............................................................................................S-60
Trust.....................................................................................................S-4, S-33
Trust Estate....................................................................................................S-4
UBTI....................................................................................................S-28, S-110
Underwriter..............................................................................................S-1, S-115
Underwriting Agreement........................................................................................S-115
WMBFA.....................................................................................................S-3, S-34
WMBFA Loan Sale Agreement.......................................................................................S-4
</TABLE>
S-122
<PAGE> 123
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The description herein of the Mortgage Loans is based upon estimates of
the composition of the Mortgage Loans as of the Cut-off Date, as adjusted for
all scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the 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 Fitch or (iii) delinquencies
or otherwise. In any such event, other mortgage loans may be included in the
Trust. The Issuer believes that the estimated information set forth herein with
respect to the Mortgage Loans as currently constituted is representative of the
characteristics of the Mortgage Loans as they will be constituted at the time
the Bonds are issued, although certain characteristics of the Mortgage Loans may
vary. The sum of the amounts and percentages in the tables below may not equal
the totals due to rounding.
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $318,054
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP 1
- -------------------------- ----- ------------ ------------
<S> <C> <C> <C>
Less than $100,000 66 $ 4,758,619 1.07%
$100,000 - $149,999 45 5,562,589 1.25
$150,000 - $199,999 33 5,557,722 1.25
$200,000 - $249,999 160 38,010,809 8.54
$250,000 - $299,999 429 116,262,935 26.11
$300,000 - $349,999 274 87,261,973 19.60
$350,000 - $399,999 133 49,101,910 11.03
$400,000 - $449,999 100 41,937,150 9.42
$450,000 - $499,999 46 21,721,582 4.88
$500,000 - $599,999 60 32,402,805 7.28
$600,000 - $699,999 34 21,381,158 4.80
$700,000 or greater 22 21,340,371 4.79
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
AVERAGE: $317,617
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP 1
- ------------------------ ----- ------------ ------------
<S> <C> <C> <C>
Less than $100,000 66 $ 4,758,619 1.07%
$100,000 - $149,999 46 5,712,377 1.28
$150,000 - $199,999 34 5,807,485 1.30
$200,000 - $249,999 170 40,608,639 9.12
$250,000 - $299,999 460 126,152,044 28.33
$300,000 - $349,999 248 80,320,187 18.04
$350,000 - $399,999 137 51,547,499 11.58
$400,000 - $449,999 82 34,894,906 7.84
$450,000 - $499,999 49 23,370,695 5.25
$500,000 - $599,999 61 33,601,561 7.55
$600,000 - $699,999 27 17,185,241 3.86
$700,000 or greater 22 21,340,371 4.79
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
A-1
<PAGE> 124
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS
IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 7.407%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP 1
- ---------------------- ----- ------------ ------------
<S> <C> <C> <C>
7.000% or less 157 $ 51,740,884 11.62%
7.001% - 7.250% 333 110,700,774 24.86
7.251% - 7.500% 514 167,011,174 37.51
7.501% - 7.750% 248 78,605,244 17.65
7.751% - 8.000% 114 30,111,430 6.76
8.001% - 8.250% 32 5,947,017 1.34
8.251% - 8.500% 3 822,729 0.18
8.501% - 8.750% 1 360,372 0.08
----- ------------- -----
Total 1,402 $ 445,299,624 100.00%
===== ============= ======
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 75.89%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP 1
- ----------------------------- ----- ------------ ------------
<S> <C> <C> <C>
50.00% or less 53 $ 13,930,435 3.13%
50.01% - 55.00% 28 10,524,559 2.36
55.01% - 60.00% 52 15,059,026 3.38
60.01% - 65.00% 65 22,892,357 5.14
65.01% - 70.00% 140 46,410,981 10.42
70.01% - 75.00% 247 79,574,763 17.87
75.01% - 80.00% 565 180,573,346 40.55
80.01% - 85.00% 25 7,346,084 1.65
85.01% - 90.00% 130 40,767,396 9.16
90.01% - 95.00% 97 28,220,676 6.34
------ ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</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 1
- ------------- ----- ------------ ------------
<S> <C> <C> <C>
Single Family 1,153 $368,187,755 82.68%
Two-Family to Four-Family 9 2,568,244 0.58
Condo 76 19,977,808 4.49
Cooperative 1 295,786 0.07
Planned Unit Development - Attached 19 6,413,797 1.44
Planned Unit Development - Detached 144 47,856,234 10.75
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
A-2
<PAGE> 125
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 1
- ------------ ----- ------------ ------------
<S> <C> <C> <C>
Purchase 771 $244,162,386 54.83%
Rate and Term Refinance 356 111,769,065 25.10
Cash Out Refinance 75 89,368,173 20.07
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
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 1
- ----------------- ----- ------------ ------------
<S> <C> <C> <C>
Primary Residence 1,343 $427,938,918 96.10%
Second/Vacation Home 51 15,530,244 3.49
Investor Property 8 1,830,462 0.41
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
- --------------
* As represented by the related Mortgagor.
ORIGINAL TERMS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 359 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL TERM LOANS CUT-OFF DATE LOAN GROUP 1
- ------------- ----- ------------ ------------
<S> <C> <C> <C>
240 Months 18 $ 5,205,550 1.17%
300 Months 1 238,025 0.05
360 Months 1,383 439,856,049 98.78
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
STATED REMAINING TERMS TO MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
WEIGHTED AVERAGE: 357 MONTHS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATED REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP 1
- --------------------------------- ----- ------------ ------------
<S> <C> <C> <C>
181 - 240 Months 18 $ 5,205,550 1.17%
241 - 300 Months 1 238,025 0.05
301 - 360 Months 1,383 439,856,049 98.78
----- ----------- ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
A-3
<PAGE> 126
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP 1*
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
STATE LOANS CUT-OFF DATE LOAN GROUP 1
- ----- ----- ------------ ------------
<S> <C> <C> <C>
California 716 $248,621,321 55.83%
New Jersey 98 27,040,304 6.07
New York 83 25,212,866 5.66
Massachusetts 49 15,598,872 3.50
Florida 65 14,263,364 3.20
Colorado 39 11,728,281 2.63
Pennsylvania 39 10,350,385 2.32
Connecticut 34 9,751,538 2.19
Texas 30 9,415,887 2.11
Minnesota 28 9,165,431 2.06
Virginia 27 8,419,701 1.89
Illinois 26 7,098,245 1.59
Arizona 17 6,196,719 1.39
Washington 22 6,100,741 1.37
Other (no more than 1% in any one of 26 129 36,335,968 8.16
states and District of Columbia) ----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
- --------------
* No more than 0.94% (94611 - Piedmont/Oakland, CA) of the Mortgage Loans in
Mortgage Loan Group 1 by Unpaid Principal Balance will be secured by
Properties located in any one five-digit ZIP code area in California and no
more than 0.36% (10583 - Scarsdale, NY) of the Mortgage Loans in Mortgage
Loan Group 1 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 1
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
DOCUMENTATION TYPE LOANS CUT-OFF DATE LOAN GROUP 1
- ------------------ ----- ------------ ------------
<S> <C> <C> <C>
Full/Alternative Documentation 1,192 $407,127,631 91.43%
Limited Documentation 201 37,289,082 8.37
No Income/No Asset 9 882,911 0.20
----- ------------ ------
Total 1,402 $445,299,624 100.00%
===== ============ ======
</TABLE>
A-4
<PAGE> 127
ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOAN GROUP 2
AVERAGE: $297,338
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ORIGINAL PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP 2
- -------------------------- ----- ------------ ------------
<S> <C> <C> <C>
Less than $100,000 29 $ 1,779,736 1.91%
$100,000 - $149,999 20 2,329,487 2.49
$150,000 - $199,999 11 1,796,627 1.92
$200,000 - $249,999 26 6,038,496 6.46
$250,000 - $299,999 91 24,627,378 26.36
$300,000 - $349,999 54 17,116,553 18.32
$350,000 - $399,999 29 10,492,965 11.23
$400,000 - $449,999 16 6,643,214 7.11
$450,000 - $499,999 15 7,086,028 7.59
$500,000 - $599,999 14 7,633,006 8.17
$600,000 - $699,999 8 5,059,979 5.42
$700,000 or greater 3 2,813,153 3.01
--- ----------- ------
Total 316 $93,416,622 100.00%
=== =========== ======
</TABLE>
UNPAID PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
AVERAGE: $295,622
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
UNPAID PRINCIPAL BALANCE LOANS CUT-OFF DATE LOAN GROUP 2
- ------------------------ ----- ------------ ------------
<S> <C> <C> <C>
Less than $100,000 32 $ 2,076,982 2.22%
$100,000 - $149,999 18 2,180,743 2.33
$150,000 - $199,999 10 1,648,125 1.76
$200,000 - $249,999 32 7,529,140 8.06
$250,000 - $299,999 91 24,924,349 26.68
$300,000 - $349,999 52 16,719,875 17.90
$350,000 - $399,999 30 11,088,753 11.87
$400,000 - $449,999 12 5,103,703 5.46
$450,000 - $499,999 14 6,638,815 7.11
$500,000 - $599,999 15 8,229,250 8.81
$600,000 - $699,999 8 5,161,621 5.53
$700,000 or greater 2 2,115,267 2.26
--- ----------- ------
Total 316 $93,416,622 100.00%
=== =========== ======
</TABLE>
A-5
<PAGE> 128
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE OF MORTGAGE LOANS
IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 7.038%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
MORTGAGE INTEREST RATE LOANS CUT-OFF DATE LOAN GROUP 2
- ---------------------- ----- ------------ ------------
<S> <C> <C> <C>
6.250% or less 5 $ 1,389,839 1.49%
6.251% - 6.500% 26 8,378,029 8.97
6.501% - 6.750% 44 13,536,493 14.49
6.751% - 7.000% 88 28,224,830 30.21
7.001% - 7.250% 61 22,691,098 24.29
7.251% - 7.500% 46 11,383,347 12.19
7.501% - 7.750% 36 6,250,527 6.69
7.751% - 8.000% 9 1,459,828 1.56
8.001% - 8.250% 1 102,632 0.11
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
WEIGHTED AVERAGE: 69.77%
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
ORIGINAL LOAN-TO- MORTGAGE OUTSTANDING AS OF MORTGAGE
VALUE RATIOS LOANS CUT-OFF DATE LOAN GROUP 2
- ------------ ----- ------------ ------------
<S> <C> <C> <C>
50.00% or less 34 $ 8,637,796 9.25%
50.01% - 55.00% 12 2,892,040 3.10
55.01% - 60.00% 18 5,677,832 6.08
60.01% - 65.00% 34 10,860,366 11.63
65.01% - 70.00% 38 10,500,157 11.24
70.01% - 75.00% 71 20,562,987 22.01
75.01% - 80.00% 87 27,590,217 29.53
80.01% - 85.00% 4 1,256,672 1.35
85.01% - 90.00% 13 3,969,177 4.25
90.01% - 95.00% 5 1,469,377 1.57
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
PROPERTY TYPES OF 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 2
- ------------- ----- ------------ ------------
<S> <C> <C> <C>
Single Family 234 $ 68,325,758 73.14%
Two-Family to Four-Family 1 643,745 0.69
Condo 18 3,971,941 4.25
Planned Unit Development - Attached 6 2,046,101 2.19
Planned Unit Development - Detached 57 18,429,077 19.73
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
A-6
<PAGE> 129
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 2
- ------------ ----- ------------ ------------
<S> <C> <C> <C>
Purchase 100 $ 27,370,267 29.30%
Rate and Term Refinance 137 42,103,181 45.07
Cash Out Refinance 79 23,943,174 25.63
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</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 2
- ----------------- ----- ------------ ------------
<S> <C> <C> <C>
Primary Residence 302 $ 89,086,978 95.37%
Second/Vacation Home 11 3,332,015 3.57
Investor 3 997,629 1.07
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
- --------------
* As represented by the related 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 TERMS LOANS CUT-OFF DATE LOAN GROUP 2
- -------------- ----- ------------ ------------
<S> <C> <C> <C>
120 Months 1 $ 88,473 0.09%
121 - 179 Months 1 311,887 0.33
180 Months 314 93,016,262 99.57
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
STATED REMAINING TERMS TO 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
STATED REMAINING TERM TO MATURITY LOANS CUT-OFF DATE LOAN GROUP 2
- --------------------------------- ----- ------------ ------------
<S> <C> <C> <C>
180 Months or less 316 $ 93,416,622 100.00 %
--- ------------ ------
Total 316 $ 93,416,622 100.00 %
=== ============ ======
</TABLE>
A-7
<PAGE> 130
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 2
- ----- ----- ------------ ------------
<S> <C> <C> <C>
California 81 $ 29,920,893 32.03%
Illinois 17 5,093,380 5.45
New Jersey 22 4,934,435 5.28
Massachusetts 17 4,560,097 4.88
Texas 15 4,023,435 4.31
Wisconsin 11 3,782,634 4.05
Maryland 10 3,366,349 3.60
Florida 24 3,221,906 3.45
Georgia 11 3,023,069 3.24
Pennsylvania 10 2,910,882 3.12
Michigan 8 2,480,414 2.66
Colorado 6 2,035,955 2.18
Oregon 5 1,797,374 1.92
Minnesota 7 1,797,092 1.92
District of Columbia 5 1,757,787 1.88
Virginia 6 1,632,528 1.75
Tennessee 5 1,439,242 1.54
Ohio 5 1,390,753 1.49
Washington 7 1,385,942 1.48
Nevada 2 1,339,927 1.43
Connecticut 6 1,255,106 1.34
New York 4 1,079,030 1.16
Other (no more than 1% in any one of 18 32 9,188,393 9.84
states) --- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
- ---------------
* No more than 1.38% (91311 - Chatsworth/LA, CA) of the Mortgage Loans in
Mortgage Loan Group 2 by Unpaid Principal Balance will be secured by
Properties located in any one five-digit ZIP code area in California and no
more than 1.32% (60010 - Barrington, IL) 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 2
- ------------------ ----- ------------ ------------
<S> <C> <C> <C>
Full/Alternative Documentation 238 $ 82,204,698 88.00%
Limited Documentation 69 10,002,442 10.71
No Income/No Asset 9 1,209,481 1.29
--- ------------ ------
Total 316 $ 93,416,622 100.00%
=== ============ ======
</TABLE>
A-8
<PAGE> 131
ZIP CODE CONCENTRATION (OVER 1%) OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 2
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL BALANCE % OF
MORTGAGE OUTSTANDING AS OF MORTGAGE
ZIP CODE CONCENTRATION LOANS CUT-OFF DATE LOAN GROUP 2
- ---------------------- ----- ------------ ------------
<S> <C> <C> <C>
91311 -- Chatsworth/Los Angeles, CA 2 $ 1,285,579 1.38%
60010 -- Barrington, IL 3 1,234,694 1.32
94024 -- Los Altos, CA 2 1,132,971 1.21
89117 -- Las Vegas, NV 1 1,121,527 1.20
95014 -- Cupertino, CA 3 1,038,362 1.11
90275 -- Rancho Palos, CA 2 961,024 1.03
</TABLE>
A-9
<PAGE> 132
ANNEX B
PLANNED BALANCES
The Planned Balance of each Class of the PAC 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 each Class of the PAC
Bonds could be substantially higher or lower than the respective 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-9
PAYMENT DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- ------------ --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sep 1998 $ 9,976,000.00 $ 17,799,000.00 $ 26,250,000.00 $ 22,346,000.00 $ 25,000,000.00
Oct 1998 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 24,887,471.18
Nov 1998 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 24,749,680.53
Dec 1998 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 24,586,681.66
Jan 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 24,398,531.51
Feb 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 24,185,309.62
Mar 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 23,947,118.11
Apr 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 23,684,081.63
May 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 23,396,347.37
Jun 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 23,084,084.94
Jul 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 22,747,486.29
Aug 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 22,386,765.50
Sep 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 22,002,158.65
Oct 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 21,593,923.58
Nov 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 21,162,339.65
Dec 1999 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 20,707,707.43
Jan 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 20,230,348.42
Feb 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 19,730,604.66
Mar 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 19,208,838.40
Apr 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 18,665,431.62
May 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 18,100,785.64
Jun 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 17,515,320.62
Jul 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 16,909,475.07
Aug 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 16,283,705.30
Sep 2000 9,976,000.00 17,799,000.00 26,250,000.00 22,346,000.00 15,638,484.86
Oct 2000 8,531,917.97 17,799,000.00 26,250,000.00 22,346,000.00 15,474,373.93
Nov 2000 7,040,983.01 17,799,000.00 26,250,000.00 22,346,000.00 15,308,033.47
Dec 2000 5,509,483.18 17,799,000.00 26,250,000.00 22,346,000.00 15,137,807.65
Jan 2001 3,938,265.41 17,799,000.00 26,250,000.00 22,346,000.00 14,963,939.60
Feb 2001 2,328,200.37 17,799,000.00 26,250,000.00 22,346,000.00 14,786,678.28
Mar 2001 728,761.08 17,799,000.00 26,250,000.00 22,346,000.00 14,612,762.71
Apr 2001 0.00 16,938,879.49 26,250,000.00 22,346,000.00 14,442,151.51
May 2001 0.00 15,360,488.01 26,250,000.00 22,346,000.00 14,274,803.72
Jun 2001 0.00 13,792,519.48 26,250,000.00 22,346,000.00 14,110,678.84
Jul 2001 0.00 12,234,907.19 26,250,000.00 22,346,000.00 13,949,736.80
Aug 2001 0.00 10,687,584.85 26,250,000.00 22,346,000.00 13,791,937.97
Sep 2001 0.00 9,150,486.62 26,250,000.00 22,346,000.00 13,637,243.14
Oct 2001 0.00 7,623,547.09 26,250,000.00 22,346,000.00 13,485,613.53
</TABLE>
B-1
<PAGE> 133
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-9
PAYMENT DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- ------------ --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Nov 2001 $ 0.00 $ 6,106,701.27 $ 26,250,000.00 $ 22,346,000.00 $ 13,337,010.78
Dec 2001 0.00 4,599,884.60 26,250,000.00 22,346,000.00 13,191,396.95
Jan 2002 0.00 3,103,032.95 26,250,000.00 22,346,000.00 13,048,734.51
Feb 2002 0.00 1,616,082.60 26,250,000.00 22,346,000.00 12,908,986.35
Mar 2002 0.00 138,970.25 26,250,000.00 22,346,000.00 12,772,115.74
Apr 2002 0.00 0.00 25,532,458.78 21,735,174.24 12,638,086.36
May 2002 0.00 0.00 24,745,096.75 21,064,911.69 12,506,862.31
Jun 2002 0.00 0.00 23,962,947.67 20,399,086.80 12,378,408.03
Jul 2002 0.00 0.00 23,185,978.22 19,737,671.21 12,252,688.41
Aug 2002 0.00 0.00 22,414,155.32 19,080,636.75 12,129,668.67
Sep 2002 0.00 0.00 21,647,446.12 18,427,955.46 12,009,314.44
Oct 2002 0.00 0.00 20,885,817.94 17,779,599.52 11,891,591.72
Nov 2002 0.00 0.00 20,129,238.36 17,135,541.34 11,776,466.87
Dec 2002 0.00 0.00 19,377,675.16 16,495,753.48 11,663,906.65
Jan 2003 0.00 0.00 18,631,096.33 15,860,208.70 11,553,878.14
Feb 2003 0.00 0.00 17,889,470.05 15,228,879.91 11,446,348.82
Mar 2003 0.00 0.00 17,152,764.74 14,601,740.22 11,341,286.51
Apr 2003 0.00 0.00 16,420,949.01 13,978,762.91 11,238,659.38
May 2003 0.00 0.00 15,693,991.69 13,359,921.45 11,138,435.96
Jun 2003 0.00 0.00 14,971,861.79 12,745,189.46 11,040,585.13
Jul 2003 0.00 0.00 14,254,528.55 12,134,540.75 10,945,076.09
Aug 2003 0.00 0.00 13,541,961.41 11,527,949.31 10,851,878.40
Sep 2003 0.00 0.00 12,834,129.99 10,925,389.28 10,760,961.94
Oct 2003 0.00 0.00 12,172,481.86 10,362,143.98 10,682,215.74
Nov 2003 0.00 0.00 11,515,426.30 9,802,808.23 10,605,632.88
Dec 2003 0.00 0.00 10,862,933.66 9,247,356.78 10,531,184.36
Jan 2004 0.00 0.00 10,214,974.44 8,695,764.52 10,458,841.52
Feb 2004 0.00 0.00 9,571,519.36 8,148,006.53 10,388,576.01
Mar 2004 0.00 0.00 8,932,539.33 7,604,058.04 10,320,359.79
Apr 2004 0.00 0.00 8,298,005.43 7,063,894.44 10,254,165.16
May 2004 0.00 0.00 7,671,024.88 6,530,160.83 10,187,954.32
Jun 2004 0.00 0.00 7,066,533.84 6,015,572.00 10,112,106.64
Jul 2004 0.00 0.00 6,483,826.14 5,519,526.81 10,027,029.88
Aug 2004 0.00 0.00 5,922,216.94 5,041,442.27 9,933,118.49
Sep 2004 0.00 0.00 5,381,042.09 4,580,753.01 9,830,754.13
Oct 2004 0.00 0.00 4,910,661.63 4,180,329.32 9,699,384.97
Nov 2004 0.00 0.00 4,458,342.58 3,795,280.88 9,560,913.01
Dec 2004 0.00 0.00 4,023,496.70 3,425,106.94 9,415,672.77
Jan 2005 0.00 0.00 3,605,553.90 3,069,322.19 9,263,987.58
Feb 2005 0.00 0.00 3,203,961.59 2,727,456.22 9,106,169.90
Mar 2005 0.00 0.00 2,818,184.27 2,399,053.17 8,942,521.64
Apr 2005 0.00 0.00 2,447,702.93 2,083,671.23 8,773,334.53
May 2005 0.00 0.00 2,092,014.60 1,780,882.22 8,598,890.40
Jun 2005 0.00 0.00 1,750,631,81 1,490,271.18 8,419,461.53
Jul 2005 0.00 0.00 1,423,082.22 1,211,436.01 8,237,106.83
Aug 2005 0.00 0.00 1,108,908.06 943,987.03 8,053,027.82
</TABLE>
B-2
<PAGE> 134
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-9
PAYMENT DATE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE PLANNED BALANCE
- ------------ --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sep 2005 0.00 0.00 807,665.76 687,546.63 7,867,399.85
Oct 2005 0.00 0.00 606,914.27 516,651.67 7,657,458.73
Nov 2005 0.00 0.00 415,535.45 353,735.44 7,447,493.63
Dec 2005 0.00 0.00 233,187.74 198,507.17 7,237,625.63
Jan 2006 0.00 0.00 59,540.86 50,685.72 7,027,970.14
Feb 2006 0.00 0.00 0.00 0.00 6,750,859.48
Mar 2006 0.00 0.00 0.00 0.00 6,441,180.78
Apr 2006 0.00 0.00 0.00 0.00 6,137,012.45
May 2006 0.00 0.00 0.00 0.00 5,838,264.07
Jun 2006 0.00 0.00 0.00 0.00 5,544,846.64
Jul 2006 0.00 0.00 0.00 0.00 5,256,672.56
Aug 2006 0.00 0.00 0.00 0.00 4,973,655.62
Sep 2006 0.00 0.00 0.00 0.00 4,695,710.95
Oct 2006 0.00 0.00 0.00 0.00 4,452,608.22
Nov 2006 0.00 0.00 0.00 0.00 4,213,732.32
Dec 2006 0.00 0.00 0.00 0.00 3,979,013.33
Jan 2007 0.00 0.00 0.00 0.00 3,748,382.47
Feb 2007 0.00 0.00 0.00 0.00 3,521,772.07
Mar 2007 0.00 0.00 0.00 0.00 3,299,115.52
Apr 2007 0.00 0.00 0.00 0.00 3,080,347.31
May 2007 0.00 0.00 0.00 0.00 2,865,402.96
Jun 2007 0.00 0.00 0.00 0.00 2,654,219.03
Jul 2007 0.00 0.00 0.00 0.00 2,446,733.09
Aug 2007 0.00 0.00 0.00 0.00 2,242,883.72
Sep 2007 0.00 0.00 0.00 0.00 2,042,610.50
Oct 2007 0.00 0.00 0.00 0.00 1,871,444.52
Nov 2007 0.00 0.00 0.00 0.00 1,702,984.34
Dec 2007 0.00 0.00 0.00 0.00 1,537,188.26
Jan 2008 0.00 0.00 0.00 0.00 1,374,015.21
Feb 2008 0.00 0.00 0.00 0.00 1,213,424.72
Mar 2008 0.00 0.00 0.00 0.00 1,055,376.98
Apr 2008 0.00 0.00 0.00 0.00 899,832.76
May 2008 0.00 0.00 0.00 0.00 746,753.41
Jun 2008 0.00 0.00 0.00 0.00 596,100.89
Jul 2008 0.00 0.00 0.00 0.00 447,837.75
Aug 2008 0.00 0.00 0.00 0.00 301,927.08
Sep 2008 0.00 0.00 0.00 0.00 158,332.56
Oct 2008 0.00 0.00 0.00 0.00 17,018.39
Nov 2008
and thereafter 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-3
<PAGE> 135
ANNEX C
TARGETED BALANCES
The Targeted Balances of the Component A-6-2 and the Class A-11 Bonds
set forth below for each Payment Date will be used to determine the allocation
of principal and interest on the Bonds as des cribed in "Description of the
Bonds--Payment of the Bonds." The actual Component Current Principal Balance and
Class Current Principal Balance of Component A-6-2 and the Class A-11 Bonds
could be substantially higher or lower than the respective Targeted Balance for
any Payment Date set forth below.
<TABLE>
<CAPTION>
COMPONENT A-6-2 CLASS A-11
PAYMENT DATE TARGETED BALANCE TARGETED BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
Sep 1998 $ 29,433,573.00 $ 7,630,927.00
Oct 1998 29,348,129.01 7,608,774.85
Nov 1998 29,241,335.83 7,581,087.73
Dec 1998 29,113,213.39 7,547,870.80
Jan 1999 28,963,809.27 7,509,136.40
Feb 1999 28,793,205.65 7,464,905.82
Mar 1999 28,601,519.37 7,415,209.37
Apr 1999 28,388,902.06 7,360,086.36
May 1999 28,155,540.05 7,299,585.09
Jun 1999 27,901,654.23 7,233,762.83
Jul 1999 27,627,499.85 7,162,685.76
Aug 1999 27,333,366.25 7,086,428.89
Sep 1999 27,019,576.42 7,005,075.96
Oct 1999 26,686,486.59 6,918,719.33
Nov 1999 26,334,485.61 6,827,459.81
Dec 1999 25,963,994.35 6,731,406.51
Jan 2000 25,575,464.97 6,630,676.66
Feb 2000 25,169,380.11 6,525,395.39
Mar 2000 24,746,251.98 6,415,695.49
Apr 2000 24,306,621.44 6,301,717.20
May 2000 23,851,056.93 6,183,607.88
Jun 2000 23,380,153.33 6,061,521.75
Jul 2000 22,894,530.80 5,935,619.60
Aug 2000 22,394,833.52 5,806,068.44
Sep 2000 21,881,728.34 5,673,041.16
Oct 2000 21,532,174.57 5,582,416.10
Nov 2000 21,176,328.17 5,490,159.61
Dec 2000 20,814,147.96 5,396,261.02
Jan 2001 20,446,273.73 5,300,886.21
Feb 2001 20,073,357.57 5,204,204.24
Mar 2001 19,709,218.82 5,109,797.89
Apr 2001 19,353,700.63 5,017,626.50
May 2001 19,006,648.61 4,927,650.04
Jun 2001 18,667,910.69 4,839,829.09
Jul 2001 18,337,337.16 4,754,124.84
</TABLE>
C-1
<PAGE> 136
<TABLE>
<CAPTION>
COMPONENT A-6-2 CLASS A-11
PAYMENT DATE TARGETED BALANCE TARGETED BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
Aug 2001 $ 18,014,780.60 $ 4,670,499.05
Sep 2001 17,700,095.84 4,588,914.11
Oct 2001 17,393,139.95 4,509,332.94
Nov 2001 17,093,772.20 4,431,719.08
Dec 2001 16,801,854.04 4,356,036.59
Jan 2002 16,517,249.01 4,282,250.09
Feb 2002 16,239,822.78 4,210,324.77
Mar 2002 15,969,443.10 4,140,226.33
Apr 2002 15,705,979.75 4,071,921.02
May 2002 15,449,304.52 4,005,375.58
Jun 2002 15,199,291.19 3,940,557.30
Jul 2002 14,955,815.48 3,877,433.97
Aug 2002 14,718,755.05 3,815,973.85
Sep 2002 14,487,989.43 3,756,145.72
Oct 2002 14,263,400.06 3,697,918.84
Nov 2002 14,044,870.18 3,641,262.94
Dec 2002 13,832,284.84 3,586,148.22
Jan 2003 13,625,530.93 3,532,545.35
Feb 2003 13,424,497.05 3,480,425.45
Mar 2003 13,229,073.55 3,429,760.09
Apr 2003 13,039,152.50 3,380,521.29
May 2003 12,854,627.61 3,332,681.50
Jun 2003 12,675,394.31 3,286,213.60
Jul 2003 12,501,349.63 3,241,090.90
Aug 2003 12,332,392.21 3,197,287.12
Sep 2003 12,168,422.30 3,154,776.40
Oct 2003 12,030,570.43 3,119,037.02
Nov 2003 11,897,348.54 3,084,498.01
Dec 2003 11,768,662.15 3,051,134.87
Jan 2004 11,644,418.29 3,018,923.50
Feb 2004 11,524,525.44 2,987,840.17
Mar 2004 11,408,893.54 2,957,861.52
Apr 2004 11,297,433.94 2,928,964.59
May 2004 11,189,350.76 2,900,943.02
Jun 2004 11,081,176.52 2,872,897.84
Jul 2004 10,972,979.88 2,844,846.85
Aug 2004 10,864,826.11 2,816,806.99
Sep 2004 10,756,777.11 2,788,794.28
Oct 2004 10,646,899.73 2,760,307.55
Nov 2004 10,537,362.92 2,731,909.12
Dec 2004 10,428,216.50 2,703,611.90
Jan 2005 10,319,507.41 2,675,428.06
Feb 2005 10,211,279.93 2,647,369.08
</TABLE>
C-2
<PAGE> 137
<TABLE>
<CAPTION>
COMPONENT A-6-2 CLASS A-11
PAYMENT DATE TARGETED BALANCE TARGETED BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
Mar 2005 $ 10,103,575.72 $ 2,619,445.76
Apr 2005 9,996,433.92 2,591,668.25
May 2005 9,889,891.26 2,564,046.08
June 2005 9,783,982.14 2,536,588.16
Jul 2005 9,677,312.52 2,508,933.08
Aug 2005 9,569,159.95 2,480,893.53
Sep 2005 9,459,607.89 2,452,491.14
Oct 2005 9,337,558.64 2,420,848.73
Nov 2005 9,214,792.80 2,389,020.55
Dec 2005 9,091,371.38 2,357,022.40
Jan 2006 8,967,352.91 2,324,869.46
Feb 2006 8,818,902.44 2,286,382.30
Mar 2006 8,658,334.39 2,244,753.55
Apr 2006 8,499,087.66 2,203,467.35
May 2006 8,341,146.47 2,162,519.63
Jun 2006 8,184,495.13 2,121,906.32
Jul 2006 8,029,118.04 2,081,623.37
Aug 2006 7,874,999.68 2,041,666.75
Sep 2006 7,722,124.63 2,002,032.48
Oct 2006 7,578,596.47 1,964,821.47
Nov 2006 7,436,162.96 1,927,894.26
Dec 2006 7,294,809.75 1,891,247.13
Jan 2007 7,154,522.58 1,854,876.38
Feb 2007 7,015,287.26 1,818,778.33
Mar 2007 6,877,089.71 1,782,949.33
Apr 2007 6,739,915.90 1,747,385.74
May 2007 6,603,751.94 1,712,083.97
Jun 2007 6,468,583.98 1,677,040.42
Jul 2007 6,334,398.31 1,642,251.54
Aug 2007 6,201,181.27 1,607,713.79
Sep 2007 6,068,919.29 1,573,423.64
Oct 2007 5,944,967.52 1,541,287.99
Nov 2007 5,821,801.77 1,509,356.12
Dec 2007 5,699,410.16 1,477,624.96
Jan 2008 5,577,780.93 1,446,091.45
Feb 2008 5,456,902.40 1,414,752.57
Mar 2008 5,336,762.95 1,383,605.31
Apr 2008 5,217,351.08 1,352,646.67
May 2008 5,098,655.36 1,321,873.70
Jun 2008 4,980,664.46 1,291,283.46
Jul 2008 4,863,367.11 1,260,873.03
Aug 2008 4,746,752.13 1,230,639.52
Sep 2008 4,630,808.44 1,200,580.05
</TABLE>
C-3
<PAGE> 138
<TABLE>
<CAPTION>
COMPONENT A-6-2 CLASS A-11
PAYMENT DATE TARGETED BALANCE TARGETED BALANCE
- ------------ ---------------- ----------------
<S> <C> <C>
Oct 2008 $ 4,515,525.03 $ 1,170,691.76
Nov 2008 4,303,968.40 1,115,843.74
Dec 2008 4,081,291.02 1,058,112.56
Jan 2009 3,860,969.58 1,000,992.18
Feb 2009 3,642,966.69 944,472.91
Mar 2009 3,427,245.41 888,545.17
Apr 2009 3,213,769.32 833,199.52
May 2009 3,002,502.45 778,426.62
June 2009 2,793,409.30 724,217.28
Jul 2009 2,586,454.82 670,562.41
Aug 2009 2,381,604.43 617,453.05
Sep 2009 2,178,823.99 564,880.34
Oct 2009 1,978,079.82 512,835.55
Nov 2009 1,779,338.63 461,310.05
Dec 2009 1,582,567.61 410,295.33
Jan 2010 1,387,734.34 359,783.00
Feb 2010 1,194,806.83 309,764.76
Mar 2010 1,003,753.49 260,232.41
Apr 2010 814,543.16 211,177.88
May 2010 627,145.06 162,593.18
Jun 2010 441,528.79 114,470.44
Jul 2010 257,664.38 66,801.89
Aug 2010 75,522.21 19,579.84
Sep 2010
and thereafter 0.00 0.00
</TABLE>
C-4
<PAGE> 139
ANNEX D
250% SPA ADJUSTED GROUP 1 NON-PO MORTGAGE POOL BALANCES
The following table sets forth for each Payment Date the 250% SPA
Balance. The 250% SPA Balance 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 Adjusted Group 1
Non-PO Mortgage Pool Balance could be substantially higher or lower than the
respective 250% SPA Balance for any Payment Date set forth below.
<TABLE>
<CAPTION>
PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE
- ------------ ---------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Oct 1998 $ 443,818,253.13 Sep 2001 $ 319,472,389.71 Aug 2004 $ 191,164,067.84
Nov 1998 442,914,628.95 Oct 2001 314,861,133.22 Sep 2004 188,350,332.12
Dec 1998 441,823,038.83 Nov 2001 310,314,217.96 Oct 2004 185,576,230.50
Jan 1999 440,543,908.20 Dec 2001 305,830,761.39 Nov 2004 182,841,216.67
Feb 1999 439,077,901.74 Jan 2002 301,409,892.96 Dec 2004 180,144,751.79
Mar 1999 437,425,924.04 Feb 2002 297,050,753.98 Jan 2005 177,486,304.35
Apr 1999 435,589,119.66 Mar 2002 292,752,497.39 Feb 2005 174,865,350.09
May 1999 433,568,872.79 Apr 2002 288,514,287.69 Mar 2005 172,281,371.88
Jun 1999 431,366,806.41 May 2002 284,335,300.72 Apr 2005 169,733,859.67
Jul 1999 428,984,780.81 Jun 2002 280,214,723.53 May 2005 167,222,310.35
Aug 1999 426,424,891.75 Jul 2002 276,151,754.23 Jun 2005 164,746,227.65
Sep 1999 423,689,468.02 Aug 2002 272,145,601.83 Jul 2005 162,305,122.11
Oct 1999 420,781,068.48 Sep 2002 268,195,486.11 Aug 2005 159,898,510.91
Nov 1999 417,702,478.68 Oct 2002 264,300,637.44 Sep 2005 157,525,917.83
Dec 1999 414,456,706.82 Nov 2002 260,460,296.68 Oct 2005 155,186,873.15
Jan 2000 411,046,979.39 Dec 2002 256,673,715.02 Nov 2005 152,880,913.54
Feb 2000 407,476,736.16 Jan 2003 252,940,153.83 Dec 2005 150,607,582.02
Mar 2000 403,749,624.78 Feb 2003 249,258,884.52 Jan 2006 148,366,427.82
Apr 2000 399,869,494.90 Mar 2003 245,629,188.43 Feb 2006 146,157,006.33
May 2000 395,840,391.73 Apr 2003 242,050,356.67 Mar 2006 143,978,879.01
Jun 2000 391,666,549.32 May 2003 238,521,690.00 Apr 2006 141,831,613.30
Jul 2000 387,352,383.24 Jun 2003 235,042,498.71 May 2006 139,714,782.55
Aug 2000 382,902,482.94 Jul 2003 231,612,102.45 Jun 2006 137,627,965.93
Sep 2000 378,321,603.69 Aug 2003 228,229,830.16 Jul 2006 135,570,748.36
Oct 2000 373,614,658.10 Sep 2003 224,895,019.89 Aug 2006 133,542,720.41
Nov 2000 368,786,707.34 Oct 2003 221,607,018.72 Sep 2006 131,543,478.27
Dec 2000 363,842,951.99 Nov 2003 218,365,182.62 Oct 2006 129,572,623.62
Jan 2001 358,788,722.55 Dec 2003 215,168,876.31 Nov 2006 127,629,763.58
Feb 2001 353,629,469.66 Jan 2004 212,017,473.19 Dec 2006 125,714,510.67
Mar 2001 348,542,070.47 Feb 2004 208,910,355.16 Jan 2007 123,826,482.65
Apr 2001 343,525,540.34 Mar 2004 205,846,912.57 Feb 2007 121,965,302.54
May 2001 338,578,908.01 Apr 2004 202,826,544.04 Mar 2007 120,130,598.50
Jun 2001 333,701,215.43 May 2004 199,848,656.42 Apr 2007 118,322,003.77
Jul 2001 328,891,517.53 Jun 2004 196,912,664.62 May 2007 116,539,156.60
Aug 2001 324,148,882.14 Jul 2004 194,017,991.51 Jun 2007 114,781,700.19
</TABLE>
D-1
<PAGE> 140
<TABLE>
<CAPTION>
PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE
- ------------ ---------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jul 2007 $ 113,049,282.61 May 2011 $ 55,244,259.34 Mar 2015 $ 25,794,225.29
Aug 2007 111,341,556.74 Jun 2011 54,368,020.56 Apr 2015 25,352,505.56
Sep 2007 109,658,180.21 Jul 2011 53,504,548.96 May 2015 24,917,425.37
Oct 2007 107,998,815.33 Aug 2011 52,653,665.60 Jun 2015 24,488,890.25
Nov 2007 106,363,129.02 Sep 2011 51,815,193.96 Jul 2015 24,066,807.07
Dec 2007 104,750,792.77 Oct 2011 50,988,959.97 Aug 2015 23,651,083.96
Jan 2008 103,161,482.55 Nov 2011 50,174,791.95 Sep 2015 23,241,630.36
Feb 2008 101,594,878.77 Dec 2011 49,372,520.58 Oct 2015 22,838,356.93
Mar 2008 100,050,666.20 Jan 2012 48,581,978.87 Nov 2015 22,441,175.58
Apr 2008 98,528,533.94 Feb 2012 47,803,002.13 Dec 2015 22,049,999.46
May 2008 97,028,175.32 Mar 2012 47,035,427.93 Jan 2016 21,664,742.91
Jun 2008 95,549,287.89 Apr 2012 46,279,096.08 Feb 2016 21,285,321.44
Jul 2008 94,091,573.33 May 2012 45,533,848.59 Mar 2016 20,911,651.77
Aug 2008 92,654,737.40 Jun 2012 44,799,529.66 Apr 2016 20,543,651.74
Sep 2008 91,238,489.89 Jul 2012 44,075,985.62 May 2016 20,181,240.35
Oct 2008 89,842,544.56 Aug 2012 43,363,064.91 Jun 2016 19,824,337.73
Nov 2008 88,466,619.10 Sep 2012 42,660,618.08 Jul 2016 19,472,865.10
Dec 2008 87,110,435.04 Oct 2012 41,968,497.72 Aug 2016 19,126,744.79
Jan 2009 85,773,717.75 Nov 2012 41,286,558.47 Sep 2016 18,785,900.20
Feb 2009 84,456,196.36 Dec 2012 40,614,656.95 Oct 2016 18,450,255.80
Mar 2009 83,157,603.69 Jan 2013 39,952,651.76 Nov 2016 18,119,737.10
Apr 2009 81,877,676.23 Feb 2013 39,300,403.47 Dec 2016 17,794,270.66
May 2009 80,616,154.09 Mar 2013 38,657,774.55 Jan 2017 17,473,784.04
Jun 2009 79,372,780.93 Apr 2013 38,024,629.38 Feb 2017 17,158,205.84
Jul 2009 78,147,303.92 May 2013 37,400,834.20 Mar 2017 16,847,465.62
Aug 2009 76,939,473.70 Jun 2013 36,786,257.10 Apr 2017 16,541,493.93
Sep 2009 75,749,044.34 Jul 2013 36,180,767.98 May 2017 16,240,222.30
Oct 2009 74,575,773.27 Aug 2013 35,584,238.56 Jun 2017 15,943,583.21
Nov 2009 73,419,421.23 Sep 2013 34,996,542.31 Jul 2017 15,651,510.05
Dec 2009 72,279,752.27 Oct 2013 34,417,554.44 Aug 2017 15,363,937.18
Jan 2010 71,156,533.65 Nov 2013 33,847,151.90 Sep 2017 15,080,799.85
Feb 2010 70,049,535.84 Dec 2013 33,285,213.34 Oct 2017 14,802,034.21
Mar 2010 68,958,532.46 Jan 2014 32,731,619.06 Nov 2017 14,527,577.32
Apr 2010 67,883,300.21 Feb 2014 32,186,251.04 Dec 2017 14,257,367.08
May 2010 66,823,618.89 Mar 2014 31,648,992.88 Jan 2018 13,991,342.31
Jun 2010 65,779,271.29 Apr 2014 31,119,729.79 Feb 2018 13,729,442.63
Jul 2010 64,750,043.20 May 2014 30,598,348.57 Mar 2018 13,471,608.53
Aug 2010 63,735,723.34 Jun 2014 30,084,737.56 Apr 2018 13,217,781.32
Sep 2010 62,736,103.33 Jul 2014 29,578,786.68 May 2018 12,967,903.15
Oct 2010 61,750,977.67 Aug 2014 29,080,387.36 Jun 2018 12,721,916.94
Nov 2010 60,780,143.65 Sep 2014 28,589,432.50 Jul 2018 12,479,766.44
Dec 2010 59,823,401.38 Oct 2014 28,105,816.53 Aug 2018 12,241,396.18
Jan 2011 58,880,553.67 Nov 2014 27,629,435.31 Sep 2018 12,006,751.44
Feb 2011 57,951,406.09 Dec 2014 27,160,186.15 Oct 2018 11,775,778.29
Mar 2011 57,035,766.84 Jan 2015 26,697,967.77 Nov 2018 11,548,423.56
Apr 2011 56,133,446.77 Feb 2015 26,242,680.31 Dec 2018 11,324,634.78
</TABLE>
D-2
<PAGE> 141
<TABLE>
<CAPTION>
PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE PAYMENT DATE 250% SPA BALANCE
- ------------ ---------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jan 2019 $ 11,104,360.27 Oct 2022 $ 4,116,060.68 Jul 2026 $ 860,192.89
Feb 2019 10,887,549.04 Nov 2022 4,012,331.58 Aug 2026 813,940.25
Mar 2019 10,674,150.80 Dec 2022 3,910,353.84 Sep 2026 768,565.07
Apr 2019 10,464,116.01 Jan 2023 3,810,101.28 Oct 2026 724,053.67
May 2019 10,257,395.78 Feb 2023 3,711,548.08 Nov 2026 680,392.57
Jun 2019 10,053,941.92 Mar 2023 3,614,668.81 Dec 2026 637,568.48
Jul 2019 9,853,706.91 Apr 2023 3,519,438.37 Jan 2027 595,568.29
Aug 2019 9,656,643.92 May 2023 3,425,832.05 Feb 2027 554,379.11
Sep 2019 9,462,706.74 Jun 2023 3,333,825.48 Mar 2027 513,988.21
Oct 2019 9,271,849.83 Jul 2023 3,243,394.62 Apr 2027 474,383.06
Nov 2019 9,084,028.28 Aug 2023 3,154,515.78 May 2027 435,551.29
Dec 2019 8,899,197.82 Sep 2023 3,067,165.63 Jun 2027 397,480.74
Jan 2020 8,717,314.78 Oct 2023 2,981,321.15 Jul 2027 360,159.41
Feb 2020 8,538,336.13 Nov 2023 2,896,959.64 Aug 2027 323,575.47
Mar 2020 8,362,219.42 Dec 2023 2,814,058.74 Sep 2027 287,717.27
Apr 2020 8,188,922.80 Jan 2024 2,732,596.40 Oct 2027 252,573.32
May 2020 8,018,405.03 Feb 2024 2,652,550.89 Nov 2027 218,132.32
Jun 2020 7,850,625.43 Mar 2024 2,573,900.79 Dec 2027 184,383.11
Jul 2020 7,685,543.88 Apr 2024 2,496,624.99 Jan 2028 151,314.71
Aug 2020 7,523,120.85 May 2024 2,420,702.65 Feb 2028 118,916.27
Sep 2020 7,363,317.34 Jun 2024 2,346,113.28 Mar 2028 87,177.15
Oct 2020 7,206,094.93 Jul 2024 2,272,836.63 Apr 2028 57,513.39
Nov 2020 7,051,415.71 Aug 2024 2,200,852.78 May 2028 28,457.57
Dec 2020 6,899,242.32 Sep 2024 2,130,142.07 Jun 2028
Jan 2021 6,749,537.92 Oct 2024 2,060,685.13 and thereafter 0.00
Feb 2021 6,602,266.19 Nov 2024 1,992,462.87
Mar 2021 6,457,391.32 Dec 2024 1,925,456.46
Apr 2021 6,314,878.01 Jan 2025 1,859,647.37
May 2021 6,174,691.45 Feb 2025 1,795,017.29
Jun 2021 6,036,797.32 Mar 2025 1,731,548.21
Jul 2021 5,901,161.80 Apr 2025 1,669,222.37
Aug 2021 5,767,751.52 May 2025 1,608,022.25
Sep 2021 5,636,533.61 Jun 2025 1,547,930.60
Oct 2021 5,507,475.64 Jul 2025 1,488,930.40
Nov 2021 5,380,545.65 Aug 2025 1,431,004.88
Dec 2021 5,255,712.12 Sep 2025 1,374,137.53
Jan 2022 5,132,944.00 Oct 2025 1,318,312.05
Feb 2022 5,012,210.66 Nov 2025 1,263,512.39
Mar 2022 4,893,481.89 Dec 2025 1,209,722.73
Apr 2022 4,776,727.94 Jan 2026 1,156,927.47
May 2022 4,661,919.46 Feb 2026 1,105,111.24
Jun 2022 4,549,027.51 Mar 2026 1,054,258.89
Jul 2022 4,438,023.58 Apr 2026 1,004,355.49
Aug 2022 4,328,879.54 May 2026 955,386.32
Sep 2022 4,221,567.68 Jun 2026 907,336.89
</TABLE>
D-3
<PAGE> 142
PROSPECTUS
$1,288,342,023
CMC SECURITIES CORPORATION III
COLLATERALIZED MORTGAGE OBLIGATIONS (ISSUABLE IN SERIES)
-------------
This Prospectus relates to $1,288,342,023 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 SEPTEMBER 25, 1998.
<PAGE> 143
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;
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<PAGE> 144
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, 1997.
2. The Issuer's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
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.
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<PAGE> 145
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).
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<PAGE> 146
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").
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<PAGE> 147
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 900, Dallas,
Texas 75204. Its telephone number is (214)
874-2323. See "The Issuer".
Interest Payments................ Each Class of Bonds of a Series will bear
interest at the respective rate described
for such Class in the related Prospectus
Supplement. Interest on any Class of
Variable Interest Rate Bonds (See
"Description of the Bonds-- Payments of
Interest") will be calculated and paid in
accordance with provisions set forth in the
related Prospectus Supplement, which
provisions will include, among other things:
(a) the interest rate ("Variable Interest
Rate") for the initial Interest Accrual
Period (as defined below) on the Variable
Interest Rate Bonds;
(b) the formula or index by which the
Variable Interest Rate will be determined
for subsequent Interest Accrual Periods;
(c) the intervals at which the Variable
Interest Rate will be recalculated and the
period over which the newly calculated
Variable Interest Rate will be applicable;
and
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<PAGE> 148
(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 such Class as specified
in the related Prospectus Supplement (each
such for period an "Interest Accrual Period"
and each such date a "Payment Date"). Unless
otherwise specified in the Prospectus
Supplement for a Series, payments of
interest on each Class of Compound Interest
Bonds will commence only when all Bonds of
such Series having a Stated Maturity prior
to the Stated Maturity of such Class of
Compound Interest Bonds have been paid in
full. Unless otherwise specified in the
related Prospectus Supplement, upon maturity
or earlier redemption of the Bonds of any
Series, interest will be paid to the date
specified in the related Prospectus
Supplement. Unless otherwise specified in
the related Prospectus Supplement for a
Series of Special Allocation Bonds, upon the
occurrence of certain specified events the
timing of interest payments in respect of a
Class of Special Allocation Bonds may be
modified. Unless interest is accrued to the
Payment Date or the maturity date, as the
case may be, for any Class of Bonds, the
effective yield to the holder of such Bonds
will be reduced to a level below the yield
that would apply if interest were paid to
the respective Payment Dates and maturity
date of such Class of Bonds. See
"Description of the Bonds-- Payments of
Interest" herein.
Interest payments will be paid by check
(unless otherwise specified in the related
Prospectus Supplement) mailed by the
Indenture Trustee or paying agent, if any,
appointed by the Issuer for such purpose, to
holders of definitive Bonds at their
respective addresses appearing on the
register on the applicable record date
specified in the Prospectus Supplement.
Beneficial owners of Bonds held in book
entry form ("Book Entry Bonds") will receive
interest payments according to procedures
described under "Description of the Bonds --
Book Entry Registration" herein and the
related Prospectus Supplement for any Series
of Bonds having one or more Classes of Book
Entry Bonds.
Principal Payments.............. Unless the Prospectus Supplement relating to
a Series of Bonds provides otherwise,
principal payments on each Series of Bonds
will be made on each Payment Date (each
Payment Date on which principal is payable
being a "Principal Payment Date") in an
aggregate amount equal to the sum of (i) the
amount of interest, if any, accrued but not
then payable on any Compound Interest Bonds
of such Series in the prior Interest Accrual
Period; (ii) an amount (the "Basic Principal
Payment"), determined on the basis of the
Bond Values (as defined below) of the
Certificates securing such Series in a
specified period (a "Due Period") ending
subsequent to the previous Principal Payment
Date; and (iii) the percentage, if any, of
the Spread (as defined below) specified in
such Prospectus Supplement. The
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<PAGE> 149
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 distributed
to
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<PAGE> 150
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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<PAGE> 151
redemption, in whole or in part, on a
specified date in each month other than a
month including a Principal Payment Date
(each a "Special Redemption Date"), at 100%
of the principal amount of the Bonds so
redeemed, plus accrued interest to the date
designated in the Prospectus Supplement for
a Series of Bonds, if, as a result of
substantial principal payments on the
underlying mortgages and/or low reinvestment
yields, the Indenture Trustee determines,
based on the assumptions specified in the
Indenture, that the future debt service
requirements on any portion of the Bonds
cannot be met. Any such redemption will not
exceed the principal amount of Bonds of such
Series that would otherwise be required to
be paid on the next Principal Payment Date.
Unless otherwise specified in the related
Prospectus Supplement, Bonds of a
Series subject to special redemption will be
redeemable in the same priority and manner
as payments of principal are made on a
Principal Payment Date. See "Description of
the Bonds -- Special Redemption."
C. Redemption at the
Option of the Issuer... The Bonds of any Class or Classes of a
Series may be subject to redemption at the
option of the Issuer under the circumstances
provided in the related Prospectus
Supplement at the redemption price set forth
in such Prospectus Supplement. See
"Description of the Bonds-- Optional
Redemption."
D. Optional Variable
Interest Rate Bond
Redemption ............ Unless specified otherwise in the Prospectus
Supplement for a Series of Bonds, the
Issuer, at its option, may use all or a
portion of the Spread to redeem any Class of
Variable Interest Rate Bonds of such Series,
in whole or in part (an "Optional Variable
Interest Rate Bond Redemption"), on any
Payment Date on such Class of Variable
Interest Rate Bonds (a "Variable Interest
Rate Payment Date"), at 100% of the
principal amount thereof, together with
accrued and 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 liquidity of investment or will continue for the life of the Bonds of such
Series. The market value of the Bonds will
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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
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Bankruptcy Account (each, a "Claim Ceiling"). The Trustee will make draws from
the Special Hazard and Bankruptcy Account to pay special hazard and
bankruptcy-related claims with respect to each Participating Series, in the
order in which such claims are received by the Trustee from the Administrator.
Should the aggregate draws made by the Trustee against the Special Hazard and
Bankruptcy Account for the benefit of any Participating Series reach the then
applicable Claim Ceiling for such Series, the holders of such Participating
Series may have to bear future bankruptcy and special hazard-related losses,
even though funds remain in the Special Hazard and Bankruptcy Account for the
benefit of holders of other Participating Series. Conversely, there may be no
funds available in the Special Hazard and Bankruptcy Account even though the
Claim Ceiling has not been reached for any Participating Series, due to payments
up to or approaching the respective Claim Ceilings of other Participating
Series. This is due to the fact that the Requisite Amount of the Special Hazard
and Bankruptcy Account is expected to be less than the sum of the respective
Claim Ceilings for all Participating Series.
Any funds in excess of the Requisite Amount of the Bankruptcy and
Special Hazard Account, including reinvestment income, shall be remitted to the
Issuer on a monthly basis, free from the lien of the Indenture. The Requisite
Amount of the Bankruptcy and Special Hazard Account may be reduced, from time to
time, to the extent permitted by the rating agencies requested to rate the
Participating Series, as described in the Prospectus Supplement for each
Participating Series.
Special Allocation Bonds; Events of Default. To the extent described in
the related Prospectus Supplement, a Series of Bonds may be "Special Allocation
Bonds" in which, upon the occurrence of specified events, the timing and/or
priority of principal and/or interest may be modified or reordered to favor one
or more Classes of Bonds (the "Priority Bonds") over one or more other Classes
of Bonds (the "Non-Priority Bonds"). Under certain circumstances, payments of
available cash flow will be made to holders of Priority Bonds prior to the
payment to holders of Non-Priority Bonds. Unless specified otherwise in the
related Prospectus Supplement, prior to the declaration by the Bondholders that
the Bonds are due and payable, the Non-Priority Bonds will not accrue interest
on any payment shortfall of principal or interest experienced by such
Non-Priority Bonds.
The Non-Priority Bonds may have limited liquidity. There can be no
assurance that a secondary market will develop for the Non-Priority Bonds or, if
one does develop, that it will provide the holders of the Non-Priority Bonds
with liquidity of investment or that it will remain for the term of the
Non-Priority Bonds.
Sale of Collateral on Default; Interest Rate Considerations. Upon an
Event of Default with respect to a Series of Bonds, if the Collateral for such
Series of Bonds is sold by the Indenture Trustee there is no assurance that the
interest rates on the Collateral securing such Series of Bonds will be
sufficiently high so that the proceeds of any such sale will be sufficient to
pay in full the principal of, and interest on, such Series of Bonds. The rate of
prepayment on the Certificates securing a Series of Bonds will directly affect
the average life of such Series of Bonds. During periods of generally declining
interest rates such prepayments are likely to accelerate, thereby increasing the
rate of prepayment on the Bonds, and Bondholders may be unable to reinvest such
payments in securities of comparable quality having interest rates similar to
those borne by such Bonds.
Deposits, Substitutions and Withdrawals of Collateral. To the extent
provided in the Prospectus Supplement for a Series of Bonds, the Issuer of a
Series of Bonds may, subsequent to the closing date for such Series, deposit
additional Certificates and withdraw Certificates previously pledged to secure
such Series. The effect of deposit or substitution of other Certificates as
Collateral for a Series may be to alter the characteristics of the Mortgage
Loans underlying the Certificates, which may alter the timing of principal
payments on, and the maturity of, the Bonds of such Series. See "Security for
the Bonds--Deposits, Substitution and Withdrawal of Certificates."
Nature of Direct or Indirect Backing for Bonds. Only Agency
Certificates are guaranteed by any agency or instrumentality of the United
States and only the guarantee by GNMA of GNMA Certificates is entitled to the
full faith and credit of the United States. The guarantees by FNMA and FHLMC of
FNMA Certificates and FHLMC Certificates, respectively, are backed only by the
credit of FNMA, a federally chartered, privately owned corporation, or by the
credit of FHLMC, a federally chartered corporation controlled by the Federal
Home Loan Banks. See "Security for the Bonds--FNMA" and "Security for the
Bonds--FHLMC." Although payment of principal of, and interest on, any Agency
Certificate securing a Series of Bonds will be guaranteed by either GNMA, FNMA
or FHLMC, such guarantee will run only to such Agency Certificate and will not
guarantee the payment of principal or interest on the Bonds of such Series. The
Prospectus Supplement for a Series of Bonds which is secured in whole or in part
by Non-Agency Certificates may describe certain arrangements through which such
Bonds, such Certificates, and/or the Mortgage Loans underlying such Certificates
are insured, guaranteed or otherwise backed. Any such backing may be subject to
contingencies described in the applicable Prospectus Supplement and will be
limited to the credit and assets of the
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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 rate of
prepayments on the Certificates securing a Series of Bonds, thus
limiting the funds available to satisfy requested redemption by
Bondholders.
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3. Certain Bondholders, such as personal representatives of
deceased Bondholders, as specified in the related Prospectus Supplement
may have certain priorities as to redemption at the request of
Bondholders.
Book Entry Registration. Because transfers and pledges of Book Entry
Bonds can be effected only through book entries at a Clearing Agency through
Clearing Agency Participants, the liquidity of the secondary market for Book
Entry Bonds may be reduced to the extent that some investors are unwilling to
hold Bonds in book entry form in the name of Clearing Agency Participants and
the ability to pledge Book Entry Bonds may be limited due to lack of a physical
certificate. Beneficial Owners of Book Entry Bonds may, in certain cases,
experience delay in the receipt of payments of principal and interest since such
payments will be forwarded by the Indenture Trustee to the Clearing Agency who
will then forward payment to the Clearing Agency Participants who will
thereafter forward payment to Beneficial Owners. In the event of the insolvency
of the Clearing Agency or of a Clearing Agency Participant in whose name Bonds
are recorded, the ability of Beneficial Owners to obtain timely payment and (if
the limits of applicable insurance coverage by the Securities Investor
Protection Corporation are exceeded, or if such coverage is otherwise
unavailable) ultimate payment of principal and interest on Book Entry Bonds may
be impaired.
FNMA Guaranty. Full and timely payment of interest and principal on any
FNMA Certificates relating to a series will be guaranteed by FNMA. This
guarantee will be backed by the credit of FNMA, a federally chartered, privately
owned corporation. The full faith and credit of the United States will not,
however, guarantee any payments on any such FNMA Certificates. Neither the
United States nor any agency thereof will be obligated to finance FNMA's
operations or to assist FNMA in any other manner.
FHLMC Guaranty. Payment of principal and interest on any FHLMC
Certificates relating to a series will be guaranteed by FHLMC as specified
herein. This guarantee will be backed by the credit of FHLMC, a federally
chartered corporation. The full faith and credit of the United States will not,
however, guarantee any payments on any such FHLMC Certificates. Neither the
United States nor any agency thereof is obligated to finance FHLMC's operations
or to assist FHLMC in any other manner.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the originators of the Mortgage Loans. In addition, other state
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and debt recollection practices may
apply to the origination, servicing and collection of the Mortgage Loans.
Depending on the provisions of the applicable law and the specified facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Indenture Trustee to collect all or part of the
principal of or interest on the related Mortgage Loans, and may entitle the
borrower to a refund of amounts previously paid. See "Certain Legal Aspects of
the Mortgage Loans."
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms thereof;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience.
Violations of certain provisions of these federal laws may limit the ability of
the Servicer or the Administrator to collect all or part of the principal of or
interest on the Mortgage Loans and in addition could subject the Servicer or 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.
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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 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
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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 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
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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 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
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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 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.
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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 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.
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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.
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.
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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.
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
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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.
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.
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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
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.
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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 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
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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 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
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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 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.
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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.
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
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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 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
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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 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.
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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.
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.
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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 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
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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 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
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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.
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
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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 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
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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)(4)(A) and (iii) any amount includible in gross income with respect to
REMIC Bonds will be interest described in Code Section 856(c)(3)(B) to the
extent that the REMIC Bonds are treated as "real estate assets" within the
meaning of the Code Section 856(c)(4)(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 Section 856(c)(4)(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)(4)(A), and (ii) REMIC Bonds held by a regulated investment company will
not constitute "Government securities" within the meaning of Code Section
851(b)(3)(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 or 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).
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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.
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)(4)(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)(3)(A)(i).
TAXATION OF REGULAR BONDS
General
The discussion under this caption, "Taxation of Regular Bonds," applies
only to Regular Bonds and not to Residual Bonds. In general, interest paid or
accrued, original issue discount, and market discount on a Bond will be treated
as ordinary income to the Bondholder, and principal payments on a Bond will be
treated as a return of capital to the extent of the Bondholder's basis in the
Bond allocable thereto. A Bondholder must use the accrual method of accounting
with regard to REMIC Bonds, regardless of the method of accounting otherwise
used by such Bondholder.
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Original Issue Discount
All Compound Interest Bonds will, and certain of the other Bonds may,
be issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of any Class of Bonds issued with original issue discount
generally must include original issue discount in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest method
based on a compounding of interest, in advance of receipt of the cash or a
portion of the cash attributable to such income. Based in part on Treasury
regulations issued on January 27, 1994, as amended on June 14, 1996, under Code
Sections 1271 through 1273 and 1275 (the "OID Regulations"), and in part on the
provisions of the 1986 Act, the Issuer anticipates that the amount of original
issue discount required to be included in a Bondholder's income in any taxable
year will be computed in a manner substantially as described below. Bondholders
should be aware, however, that the OID Regulations either do not address, or are
subject to varying interpretations with regard to, several issues relevant to
obligations, such as the Bonds, that are subject to prepayment. The 1986 Act
requires that the amount and rate of accrual of original issue discount be
calculated based on a reasonable assumed prepayment rate for the mortgages
backing the Certificates securing the Bonds in a manner prescribed by
regulations not yet issued ("Prepayment Assumption") and provides for adjusting
the amount and rate of accrual of such discount where the actual prepayment rate
differs from the Prepayment Assumption. The Committee Report indicates that the
regulations will require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such Bonds.
The Prospectus Supplement for each Series of such Bonds will specify the
Prepayment Assumption determined by the Issuer for the purposes of determining
the amount and rate of accrual of original issue discount. No representation is
made that the Certificates will prepay at the Prepayment Assumption or at any
other rate. Moreover, the OID Regulations include an anti-abuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect on
the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion herein and the appropriate
method for reporting interest and original issue discount with respect to the
Regular Bonds.
Under the OID Regulations, each Bond (except to the extent described
below with respect to a Regular Bond on which distributions of principal are
made in a single installment or upon an earlier distribution by lot of a
specified principal amount upon the request of a Bondholder or by random lot (a
"Retail Class Bond")) will be treated as a single installment obligation issued
with an amount of original issue discount equal to the excess of its stated
redemption price at maturity over its issue price. The issue price of a Bond is
the price at which a substantial amount of Bonds of that Class are first sold
(other than to bond houses, brokers, underwriters or wholesalers). Unless
specified otherwise in the Prospectus Supplement, the Issuer will determine
original issue discount by including the amount paid by an initial Bondholder
for accrued interest that relates to a period prior to the issue date of the
Bond in the issue price of a Bond and will include in the stated redemption
price at maturity any interest paid on the first Payment Date to the extent such
interest is attributable to a period in excess of the number of days between the
issue date and such first Payment Date. The stated redemption price at maturity
of a Bond always includes the original principal amount of the Bond, but
generally will not include payments of stated interest if such interest payments
constitute "qualified stated interest." Under the OID Regulations, qualified
stated interest generally means stated interest that is unconditionally payable
in cash or in property (other than debt instruments of the issuer), or that will
be constructively received, at least annually at a single fixed rate. Special
rules apply for variable rate Bonds as described below. Any stated interest in
excess of the qualified stated interest is included in the stated redemption
price at maturity. If the amount of original issue discount is "de minimis" as
described below, the amount of original issue discount is treated as zero, and
all stated interest is treated as qualified stated interest. Payments of
interest on Bonds with respect to which deferred interest will accrue may not
constitute qualified stated interest, in which case the stated redemption price
at maturity of such Bonds includes all payments of interest as well as principal
thereon. Moreover, if the interval between the issue date and the first Payment
Date on a Bond is longer than the interval between subsequent Payment Dates (and
interest paid on the first Payment Date is less than would have been earned if
the stated interest rate were applied to outstanding principal during each day
in such interval), the stated interest distributions on such Bond technically do
not constitute qualified stated interest. The OID Regulations provide that in
such case a special rule, applying solely for the purpose of determining whether
original issue discount is de minimis, provides that the interest shortfall for
the long first period (i.e., the interest that would have been earned if
interest had been paid on the first Payment Date for each day the Bond was
outstanding) is treated as original issue 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
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interest or the excess, if any, of the Bond's stated principal amount over its
issue price. The OID Regulations indicate that all interest on a long first
period Bond that is issued with non-de minimis original issue discount will be
included in the Bond's stated redemption price at maturity. Bondholders should
consult their own tax advisors to determine the issue price and the stated
redemption price at maturity of a Bond.
Under a "de minimis" rule, original issue discount will be considered
to be zero, however, if it equals less than 0.25% of the stated redemption price
at maturity of the Bond multiplied by its weighted average maturity, computed,
for this purpose, as the sum of the amounts determined by multiplying (i) the
number of full years (rounding down for partial years) from the issue date until
each payment (included in the stated redemption price at maturity) is scheduled
to be made by (ii) a fraction, the numerator of which is the amount of each
payment included in the stated redemption price at maturity of the Bond and the
denominator of which is the Bond's stated redemption price at maturity. Although
presently unclear, it appears that the schedule of such payments should be
determined in accordance with the Prepayment Assumption. In addition, if the
original issue discount is de minimis all stated interest (including stated
interest that would otherwise be treated as original issue discount) is treated
as qualified stated interest. Unless the holder of a Bond elects to accrue all
discount under a constant yield to maturity method, as described below, the
holder includes any de minimis original issue discount in income as capital gain
recognized on retirement of the Bond pro rata as stated principal payments are
received. If a subsequent holder of a Bond issued with de minimis original issue
discount purchases the Bond at a premium, the subsequent holder does not include
any original issue discount in income. If a subsequent holder purchases such
Bond at a discount all discount is reported as market discount, as described
below.
Generally, a Bondholder must include in gross income the sum of the
"daily portions," as defined below, of the original issue discount that accrues
on the Bond for each day the Bondholder holds the Bond, including the purchase
date but excluding the disposition date. In the case of an original Bondholder,
the daily portions of original issue discount will be determined for each Bond
by calculating the portion of original issue discount that accrues during each
successive "accrual period" (or shorter period from the date of original issue).
The Issuer will treat an "accrual period" as the interval that ends on the day
before a Payment Date and begins on the day after the end of the immediately
preceding accrual period (or on the issue date in the case of the first accrual
period). The original issue discount accruing in a full accrual period would be
the excess, if any, of (i) the sum of (a) the present value of all of the
remaining payments to be made on the Bond as of the end of that accrual period
and (b) the payments made on the Bond during the accrual period that are
included in the Bond's stated redemption price at maturity, over (ii) the
adjusted issue price of the Bond at the beginning of the accrual period. The
present value of the remaining payments referred to in the preceding sentence is
calculated based on (i) the yield to maturity of the Bonds as of the issue date
giving effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period and (iii)
the Prepayment Assumption. The effect of these rules is to adjust the rate of
original issue discount accrual to correspond to the actual prepayment
experience. For these purposes, the adjusted issue price of a Bond at the
beginning of any accrual period equals the issue price of the Bond, increased by
the aggregate amount of original issue discount with respect to the Bond that
accrued in all prior such periods and reduced by the amount of payments included
in the Bond's stated redemption price at maturity made on the Bond in such prior
periods. The original issue discount accruing during an accrual period will be
divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the period. With respect to an initial
accrual period shorter than a full accrual period, the daily portions of
original issue discount must be determined using a reasonable method. Under the
method described above, the daily portions of original issue discount required
to be included in income by a holder of Regular Bonds generally will increase to
take into account prepayments on the Regular Bonds as a result of prepayments on
Mortgage Loans or that exceed the Prepayment Assumption, and generally will
decrease (but not below zero for any period) if the prepayments are slower than
the Prepayment Assumption. To the extent specified in the applicable Prospectus
Supplement, an increase in prepayments on the Mortgage Loans with respect to a
series of Regular Bonds can result in both a change in the priority of principal
payments with respect to certain classes of Regular Bonds and either an increase
or decrease in the daily portions of original issue discount with respect to
such Regular Bonds.
In the case of a Retail Class Bond, the yield to maturity of such Bond
will be determined based upon the anticipated payment characteristics of the
Class as a whole under the Prepayment Assumption. In general, the original 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
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amount of a Retail Class Bond after a payment in reduction of a portion of its
principal amount has been received) will be adjusted by reducing the present
value of the remaining payments on such Class and the adjusted issue price of
such Class to the extent attributable to the portion of the principal amount
thereof that was paid.
A subsequent holder of a Compound Interest Bond or any other Bond
issued with original issue discount who purchases the Bond at a cost less than
the remaining stated redemption price at maturity will also be required to
include in gross income the sum of the daily portions of original issue discount
on the Bond. In computing the daily portions of original issue discount for a
subsequent purchaser (as well as an initial purchaser who purchases a Bond at a
price higher than the issue price but less than the stated redemption price at
maturity), however, the daily portion is reduced by the amount that would be the
daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such holder for the Bond exceeds the excess of (i)
the sum of its issue price and the aggregate amount of original issue discount
that would have been includible in the gross income of an original Bondholder
who purchased the Bond at its issue price (computed under the preceding
paragraphs and without regard to any adjustment under this paragraph) over (ii)
the amount of prior payments included in the stated redemption price at maturity
of the Bond, and the denominator of which is the sum of the daily portions for
the Bond for all days beginning on the date after the purchase date and ending
on the date on which such Bond is expected to mature under the Prepayment
Assumption. Alternatively, such a subsequent holder may accrue original issue
discount by treating the purchase as a purchase at original issuance and
applying the constant yield to maturity method.
The OID Regulations provide that a holder that acquires a Bond on or
after April 4, 1994 may elect to include in gross income all stated interest,
original issue discount, de minimis original issue discount, market discount (as
described below under "Market Discount"), de minimis market discount and
unstated interest (as adjusted for any amortizable bond premium or acquisition
premium), currently as it accrues using the constant yield to maturity method.
If such an election were made with respect to a Bond with market discount, the
Bondholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Bondholder acquires during the year of the election or
thereafter. Similarly, a Bondholder that makes this election for a Bond that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Bondholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Bond can not be revoked
without the consent of the Internal Revenue Service (the "IRS").
One or more classes of Bonds may provide for interest based on a
variable rate. The OID Regulations provide special rules for variable rate
instruments that meet four requirements. First, the issue price must not exceed
the noncontingent principal payments by more than the lesser of (i) 1.5% of the
product of the noncontingent principal payments and the weight average maturity
or (ii) 15% of the noncontingent principal payments. Second, the instrument must
provide for stated interest (compounded or paid at least annually) at (i) one or
more qualified floating rates, (ii) a single fixed rate and a single objective
rate that is a qualified inverse floating rate, (iii) a single fixed rate and
one or more qualified floating rates; or (iv) a single objective rate. Third,
the instrument must provide that each qualified floating rate or objective rate
in effect during the term of the Bond is set at a current value of that rate
(one occurring in the interval beginning three months before and ending one year
after the rate is first in effect on the Bond). Fourth, the debt instrument must
not provide for contingent principal payments. If interest on a Bond is stated
at a fixed rate for an initial period of less than 1 year followed by a variable
rate that is either a qualified floating rate or an objective rate and the value
of the variable rate on the issue date is intended to approximate the fixed
rate, the fixed rate and the variable rate together constitute single qualified
floating rate or objective rate. A rate is a qualified floating rate if
variations in the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the Bond's currency
denomination. A multiple of a qualified floating rate is not a qualified
floating rate unless it is a rate equal to (i) the product of a qualified
floating rate as described in the previous sentence and a positive number not
greater than 1.35 but greater than 0.65 for instruments issued on or after
August 13, 1996, or (ii) a product described in (i) increased or decreased by a
fixed rate. A variable rate is not a qualified floating rate 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, than
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.
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An objective rate is a qualified inverse floating rate if the rate is equal to a
fixed rate minus a qualified floating rate in which the variations of such rate
can reasonably be expected to inversely reflect contemporaneous variations in
the qualified floating rate. However, a variable rate is not an objective rate
if it is reasonably expected that the average value of the rate during the first
half of the Bond's term will be significantly less or greater than the average
value of the rate during the final half of the Bond's term.
If a variable rate Bond provides for stated interest at a single
qualified floating rate or objective rate that is unconditionally payable in
cash or property at least annually (i) all stated interest is qualified stated
interest, (ii) the amount of qualified stated interest and original issue
discount, if any, that accrues is determined as if the Bond had a fixed rate
equal to (A) in the case of a qualified floating rate or qualified inverse
floating rate, the value on the issue date of the qualified floating rate or
qualified inverse floating rate or (B) in the case of any other objective rate,
a fixed rate that reflects the yield that is reasonably expected for the Bond,
and (iii) the qualified stated interest that accrues is adjusted for the
interest actually paid. If a variable rate Bond is not described in the previous
sentence, the Bond is treated as a fixed rate Bond with a fixed rate substitute
or substitutes equal to the value of qualified floating rates or qualified
inverse floating rate at the date of issue or, in the case of a Bond having an
objective rate at a fixed rate that reflects the yield reasonably expected for
the Bond. Qualified stated interest or original issue discount allocable to an
accrual period is adjusted to reflect differences in the interest actually
accrued or paid compared to the interest accrued or paid at the fixed rate
substitute. If a variable rate Bond provides for stated interest either at one
or more qualified floating rates or at a qualified inverse floating rate and
also provides for interest at an initial fixed rate that is not intended to
approximate the related floating rate or is fixed for a period of one year or
more, original issue discount is determined as described in the previous two
sentences except that the Bond is treated as if it provided for a qualified
floating rate or qualified inverse floating rate, as applicable, rather than a
fixed rate. The substitute rate must be one such that the fair market value of
the Bond would be approximately the same as the fair market value of the
hypothetical bond.
Under the OID Regulations a variable rate Bond not qualifying for
treatment under the variable rate rules described above is subject to the
contingent payment rules. Regulations dealing with contingent payment debt
obligations were issued on June 11, 1996 (the "Contingent Debt Regulations"),
and are generally effective as of August 13, 1996. The Contingent Debt
Regulations by their terms do not apply to REMIC regular interests. However, the
following paragraph describes the applicable Contingent Debt Regulations as a
method that may be considered reasonable.
The Contingent Debt Regulations apply a "noncontingent bond method" to
a debt instrument that is publicly traded or that is issued for cash or publicly
traded property. Under the noncontingent bond method, the issuer is required to
determine the comparable yield for the instrument and to construct a projected
payment schedule for the Regular Bond consisting of all noncontingent payments
and a projected amount for each contingent payment. The issuer is required to
determine interest expense, and a holder is required to determine interest
income, according to the projected payment schedule formulated by the issuer.
Interest generally is accrued under the noncontingent bond method according to
generally applicable rules of the OID Regulations as described above.
Adjustments in the instrument's issue price and the holder's basis are
determined as if the projected payment schedule were the actual payment schedule
for the instrument. If the actual amount of a contingent payment differs from
the projected amount of the payment, adjustments to interest accrual are
generally taken into account at the time the payment is made in order to reflect
this difference. Gain or loss recognized by a holder on the sale, exchange, or
retirement of the instrument generally will be treated as interest income or
ordinary loss to the holder. A loss will be treated as ordinary, however, only
up to the amount of the holder's total interest inclusions with respect to the
Regular Bond that were not offset by previous adjustments. Any additional loss
generally will be a capital loss. Investors are urged to consult their tax
advisors as to the proper accrual of original issue discount (including stated
interest) on the Bonds, including Bonds which may be subject to the contingent
payment rules.
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
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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 affect the timing of income accruals on
such Bonds.
It is not clear how income should be accrued with respect to REMIC
Regular Bonds issued at a significant premium and with respect to REMIC Regular
Bonds the payments on which consist primarily of a specified portion of the
interest payments on qualified mortgages held by the REMIC ("Premium REMIC
Regular Bonds"). One method of income accrual would be to treat the Premium
REMIC Regular Bond as a Bond having qualified stated interest purchased at a
premium equal to the excess of the price paid by such holder for the Premium
REMIC Regular Bond over its stated principal amount. Under this approach, a
holder would be entitled to amortize such premium only if it has in effect an
election under Section 171 of the Code with respect to all bonds held by such
holder, as described below. Alternatively, all of the income derived from a
Premium REMIC Regular Bond could be reported as original issue discount by
treating all future payments under the Prepayment Assumption as fixed payments,
in which case the amount and rate of accrual of original issue discount would be
computed by treating the Premium REMIC Regular Bond as a Bond which has no
qualified stated interest, as described above. Finally, the IRS could assert
that the Premium REMIC Regular Bonds should be taxable under the contingent
payment rules governing bonds issued with contingent payments.
Premium
A Bond purchased at a cost greater than its remaining stated redemption
price at maturity is generally considered to be purchased at a premium. Under
the 1986 Act, if the Bondholder holds such Bond as a "capital asset" within the
meaning of Code Section 1221, the Bondholder may elect to amortize such premium
under the constant interest method. The Committee Report indicates a
Congressional intent that the same rules that will apply to the accrual of
market discount on installment obligations will also apply in amortizing bond
premium on installment obligations such as the Bonds, although it is unclear
whether the alternatives to the constant interest method described under "Market
Discount" are available. Except as provided in Treasury regulations yet to be
issued, such amortizable bond premium is to be applied against (and operate to
reduce) the amount of interest payments on the Bonds. This election, once made,
applies to all taxable obligations held by the taxpayer at the beginning of the
first taxable year to which such election applies and to all taxable debt
obligations thereafter acquired and is irrevocable except with the approval of
the IRS. Purchasers who pay a premium for their Regular Bonds should consult
their tax advisors regarding the election to amortize premium and the method to
be employed. 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
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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 Contingent Debt Regulations as described
above under "Original Issue Discount," any gain on the sale or exchange of such
Bond is treated as interest income.
Market Discount
A purchaser of a Bond also may be subject to the market discount
provisions of Code Sections 1276 through 1278. Under these provisions and the
rules set forth in the OID Regulations with respect to original issue discount,
"market discount" equals the amount by which the purchaser's basis in the Bond
(i) is exceeded by the stated redemption price at maturity of the Bond, or (ii)
in the case of a Bond having original issue discount, is exceeded by the sum of
the issue price of such Bond plus any original issue discount that would have
previously accrued thereon if held by an original Bondholder who purchased the
Bond at its issue price, in either case less any prior payment that was included
in the stated redemption price at maturity of the Bond. Such purchaser generally
will be required to recognize accrued market discount as ordinary income as
payments includible in the stated redemption price at maturity of such Bond are
received, in an amount not exceeding any such payment. The computation of the
accrual of market discount on debt instruments the principal of which is payable
in more than one installment is to be provided by Treasury regulations and
should take into account the Prepayment Assumption. Until such time that the
regulations are issued, the Committee Report provides holders may elect to
accrue market discount for a Bond either (i) on the basis of a constant interest
rate or, (ii) for those Bonds that have original issue discount, in the
proportion that the original issue discount accrued for the relevant period
bears to the sum of the original issue discount for such period plus the
remaining original issue discount as of the end of such period, and, for those
Bonds that have no original issue discount, in the proportion that the amount of
the stated interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the Bond as of the beginning of the
accrual period. Such purchaser also generally will be required to treat a
portion of any gain on a sale or exchange of the Bond as ordinary income to the
extent of the market discount accrued to the date of disposition under one of
the foregoing methods, less any accrued market discount previously reported as
ordinary income as partial payments in reduction of the stated redemption price
at maturity of such Bond were received. Such purchaser also will be required to
defer the interest deductions (to the extent they exceed the sum of the interest
income (including original issue discount) on the Bond for such year)
attributable to any indebtedness incurred or continued to purchase or carry the
Bond. However, the amount of the net interest expense that must be deferred in a
taxable year may not exceed the amount of market discount accrued on the Bond
for the days in such year that such purchaser held such Bond. Any such deferred
interest expense is, in general, allowed as a deduction not later than the year
in which the related market discount income is recognized or the Regular Bond is
disposed of. As an alternative to the inclusion of market discount in income on
the foregoing basis, the holder may elect to include such market discount in
income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter, in which case the interest
deferral rule will not apply. In Revenue Procedure 92-67, the IRS set forth
procedures for taxpayers (1) electing under Section 1278(b) of the Code to
include market discount in income currently, (2) electing under rules of Section
1276(b) of the Code to use a constant interest rate to determine accrued market
discount on a bond where the holder of the bond is required to 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
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("foreign person") not engaged in a trade or business within the United States,
will not be subject to federal income or withholding tax if (i) such Bondholder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of equity in the Issuer (which may include the
beneficial owners of the Issuer), (ii) such Bondholder is not a controlled
foreign corporation (within the meaning of Code Section 957) related to the
Issuer, and (iii) such Bondholder complies with applicable identification and
certification requirements. If such identification and certification
requirements are not satisfied and the interest on the Bonds is not effectively
connected with the conduct of a trade or business within the United States by
such foreign person, a 30 percent withholding tax will apply, unless reduced or
eliminated pursuant to an applicable tax treaty. Payments on REMIC Regular Bonds
may subject a foreign person to U.S. federal income and withholding tax where
such foreign person also owns, actually or constructively, Residual Bonds which
are residual interests in the same REMIC, notwithstanding compliance with the
certification requirements discussed above.
If a tax is withheld by the withholding agent, the Bondholder would be
entitled to a refund of such tax if such Bondholder can prove it is a foreign
person and it is not a 10 percent shareholder of the Issuer or a controlled
foreign corporation related to the Issuer. A Bondholder may be required to file
a U.S. federal income tax return to obtain a refund. Foreign investors should
consult their tax advisors regarding the potential imposition of the 30 percent
withholding tax.
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,
1999, 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
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of the outstanding Residual Bonds that such Residual Bondholder owns on that
day. The REMIC's taxable income will be determined under an accrual method and
will be taxable to the Residual Bondholders without regard to the timing or
amounts of cash distributions by the REMIC. As residual interests, the Residual
Bonds will be subject to tax rules, described below, that differ from those that
would apply if the Residual Bonds were treated for federal income tax purposes
as direct ownership interests in the Certificates, or as debt instruments issued
by the REMIC. Under certain REMIC structures, a Residual Bondholder may be
required to include taxable income from the Residual Bond in excess of the cash
distributed with respect to one or more taxable years. For example, a structure
where principal distributions are made serially on regular interests (that is, a
fast-pay, slow-pay structure) may generate such a mismatching of income and cash
distributions (that is, "phantom income"). This mismatching may be caused by the
use of certain tax accounting methods by the REMIC, variations in the prepayment
rate of the Mortgage Loans underlying the Certificates and certain other
factors. Consequently, Residual Bondholders must have sufficient other sources
of cash to pay any federal, state or local income taxes due as a result of such
mismatching or have unrelated deductions against which to offset such income.
Additionally, as noted in the subsequent paragraph, a purchaser of a Residual
Bond may not be entitled to an adjustment in the amount of income allocable to
the Residual Bond for the difference between the adjusted basis that the
Residual Bond would have had in the hands of an original Residual Bondholder and
the purchase price unless Treasury regulations are issued that permit such an
adjustment. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
Residual Bond to a Residual Bondholder. Investors should consult their own tax
advisors concerning the federal income tax treatment of a Residual Bond and the
impact of such tax treatment on the after-tax yield of a Residual Bond.
A subsequent Residual Bondholder also will report on its federal income
tax return amounts representing a daily share of the REMIC's taxable income for
each day that such Residual Bondholder owns such Residual Bond. Those daily
amounts generally would equal the amounts that would have been reported for the
same days by an original Residual Bondholder, as described above. The initial
adjusted basis of a subsequent Residual Bondholder or a Residual Bondholder who
purchases a Residual Bond at other than the issue price (defined below under
"Excess Inclusions") may be greater than such Residual Bondholder's allocable
share of the REMIC's basis in its assets, calculated as described below under
"Taxable Income of the REMIC Attributable to Residual Bonds." Consequently such
Residual Bondholder's basis may not be fully recovered by amortization of
premium or reduction of market discount income with respect to the Mortgage
Loans underlying the Certificates, and such Residual Bondholder may, therefore,
have unrecovered basis on the termination of the REMIC. Such loss may be
ordinary loss or capital loss. See "Sales of Residual Bonds," below. The
legislative history of the 1986 Act indicates that certain adjustments may be
appropriate to reduce (or increase) the income of a subsequent holder of a
Residual Bond that purchased such Residual Bond at a price greater than (or less
than) the adjusted basis (as defined below in "Sales of Residual Bonds") such
Residual Bond would have in the hands of an original Residual Bondholder. It is
not clear, however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The Final REMIC Regulations do not
provide for an adjustment.
Taxable Income of the REMIC Attributable to Residual Bonds
REMIC taxable income generally means the REMIC's gross income,
including interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, plus income on reinvestment of cash flows and
reserve assets, minus deductions, including interest and original issue discount
expense on the REMIC Regular Bonds, 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 "NonInterest 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
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Bonds. The REMIC expects to elect under Code Section 171 to amortize any premium
on the Mortgage Loans. Premium on any Mortgage Loan to which such election
applies would be amortized under a constant yield method. It is not clear
whether the yield of a Mortgage Loan would be calculated for this purpose based
on scheduled payments or taking account of the Prepayment Assumption. Such an
election would not apply to any Mortgage Loan originated on or before September
27, 1985. Instead, premium on such a Mortgage Loan may be allocated among the
principal payments thereon and should be deductible by the REMIC as those
payments become due.
The REMIC will be allowed a deduction for accrued interest including
original issue discount on the REMIC Regular Bonds, regardless of whether the
original issue discount on the REMIC Regular Bonds is considered to be de
minimis. The amount and method of accrual of original issue discount will be
calculated for this purpose in the same manner as described above (see "Certain
Federal Income Tax Consequences--Taxation of Regular Bonds--Original Issue
Discount") for inclusion of original issue discount on the REMIC Regular Bonds
(except that the adjustments for a subsequent holder of the REMIC Regular Bonds
will not apply).
A Residual Bondholder will not be permitted to amortize the cost of its
Residual Bonds as an offset to its share of the REMIC's taxable income. However,
that taxable income will not include cash received by the REMIC that represents
a recovery of the REMIC's basis in its assets, and, as described above, the
issue price of the Residual Bonds will be added to the issue price of the REMIC
Regular Bonds in determining the REMIC's initial basis in its assets. Such
recovery of basis by the REMIC will have the effect of amortization of the issue
price of the Residual Bonds over their life. Possible adjustments to income of a
subsequent holder of a Residual Bond to reflect any difference between the
actual cost of such Residual Bond to such holder and the adjusted basis such
Residual Bond would have in the hands of an original Residual Bondholder are
further discussed in "Allocation of the Income of the REMIC" above.
Net Losses of the REMIC
The REMIC will have a net loss for any calendar quarter in which its
deductions exceed its gross income. Such net loss would be allocated among the
Residual Bondholders in the same manner as taxable income of the REMIC. The net
loss allocable to any Residual Bond will not be deductible by the holder to the
extent that such net loss exceeds such holder's adjusted basis in such Residual
Bond. Any net loss that is not currently deductible by reason of this limitation
may be used by such Residual Bondholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of Residual
Bondholders that are individuals or closely held corporations to deduct net
losses may be subject to additional limitations under the Code.
Excess Inclusions
A portion of the income allocable to a Residual Bond (referred to in
the Code as an "excess inclusion") for any calendar quarter will be subject to
federal income tax in all events. Thus, for example, an excess inclusion (i)
cannot be offset by any unrelated losses or loss carryovers of a Residual
Bondholder, (ii) will, as described under "Tax-Exempt Investors" below, be
treated as "unrelated business taxable income" within the meaning of Code
Section 512 if the Residual Bondholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income and (iii) is not eligible for any reduction in the rate of withholding
tax in the case of a Residual Bondholder that is a foreign investor, as further
discussed in "Foreign Investors" below. Members of an affiliated group are
treated as one corporation for purposes of applying the limitations on offset of
excess inclusion income.
Except as discussed in the following paragraph with respect to excess
inclusions from Residual Bonds without "significant value," for any Residual
Bondholder, the excess inclusion for any calendar quarter is the excess, if any,
of (i) the income of such Residual Bondholder for that calendar quarter from its
Residual Bond, over (ii) the sum of the "daily accruals" (as defined below) for
all days during the calendar quarter on which the Residual Bondholder holds such
Residual Bond. For this purpose, the daily accruals with respect to a Residual
Bond are determined by allocating to each day in the calendar quarter its
ratable portion of the product of the "adjusted issue price" (as defined below)
of the Residual Bond at the beginning of the calendar quarter and 120 percent of
the "Federal long-term rate" in effect at the time the Residual Bond is issued.
For this purpose, the "adjusted issue price" of a Residual Bond at the beginning
of any calendar quarter equals the issue price of the Residual Bond (adjusted
for contributions), increased by the amount of daily accruals for all prior
quarters, and decreased (but not below zero) by the aggregate amount of payments
made on the Residual Bond before the beginning of such quarter. The Federal
long-term rate is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
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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 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
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that Residual Bonds are not eld 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
"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
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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.
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.
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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 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
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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 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.
REMIC Expenses; Single Class REMICs
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Bonds. In the case of a "single class REMIC,"
however, the expenses will be allocated, under Treasury regulations, among the
holders of the REMIC Regular Bonds and the holders of the Residual Bonds on a
daily basis in proportion to the relative amounts of income accruing to each
holder of a Residual Bond or REMIC Regular Bond on that day. In the case of a
holder of a REMIC Regular Bond who is an individual or a "pass-through interest
holder" (including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the holder of a
REMIC Regular Bond, exceed 2% of such holder's adjusted gross income. In
addition, for taxable years beginning after December 31, 1990, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The reduction or disallowance of this deduction
may have a significant impact on the yield of the REMIC Regular Bond to such a
holder. In general terms, a single class REMIC is one that either (i) would
qualify, under existing Treasury
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regulations, as a grantor trust if it were not a REMIC (treating all interests
as ownership interests, even if they would be classified as debt for federal
income tax purposes) or (ii) is similar to such a trust and which is structured
with the principal purpose of avoiding the single class REMIC rules. Unless
otherwise specified in the related Prospectus Supplement, the expenses of the
REMIC will be allocated to holders of the related Residual Bonds.
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.
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
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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 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.
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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 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) except as otherwise provided in the related Prospectus
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Supplement in the case of a Series of Bonds which includes one or more Classes
of Junior Bonds, 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 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
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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)
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.
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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)
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
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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>
<S> <C>
"Administrator"..................................................................................................30
"Agency Certificates"..........................................................................................1, 5
"Assumed Reinvestment Rate".......................................................................................1
"Basic Principal Payment".....................................................................................7, 22
"Beneficial Owners"..........................................................................................13, 25
"Bond Value Group"...............................................................................................22
"Bond Value"..................................................................................................8, 22
"Bondholders"....................................................................................................13
"Bonds"........................................................................................................1, 5
"Book Entry Bonds"............................................................................................7, 25
"Certificate Trustee"............................................................................................30
"Certificates"....................................................................................................5
"Claim Ceiling"..................................................................................................16
"Clearing Agency Participants"...............................................................................13, 25
"Clearing Agency"............................................................................................13, 25
"Code".......................................................................................................13, 40
"Collateral".....................................................................................................11
"Collection Account".............................................................................................12
"Commission"......................................................................................................3
"Committee Report"...............................................................................................41
"Compound Interest Bonds".........................................................................................5
"Conventional Loans".............................................................................................23
"Due Period"..................................................................................................7, 22
"ERISA"..........................................................................................................57
"Exchange Act"....................................................................................................3
"FDIC"...........................................................................................................56
"FHA Loans"......................................................................................................23
"FHLMC Act"......................................................................................................28
"FHLMC Certificate Group"........................................................................................29
"FHLMC Certificate Pool".........................................................................................29
"FHLMC Certificates"...........................................................................................1, 5
"FHLMC"...........................................................................................................5
"Final REMIC Regulations"........................................................................................39
"Floating Interest Rate Bonds"...................................................................................22
"FmHA Loans".....................................................................................................23
"FNMA"............................................................................................................5
"Garn-St Germain Act"............................................................................................35
"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".........................................................................................7
"Inverse Floating Interest Rate Bonds"...........................................................................22
"IRS"............................................................................................................44
"Issuer".......................................................................................................1, 6
"Maximum Variable Interest Rate".............................................................................10, 21
"Minimum Variable Interest Rate".................................................................................21
"Mortgage Loans".............................................................................................11, 45
"Non-Agency Certificates"......................................................................................1, 5
"Non-Priority Bonds".............................................................................................17
</TABLE>
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<TABLE>
<S> <C>
"OID Regulations"................................................................................................42
"Optional Variable Interest Rate Bond Redemption"............................................................10, 24
"OTS"............................................................................................................56
"Owner"..........................................................................................................30
"Participating Series"...........................................................................................16
"Pass-Through Entity"............................................................................................51
"Payment Date"....................................................................................................7
"Plan"...........................................................................................................57
"Pooling and Administration Agreement"...........................................................................30
"Premium REMIC Regular Bonds"....................................................................................46
"Prepayment Assumption"..........................................................................................42
"Principal Payment Date"..........................................................................................7
"Priority Bonds".................................................................................................17
"PTCE"...........................................................................................................57
"PTC"............................................................................................................27
"Registration Statement"..........................................................................................3
"Regular Bonds"..............................................................................................13, 40
"Regulations"....................................................................................................57
"REIT"...........................................................................................................51
"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"..............................................................................................42
"Scheduled Amortization Amount"...................................................................................8
"Scheduled Amortization Bonds"................................................................................8, 20
"Scheduled Principal"............................................................................................29
"Series Supplement"...............................................................................................5
"Servicers"......................................................................................................30
"Servicing Agreement"............................................................................................30
"SMMEA" .....................................................................................................14, 56
"Special Allocation Bonds".......................................................................................17
"Special Redemption Date"....................................................................................10, 24
"Spread"..........................................................................................................8
"Startup Day"....................................................................................................41
"TIA"............................................................................................................60
"Time-Out Period"................................................................................................11
"TMP"............................................................................................................41
"Underlying Mortgage Loans"......................................................................................15
"Variable Interest Rate Bonds"...................................................................................21
"Variable Interest Rate Payment Date"............................................................................10
"Variable Interest Rate Period"..............................................................................10, 22
"Variable Interest Rate"......................................................................................6, 22
</TABLE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY IN ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR PROSPECTUS SUPPLEMENT, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports to Bondholders.......................... S-7
Table of Contents............................... S-8
Summary of Terms................................ S-9
Risk Factors.................................... S-32
Description of the Certificates................. S-33
Description of the Mortgage Loans............... S-34
The Master Servicer and the Sub-Servicers....... S-34
Description of the Bonds........................ S-39
Yield and Prepayment Considerations............. S-64
Indenture....................................... S-96
Pooling and Servicing Agreement................. S-97
Special Tax Considerations...................... S-110
Restrictions on Purchase and Transfer of the
Residual Bonds................................ S-112
ERISA Considerations............................ S-112
Legal Investment................................ S-114
Underwriting.................................... S-115
Use of Proceeds................................. S-115
Legal Matters................................... S-116
Ratings......................................... S-116
Principal Definitions........................... S-118
Annex A......................................... A-1
Annex B......................................... B-1
Annex C......................................... C-1
Annex D......................................... D-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........................... 25
Certain Legal Aspects of the Mortgage Loans...... 33
The Issuer....................................... 39
Certain Federal Income Tax Consequences.......... 39
Legal Investment................................. 56
ERISA Matters.................................... 57
The Indenture.................................... 58
Plan of Distribution............................. 61
Legal Matters.................................... 62
Experts.......................................... 62
Additional Information........................... 62
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED BONDS, 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.
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$534,277,116
(APPROXIMATE)
CMC SECURITIES
CORPORATION III
COLLATERALIZED MORTGAGE
OBLIGATIONS,
SERIES 1998-2
CMC SECURITIES CORPORATION III
ISSUER
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PROSPECTUS SUPPLEMENT
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BEAR, STEARNS & CO. INC.
SEPTEMBER 25, 1998
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